With its mix of French and English law, individual practitioners, and local and international law firms, Mauritius continues to be the major channel for investments into India
In early May, Mauritius signed a double taxation avoidance agreement with Kenya. This was the island nation’s 13th such agreement with an African country and an important milestone in its establishment as a gateway for investment into Africa.
But overshadowing reports about this significant development were questions about the well-being of a similar agreement – the Mauritius-India Double Taxation Avoidance Convention – entered into 30 years earlier. While the agreement with India had been preceded by those with Germany, France and the UK, it far outdid others in terms of the effect it had on the Mauritian economy.
“The changes in India brought opportunities to Mauritius,” the vice-prime minister of Mauritius, Charles Xavier Luc Duval, remarked recently, commenting on the unique place occupied by his country in the India growth story, which in turn has led to the creation of a robust financial services industry on the island.
Around 40% of foreign direct investment going into India is routed through Mauritius-based entities. Management companies, lawyers and others that service these entities in Mauritius contribute a little over 10% of its GDP.
Duval, who was taking part in a discussion on using the Mauritius route to “manage tax uncertainties” in Africa and India, said it was vital that Mauritius maintain its reputation as a jurisdiction of substance because financial services provided opportunities for the island’s large pool of professionals. One in 900 of the 1.3 million people in the country is an accountant and one in 2,500 is a lawyer.
“We are not going to get our reputation tangled,” Duval emphasized.
Reputation is vital
Maintaining the jurisdiction’s reputation is also critical for the legal services sector in Mauritius. The legal market is dominated by barristers and solicitors who practise either as sole practitioners or together with a few others as a law firm.
With more than 30,000 international companies registered in Mauritius and around 400 global funds based there, commercial and corporate law services are in demand. But competition is intense, with Mauritian lawyers moving into this area of practice and international law firms setting up shop in Mauritius.
International law firms can establish joint ventures and set up branch offices in Mauritius following the passing of the Law Practitioners (Amendment) Act 2008. International firms operating in Mauritius include Appleby, Bedell, Conyers Dill & Pearman and Mahons.
“The number of lawyers has increased exponentially over the past 10 years,” says Mannish Ajodah, a barrister who has been practising on his own for the past 13 years. As competition has intensified, he and a few others are working towards establishing a law firm that will have the breadth of corporate and commercial expertise to draw in clients.
Business understanding is key
This formula for attracting clients has worked for other lawyers, including Mohammed Uteem, who heads Uteem Chambers. The firm has 10 lawyers and has been involved with matters as diverse as drafting legislation in Mauritius, international tax planning, and advising on the setting up of a closed-end fund in Mauritius.
Up to 60% of the work of Uteem Chambers is related to India. Bangalore-based Helion Advisors – a US$350 million India-focused, early to mid-stage venture fund – has been a client since June 2006, when its first fund was set up.
“The reason we have chosen Mohammed Uteem is for his extraordinary knowledge and his ability to really assist,” says R Natarajan, managing director and CFO of Helion. “I put them as tier two in terms of costs, tier one in terms of business understanding and tier one in terms of knowledge and hand-holding.”
Sudipta Ghosh, assistant legal counsel at CLP India in Mumbai, has also sought the services of Uteem, albeit briefly. While the interaction was not long enough for Ghosh to form an opinion on the quality of the services provided, she says that with Uteem Chambers “the basic housekeeping” was all done well, without delays or communication breakdowns.
Another Mauritian lawyer of repute is Dev Erriah, who heads Erriah Chamber. Uteem and Erriah were partners from 2002 to 2007. Erriah Chamber has nine lawyers and 60% of its work is related to India, mostly involving banking, finance and funds. Clients include Standard Chartered Bank and Deutsche Bank.
The head of offshore operations at a Mumbai-based hedge fund who uses the services of Erriah and another lawyer in Mauritius says: “I am neutral between the two as both are equally capable.”
However she adds that “I have comfort” in knowing that others in the industry, including Standard Chartered and Deutsche Bank, work with Erriah.
No financial pressure
TM&S Gujadhur Chambers is a firm of seven lawyers where over 50% of the work is India related. The firm takes pride in not putting pressure on staff to meet financial targets.
“The only pressure relates to the quality of work,” says managing partner Mukund Gujadhur. This strategy appears to work, as comfort is a word that comes up often while discussing Gujadhur with his clients.
“Mukund Gujadhur is one of the most comforting persons in the Mauritius set-up,” says Ajay Mittal, a Bangalore-based director at Ascent Capital, a US$600 million private equity fund.
“He knows the job, understands our requirements pretty well and delivers on time,” adds Mittal, who has dealt with Gujadhur since 2005.
“Mukund’s team helps end-to-end on anything related to Mauritius affairs,” says Raman Dhaliwal, a Singapore-based associate in leveraged finance at Standard Chartered Bank, who has dealt with them “in the course of five to six transactions over the past one and a half years”.
