September 20, 2022 Angola and Mauritius execute a double taxation agreement
Executive summary Angola and Mauritius executed a double taxation agreement (AM DTA) in Luada on 25 May 2022.1 The effective date of the AM DTA will be gazetted once the procedures in Angola and Mauritius on its commencement have been completed. The AM DTA was recently released in Mauritius through the Double Taxation Avoidance Agreement (Republic of Angola) Regulations 2022 (gazetted on 30 August 20222). In terms of treaty abuse, the AM DTA has a principal purpose test (PPT) along the lines of Action 5 of the OECD2/G20 BEPS3 Project. The article is similar to the PPT article of the tax treaty Mauritius signed with Lesotho in early 2021 so that the competent authorities should ensure that no double taxation outcome arises if the benefits of the agreement are denied. Gains on the sale of shares are taxable in the State of residence only, irrespective of the fact that the company whose shares are being disposed of own substantial immovable property. The AM DTA specifically excludes profits from hydrocarbons within its scope so that the taxing right is based on the domestic law of the respective jurisdictions. This Alert summarizes the key features of the AM DTA. Detailed discussion Background On 25 May 2022, Angola and Mauritius signed the AM DTA in Luada. The AM DTA was executed in both English and Portugese, with both versions being equally authentic. In the event of any conflict, it is the English version that shall prevail. In Mauritius, the AM DTA was the subject matter of the Double Taxation Avoidance Agreement (Republic of Angola) Regulations 2022 through a regulation made by the Minister on 30 August 2022. Pursuant to Article 30 of the AM DTA, the agreement will come into force on the date of receipt of the notifications of the completion of the procedures under the domestic laws of Angola and Mauritius. In Mauritius, the effective date will be gazetted. Excluded tax The AM DTA specifically provides that the taxing rights of the Contracting States on income and profits from hydrocarbons and its associated activities are effectively excluded from the purview of the agreement. Tie breaker clause for dual resident entities In connection with dual resident entities, Article 4(3) of the AM DTA provides that the question should be settled by mutual agreement taking into account the place of effective management, the place of incorporation and other relevant factors, as set forth by the United Nations Model Tax Convention. Permanent establishment The threshold on permanent establishment (PE) is summarized below based on the period commencing or ending in the relevant fiscal year: A building site, construction, assembly or installation project or supervisory activities A PE arises if such site, project or activities last more than 6 months in any 12-month period. The furnishing of services, including consultancy services A PE arises if the activities of that nature continue withing a Contracting State for a period or periods aggregating to more than 3 months in any 12-month period. A business undertaken by an individual A PE arises in a Contracting State if the individual stays in that State for the purposes of performing the services is for a period or periods aggregating to more than 3 months in any 12-month period. International shipping and air transport Article 8(2) of the AM DTA includes profits on the rental on a bare boat basis of ships or aircraft used in international traffic within the scope of operating profit so that the right to tax rests solely in the country of residence under Article 8(1). This clause departs from the Article on International shipping and air transport of the OECD Model Taxation Convention which does not include profits on the rental of a ship or aircraft on a bare boat basis. Dividends The withholding tax is limited to 5% of the gross dividend if the beneficial owner of the dividend is a company that holds directly at least 15% of the capital of the company paying the dividend over a 365-day period that should include the day the dividend is paid. In other cases, the withholding tax is limited to 8% of the gross dividend if the shareholder is the beneficial owner of the dividend. A branch tax imposed by either State is limited to 5% of the income repatriated to the country of residence of the enterprise. Interest The withholding tax is limited to 8% of the gross interest if the recipient is the beneficial owner. The withholding tax does not apply where the interest is received by the following:
Royalties The withholding tax is limited to 7% if the recipient is the beneficial owner of the royalties. Royalties for this purpose includes the use of or the right to use industrial, commercial or scientific equipment (ICSE). Rental of ISCE will therefore be considered as royalties and not business profits. Capital gains The right to tax gains on any property not covered under Article 13(1), (2) and (3) rests solely with the country of residence of the alienator pursuant to Article 13(4) of the AM DTA. The assets that are the subject matter of Article 13(1), (2) and (3) of the AM DTA are listed below:
Fees for technical services The withholding tax on such fees is limited to 5% of the gross fees where the recipient is the beneficial owner of the technical service fee. For this purpose, Article 14(3) of the AM DTA provides that the term "fees for technical services" means any payment in consideration for any service of a managerial, technical or consultancy nature. The article does not apply if the beneficial owner of the technical fees carries on business in the other State through a PE situated in that other State and the fee for the services is effectively connected with the PE. Article 14(4) of the AM DTA specifically provides that the withholding tax does not apply to instances where an entity is taxable in another country on the basis of other business activities carried on in that other State of the same or similar kind as those effected through the PE. Elimination of double taxation The AM DTA relieves any double taxation through the credit system. A tax sparing credit is also available where any exemption or reduction is the result of the promotion of economic development. Limitation of benefit The AM DTA has a standard PPT article so that its benefits may be denied if it is reasonable to conclude that obtaining the benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly from that benefit, unless it is established that the benefit is in accordance with the object and purpose of the agreement. Article 24(3) of the AM DTA specifically provides that in the application of the PPT, the competent authorities agree to undertake an objective analysis of the aims and objects of all persons involved in executing an arrangement or transaction and consider all the circumstances on a case-by-case basis. Of particular note is the fact that Article 24(4) of the AM provides that any consequential adjustment as a result of the PPT needs to achieve a just and reasonable tax result and specifically provides that the competent authorities shall ensure that any adjustment should not involve any element of double taxation. _________________________________________ For additional information with respect to this Alert, please contact the following: Ernst & Young (Mauritius), Ebene
Ernst & Young Société d'Avocats, Pan African Tax – Transfer Pricing Desk, Paris
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
Ernst & Young LLP (United States), Pan African Tax Desk, New York
_________________________________________ ENDNOTES 1 The AM DTA was executed through diplomatic channels in two original documents. The first was at Port Louis on 15 April 2022 followed by Luada on 25 May 2022. 2 Organisation for Economic Co-operation and Development. 3 Base Erosion and Profit Shifting. | |||||||||||||
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