Transfer Pricing and Taxation: An Enduring Issue in Mauritius

As a result, taxpayers in Mauritius must be able to demonstrate the arm's length nature of their transactions in the event of a tax audit. This requirement necessitates a thorough evaluation of their transactions, underscoring the importance of conducting an in-depth functional and economic analysis prior to the preparation of documentation.

The Architecture of a Transfer Pricing Study

The core concept of transfer pricing is rooted in the arm’s length principle, which states that transactions between related parties should be priced as if they were conducted between unrelated parties in a competitive market. This principle ensures that profits are taxed in the locations where economic activities actually take place. But how is this implemented in practice?

Before delving into transfer pricing documentation, two crucial components merit significant attention: functional analysis and economic analysis.

1. Functional Analysis: This process involves a detailed examination of the functions performed, assets utilized, and risks assumed by parties in a controlled transaction. It seeks to understand the business substance and context behind intercompany transactions. Assessing the functional profile of each entity involved helps in determining the economically significant activities that justify the pricing of transactions. This analysis is foundational, as it informs the selection of appropriate transfer pricing methods and ensures that the documentation establishes the arm’s length nature of those transactions.
2. Economic Analysis: Following the functional analysis, an economic analysis aims to establish the arm’s length remuneration for intra-group transactions. This involves selecting the optimal transfer pricing method based on the results of the functional analysis and benchmarking against comparable market transactions. Specialized software tools, external databases and internal information are often employed to assist in extracting comparable entities and performing necessary adjustments, thereby creating a robust economic justification for the chosen pricing and transaction(s).

While functional and economic analyses lay the groundwork for understanding and justifying transfer pricing practices, documentation remains essential for demonstrating compliance with tax regulations. A well-prepared transfer pricing study includes the following documentation components:

• Master File: This serves as a comprehensive overview of a multinational company’s operations, detailing its organizational structure, business activities, financial information, and intangible assets. This broad summary aids tax authorities in assessing risk and identifying potential compliance issues.
• Local File: Focused on specific intercompany transactions within a jurisdiction, the Local File includes detailed documentation on the pricing, terms, and conditions of these transactions. It clarifies the transfer pricing methods used and justifies their selection based on the prior analyse

 Typically, a Local File includes:

1. Company Analysis –Outlining the history and strategy of the company.
2. Industry Analysis –Examining the market dynamics and trends.
3. Controlled Transactions – Identifying intercompany transactions in context.
4. Detailed Functional Analysis – Highlighting the functions, assets, and risks of the transactions.
5. Economic Analysis – Supporting the arm's length pricing through benchmarking.

Advising Clients on Transfer Pricing Matters

As part of their corporate tax return, companies must declare whether they engage in related party transactions. If such transactions are present, they must affirm their compliance with the arm's length principle.

Mauritius has adopted elements of BEPS Action 13, requiring qualifying multinational enterprises (MNEs) to prepare a Country-by-Country (CbC) report containing aggregate data on the global allocation of income, profits, taxes paid, and economic activities across the various jurisdictions in which they operate. The deadline for filing this report is no later than 12 months after the end of the reporting fiscal year for the MNE group.

In instances where the CbC report has already been submitted by the ultimate parent entity, Mauritian subsidiaries must file a CbC notification, with a corresponding deadline also fixed at 12 months from the end of the reporting fiscal year of the MNE group. It is pertinent to note that, beyond these stipulations, there are no further regulatory demands concerning transfer pricing.

Nevertheless, several anti-avoidance measures related to transfer pricing are embedded in the Mauritian Income Tax Act of 1995. These measures include the arm’s length principle, reviews and disallowance of excessive interest expenses, and the imposition of deemed interest concerning intra-group financing arrangements.

Interestingly, there has been an uptick in transfer pricing inquiries from the MRA, despite the absence of specific transfer pricing mandates in Mauritius. The comprehensive execution of a transfer pricing study can be both financially burdensome and time-consuming, prompting organizations to weigh the benefits against the liabilities posed by tax authorities in light of these ambiguities.

In light of this complexity, Forvis Mazars has been assisting clients by providing a risk review report focused on transfer pricing. This report aims to inform the board about potential risks and includes company analysis, functional analysis, pricing methodology, and a summarized economic analysis and benchmarking. However, it is important to clarify that such a review does not constitute formal transfer pricing documentation according to OECD guidelines.

Conclusion

Transfer pricing remains a dynamic consideration, and Mauritius has yet to introduce specific transfer pricing regulations. In spite of the absence of such regulations, the MRA actively scrutinizes related-party transactions and has imposed tax adjustments, engendering an atmosphere of tax uncertainty perceived as a significant deterrent for potential investors. With the MRA already engaging in consultations regarding transfer pricing, Mauritius eagerly awaits the establishment of regulatory frameworks. In the interim, the risk review report may serve as a prudent measure to mitigate potential tax risks associated with transfer pricing considerations.

^Disclaimer:

^{The information provided in this article is for general informational purposes only and should not be construed as legal or financial advice. While every effort has been made to ensure the accuracy and reliability of the content, the laws and regulations discussed may change over time. Readers are strongly encouraged to consult with a qualified tax professional or legal advisor before making any decisions or taking any action based on the information contained herein. The author and publisher disclaim any liability for any errors or omissions, or for any outcomes resulting from the use of this information.}

 ^{© 2025 Forvis Mazars in Mauritius. All rights reserved.}