Dhaliwal adds that TM&S Gujadhur Chambers is “very well versed in getting operational matters sorted out”.
Other local firms of repute include BLC Chambers, headed by Iqbal Rajahbalee; and Benoit Chambers, headed by Clarel Benoit. Rishi Pursem, a former assistant solicitor general of Mauritius, is a member of Benoit Chambers.
Marc Hein, another leading lawyer, heads Jurisconsult, a law firm where 20% of the work is linked to India. He also has Indian clients that invest in Africa through Mauritius. Hein is the current chairman of the board of directors of the Financial Services Commission, which regulates the financial services sector, and also a former member of parliament and chairman of the Mauritius Bar Council.
Etude Guy Rivalland, founded by Joseph Michel Guy Rivalland, has been associated with the setting up of around 30 offshore funds, including a few that focus on India.
Geroudis Glover Ghurburrun comprises a team of 15 lawyers that advise on corporate, commercial and intellectual property matters. Yannick Fok, a lawyer at the firm, reports that less than 10% of the firm’s work is related to India.
A hybrid system of law
A distinguishing factor of the Mauritian legal system is that barristers dominate the market – there are 535 barristers and only around 150 solicitors.
A further factor is that Mauritian law contains elements of both French civil law and English common law. This “jumble of English and French law, with an increasing amount of purely Mauritian elements,” as Gujadhur puts it, not only makes Mauritian law a challenge to practise, but also makes qualifying as a lawyer in Mauritius a daunting prospect.
The Mauritius bar examination has a low pass rate – some put it as low as 1% to 3% – and the exam to qualify as a solicitor in Mauritius can be as much of a challenge. A prospective lawyer may find it easier to enter the legal profession in Mauritius by qualifying as a barrister outside the island.
Indeed many lawyers in Mauritius are UK-qualified barristers who returned to Mauritius and were subsequently admitted to the Mauritius bar.
Home grown is better?
All of this means that Mauritius-qualified lawyers are part of a small elite who are considered to have a deeper understanding of Mauritian laws and regulations.
However, any misgivings about local lawyers who have gained their qualifications outside the island are minimal in comparison with a widespread cynicism about the international law firms, who many see as incapable of providing accurate advice on matters of Mauritius law.
“Unfortunately the foreign law firms which have set up in Mauritius have not lived up to the expectations due mainly to their limited knowledge of the Mauritius and French law,” says Uteem. He adds that these firms have “recruited junior Mauritius lawyers with little or no experience in commercial matters”.
Gujadhur is even more sceptical: “One wonders whether they are doing more harm than good to the repute of the jurisdiction with the quality of Mauritian-law advice being provided.”
Regardless of this criticism, Appleby and Conyers Dill & Pearman – the most talked about international firms – have enjoyed substantial success since they entered the Mauritius legal market three years ago.
Appleby, which has 12 lawyers in Mauritius, says it combines “the highest global standards with local expertise” to serve the needs of its clients. Among them is the Morgan Stanley Infrastructure Fund, which in early 2011 acquired a majority stake in the Second Vivekananda Bridge Tollway Company – a special-purpose vehicle that is building an 880-metre six-lane bridge across the Hooghly in Kolkata.
Only 35% of work carried out by Appleby in Mauritius is related to India – down from 45% about two years ago.
“We have been consciously trying to reduce our dependence on that [the India-related] business,” says managing partner Malcolm Moller, adding that the firm had made a “strategic decision” to do so. Appleby’s work in Mauritius is now more Africa related. The firm is also using the double taxation avoidance agreements with Singapore and China to attract clients interested in those countries.
Conyers Dill & Pearman, which has also been operating in Mauritius since 2009, doubled its revenue between January 2011 and January 2012. Craig Fulton, head of the firm’s Mauritius office, sees this as a sign that the market has an appetite for the services of international firms.
Conyers Dill & Pearman has five lawyers in Mauritius. The firm has worked on high-profile India-related transactions such as Vodafone’s acquisition of a 33% stake in Vodafone Essar and Vedanta’s purchase of a 51% stake in Cairn India. Both involved entities in Mauritius.
Conyers Dill & Pearman was also Mauritius counsel to MakeMyTrip.com on both its initial public offering and its secondary offering on the Nasdaq. Fulton reports that the firm has since worked on a second IPO – for an information technology outsourcing company – but it is on hold.
“This is the kind of work that we hope to get more of,” says Fulton, adding that specialists in listing transactions are available within the Conyers Dill & Pearman network of lawyers.
Currently, 50% of the firm’s work is related to India, which Fulton says represents a slight decline.
Rajat Sethi, a partner at S&R Associates in Delhi, has worked with Conyers Dill & Pearman on several matters, including the MakeMyTrip.com listing. He sees them as more available and responsive than their competitors in what he refers to as a “laid-back jurisdiction”.
