Executive summary

Bangladesh and Mauritius have signed a Protocol (2024 Protocol) to amend the Convention (BM DTC) executed between the two countries on 21 December 2009. The 2024 Protocol is the subject matter of the Double Taxation Avoidance Convention (Bangladesh)(Amendment) Regulations 2024, as gazetted in Government Notice No. 182 of 2024 in Mauritius, and will be in force once the notification procedures have been completed. The 2024 Protocol was signed on 5 February 2024 and 9 April 2024 in Port Louis, Mauritius and Dhaka, Bangladesh, respectively.

2024 Protocol

The main change of the 2024 Protocol is the introduction of a principal purpose test, consistent with Action 6 of the Organisation for Economic Co-operation and Development (OECD)/G20 Base Erosion and Profit Shifting (BEPS) Project. The fact that a company is a resident of either Mauritius or Bangladesh is therefore insufficient on its own for the BM DTC to apply.

Under the BM DTC, dividends are subject to a maximum withholding tax of 10%. The 2024 Protocol extends the 10% withholding tax to interest and royalties. A withholding tax of 10% will also apply on technical fees.

Changes to the capital gains tax Article ensure that (a) it does not apply to abusive arrangements and (b) entities other than companies are considered for the purposes of the Article. This new provision only applies to cases where more than 50% of the value of the assets consists of immovable property in Bangladesh or Mauritius, as the case may be.

There will be a new Article on Assistance in Collection of Taxes, which will ensure that the enforcement procedures can be reinforced through bilateral assistance.

The Articles on Exchange of Information and Mutual Agreement Procedure are being replaced by the respective Articles contained in the 2017 OECD Model Tax Convention (2017 OECD MTC).

Detailed analysis

The 2024 Protocol amends the following Articles: (a) Title of the convention; (b) Preamble to the convention; (c) General definitions; (d) Permanent establishment; (e) Business profits; (f) Interests; (g) Royalties; (h) Capital gains; (i) Independent personal services; (j) Other income; (k) Mutual agreement procedure; and (j) Exchange of information.

Mauritius signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (referred to as the "MLI") on 5 July 2017. Bangladesh has a covered tax agreement (CTA) for the purposes of the MLI. However, the MLI does not apply to the BM DTC because Bangladesh has not signed the MLI.

The new Article 22A is based on Action 6 of the OECD/G20 BEPS Project on the granting of treaty benefits in inappropriate circumstances. Article 22A applies the principal purpose test, meaning that the benefit of the treaty will not apply if it is reasonable to conclude the principal purpose, or one of the principal purposes, of any arrangement or transaction is to seek the benefit of the treaty based on all the relevant facts and circumstances.

Particular care is required if a Mauritian company is controlled by nonresidents and the reasons for using a Mauritian company are decisive. Key considerations include how the company is managed on a day-to-day basis and how the central management takes Mauritian-based activities into consideration.

The main change to the definitions relates to the specific reference in the definition of "Bangladesh" to the UN Convention on the Law of the Sea of 1982. No corresponding amendment has been made to the definition of "Mauritius."

Premises used as a sales outlet and a farm or plantation are now specifically referred to in Article 5(2) regarding what constitutes a permanent establishment. Such an amendment was not necessary from a Mauritian standpoint in that the new items are generally activities that give rise to a taxable presence.

Article 7(3) is being replaced by the equivalent Article in the UN Model Double Taxation Convention regarding the treatment of royalties, fees or other similar payments for the use of patents or other similar rights. The current version of Article 7(3) is based on the 2008 OECD Model Convention but emphasizes that an allowable expense must also be considered allowable under the national laws of Bangladesh and Mauritius.

Article 11 (Interest) and Article 12 (Royalties) are being deleted in their own entirety. The taxing right in the source jurisdiction is limited to 10% and applies if the recipient is the beneficial owner of the interest or royalty income. The current version of the treaty does not provide the exclusive taxing rights in the country of residence. Interest to a resident of Bangladesh is exempt from tax in Mauritius if: (a) the Mauritian company holds a Global Business License under the Financial Services Act; (b) the Bangladeshi lender is not tax-resident in Mauritius; (c) the Bangladeshi lender does not have a place of business in Mauritius; and (d) the interest is paid out of the Mauritian company's foreign-source income. Royalty income received by a Bangladeshi resident is exempt from tax in Mauritius if it is paid by a Mauritian company from its foreign-source income.

Article 22 has been amended by inserting Paragraph 3, which states that items of income of a resident of a Contracting State not dealt with in the other Articles of the Convention and arising in the other Contracting State may also be taxed in that other State. Prior to this change, taxation rights was restricted to the Contracting State where the taxpayer is a resident (unless the taxpayer constituted a permanent establishment in the other State).

Article 12A, a new Article on fees for technical assistance, is generally identical to the 2021 United Nations (UN) Model Double Taxation Convention. The withholding tax in the source country is 10% of the gross fees.

Under the Mauritian tax laws, services rendered by a nonresident outside of Mauritius are not considered to be Mauritian-source income.

The main change to the Capital Gains Article is found in a clause similar to Article 13(5) of the 2021 UN Model Double Taxation Convention, except that the new Article 13(4) will only apply if at least 50% of the value of the assets of the company, partnership or trust comes directly or indirectly from immovable property situated in the Contracting State. Mauritius does not have any capital gains tax regime and, furthermore, profits on the sale of shares are specifically tax-exempt. These transactions may be subject to land transfer tax — tax on leasehold rights in State lands in Mauritius depending on a number of factors.

Paragraph 2 of Article 14 (Independent Personal Services) is being amended so that the definition of professional services excludes technical services, which is the subject matter of the new Article 12A.

Article 25 (Mutual Agreement Procedure) and Article 26 (Exchange of Information) are being replaced by the versions found in the 2017 OECD MTC. Further, new Article 26A regarding Assistance in Collection of Taxes is based on a parallel provision in the 2017 OECD MTC.