The double taxation avoidance treaty signed between Senegal and Mauritius may be abandoned since the former feels that the treaty is one sided and it has lost close to US$ 250 million by foregoing taxes. The double taxation avoidance agreement signed in 2002 between the two countries with much fanfare hass seemingly lost the steam. The double taxation avoidance treaty stipulates that if two countries sign the pact any movement of capital from one country to another will be taxed only in one country, thereby avoiding taxation in both countries.
By way of illustration, if an investment, say foreign portfolio investment (FPI) is channelized from Mauritius to Senegal, such capital will be taxed only in one country and not in both. Investors prefer paying the tax only in low or nil tax regimes and not in countries having higher rate of taxation. Though the exact reason for Senegal President Macky Sall to come out with such a statement after 17 years since the agreement was in force, the general perception is that the countries signing such treaties should have more or less same rate of taxes to avoid any extra advantage to the other. If a country has zero duty, say for capital gains tax and the other country has 20% on capital gains tax, investors would prefer to tax the capital only in the county where capital gains tax is zero or lower. In the process, the country having higher duty on capital gains may lose tax revenues.
There is a concerted move on the part of US and EU to do away with tax havens. In the case of Senegal and Mauritius, the grey area seems to be regarding the capital flowing into Senegal in the mining sectors like gold and Zircon, which are routed through Mauritius. Since the tax rates in Mauritius is lower than elsewhere in Africa, investors prefer to route the capital through Mauritius to gain tax advantage.
Of late, Mauritius is making efforts to emerge as the hub for investments in Africa leveraging its expertise in the financial sector and low tax regime. Many multinational and wealthy individuals prefer that country for investing in third countries. The island country has entered into tax agreements including double taxation avoidance agreements with many countries, which help multinational corporations and individual tax payers not to pay taxes neither in the host country or investing country since they prefer to be taxed in Mauritius. Admittedly, this has not gone down well with neighboring African countries. They accuse the island nation of benefiting at their peril. They have already launched a case to this effect with the international community.