The place to be
Bedell – an offshore law firm with headquarters in Jersey – has had an office in Mauritius since October 2010. It has three lawyers in Mauritius.
The South African office of Eversheds set up an office in Mauritius in May 2009, but handed it over to Mahons – a new South African law firm – in July 2010. May-Elaine Thomson, chief executive officer of Eversheds in South Africa, explains that this came about as part of a “very amicable agreement” with the then-chairman of Eversheds, Terry Mahon, who left the firm along with five partners to form Mahons.
Thomson says that Eversheds has “not felt the need to open another office Mauritius” and continues to serve its clients in Mauritius from its Johannesburg office along with its best-friend firms on the island.
Mahons in Mauritius is headed by Miro Dvorak, who had been head of the office when it was Eversheds. Although most of the work of this three-lawyer firm is Africa and Europe focused, it reports that it has set up two large funds for India.
Making a choice
But how do clients decide on a lawyer in an offshore jurisdiction such as Mauritius?
Some of those who use lawyers in Mauritius – most often for regulatory or corporate compliance work – believe that finding a suitable legal counsel is merely a matter of asking the company that manages and administers the Mauritian entity to suggest a suitable lawyer.
This suggests that clients rarely dig deep into a lawyer’s experience and expertise before enlisting their services. While this may not be advisable in Singapore, it appears to work in Mauritius.
A fund manager with experience in both Singapore and Mauritius puts it bluntly: “Mauritius regulations are not really rocket science – they are fairly simple and straightforward.”
This could change if the government of India gets its way in requiring that only companies that have considerable substance in Mauritius are allowed to take advantage of the double taxation avoidance agreement between the two countries. If that happens, lawyers who can accurately advise on showing the required amount of substance will find themselves in greater demand.
Ajodah, who is in the process of moving from individual practice to a group practice, believes “that is where the opportunities lie”.
With India eyeing measures that could jeopardize the position of Mauritius as a tax-efficient jurisdiction for routing investments into and out of the country, Rebecca Abraham asks lawyers in Mauritius how this may affect the island nation
A proposal to introduce general anti-avoidance rules (GAAR) “to counter aggressive tax avoidance” was introduced in the Indian parliament on 16 March and subsequently deferred for a year to “provide more time to both taxpayers and the tax administration to address all related issues”.
The GAAR proposals – widely seen in Mauritius as a threat to its well-being as a tax-efficient jurisdiction for investments into India – came on top of attempts by India to amend the Mauritius India Double Taxation Avoidance Convention. An India-Mauritius Joint Working Group that met in December 2011 is studying these changes. No date has been set for its next meeting.
But not all the lawyers India Business Law Journal interviewed thought that GAAR will be bad for business.
“India GAAR in fact goes hand in hand with Mauritius’ drive for attracting substantive business,” says Mohammed Uteem at Uteem Chambers. He remains confident that Mauritius will continue to be the jurisdiction of choice for investments into India as it has built up enough expertise on Indian tax laws and other regulations.
“Far from being a threat to Mauritius, it in fact opens additional opportunities for those ready to seize them,” says Mannish Ajodah a barrister who practises on his own.
Others are less positive.
“The Indian government does not appear to have realized that, by Mauritian standards, there has been massive human and economic investment in the Mauritian global business sector, to the great benefit of India,” says Mukund Gujadhur at TM&S Gujadhur Chambers. He adds that it “beggars belief that the Indian government is implementing these measures in the context of the global economic turmoil”.
With India facing a precarious balance of payments situation and with exports slowing, others are also asking whether this is the best time to upset the applecart.
Dev Erriah of Erriah Chambers sees the issue as more political. He notes that tax avoidance was a non-issue when the treaty was negotiated in the early 1980s. However over time, with changes happening “more in India than in Mauritius”, the treaty has been used for this purpose. As a result, he believes that it is “not fair to point a finger at Mauritius”, accusing it of not having capital gains and other taxes.
Some observers believe that India owes it to Mauritius to scale down its relationship in a gradual manner. This, they say, would be the least the government of India could do, given the role of Mauritius in mobilizing investment for India over the past two decades.
But with Mauritius now in a position to reinvent itself as a gateway for investments into Africa, it seems that the island nation has gained considerably from its relationship with India. “The double taxation avoidance agreement provided Mauritius with a platform to sell similar kind of services to different jurisdictions,” remarks Malcolm Moller at Appleby, an international offshore law firm that set up in Mauritius in 2009.
To remain attractive, Mauritius needs to safeguard its reputation as a jurisdiction of substance. To that end, it has adopted standards and norms set by international bodies such as the OECD, the Basel Committee on Banking Supervision and others.
Whatever the outcome of the present differences between India and Mauritius, Ken Poonoosamy, managing director of the Board of Investment, believes that all will end well. “India will always remain important for Mauritius and we will consolidate the relationship.”