6 and weak substance requirement can imply that “any one treaty should be considered a potential treaty with the world.”<sup>11</sup> ,<sup>12</sup>

||**Table 1. Imp**<br>|**ortant Treaty-Partner**<br>|**Countries for SSA**<br>||
|---|---|---|---|---|
|Country|GDP (in billion<br>US Dollar)|Number of effective<br>treaties with SSA|Average WHT rate<br>with SSA (in %)|Domestic CIT<br>rate (in %)|
|Mauritius|12.17|15|6.83|15 (3)|
|South Africa|295.46|15|9.97|28|
|Canada|1529.76|11|14.93|26.5|
|France|2465.45|11|10.68|33.31|
|Belgium|467.96|10|10.30|33.99|

Notes: table summarizes key features of treaty partner countries for SSA, ordered by the number of concluded treaties between 1985 and 2016. Data sources: IBFD, IMF Table 1 summarizes the main treaty partner countries for SSA economies, ranked by the number of treaties concluded between 1985 and 2016. Most of the listed countries provide a large pool of potential resident investors and apply non-negligible tax rates on domestic income. Mauritius, however, has a comparatively small base of potential domestic investors and taxes income minimally under its global business companies (GBC) regime: if treated as a resident, GBCs are subject to the standard corporate income tax rate of 15 percent, but can utilize a unilateral foreign tax credit which effectively reduces the Mauritian corporate income tax burden on foreign source income to 3 percent.<sup>13</sup> Mauritius’ importance for SSA stems from its role as an investment hub. Corporate groups often include intermediate holding companies, which can be held for various purposes, such as the coordination and centralization of certain group activities (typically factoring and insurance), group financing, or holding intellectual property. Another objective is often the reduction of an MNE’s tax liability. To attract these intermediate holding companies, investment hubs provide three related features: First, they have an extensive tax treaty network, ideally containing treaties with low or zero withholding tax rates (and other tax benefits) with source countries. At the same time, they do not levy any withholding tax on the outflow of income. Second, investment hubs have ‘liberal’ substance requirements and although it is not necessary to maintain strict non-disclosure rules (bank secrecy), recent leaks suggest that such rules tend to help generate business. Third, investment hubs tax income minimally. Low or 11 See 2016, blog post by Jim Brumby and Michael Keen referencing a presentation by Stephen Shay: <u>http://blogs.worldbank.org/governance/tax-treaties-boost-or-bane-development.</u> 12 In recent years, the role of tax treaties has been reevaluated, most notably in the context of work led by the OECD aimed at avoiding or countering the abuse of tax treaty provisions. Treaty anti-abuse provisions to counter treaty shopping comprise a minimum standard under the OECD/G20 BEPS initiative. More specifically, the minimum standard requires: (i) inclusion of a clear statement in tax treaties of the intention to avoid non-taxation or reduced taxation through tax evasion or avoidance, including through treaty shopping; and (ii) the adoption of one or both of a limitation of benefits (LOB) rule or a principal purpose test (PPT) rule, supplemented as needed to deal with conduit arrangements.

13 The allowable business activities of a GBC (category 1) include, among others, assets management, consultancy services, financial services, insurance, logistics, or marketing. All those activities are non-location specific and thus easily transferable within any MNE. A GBC is regarded as tax resident in Mauritius if they can demonstrate that their management and control is situated in Mauritius.