Mauritius has taken a decisive step forward in its tax landscape. While the arm’s-length principle has been enshrined in the Income Tax Act since 1995, this has always been more of a theoretical requirement than a practical one. Taxpayers were expected to transact with related parties as if dealing at arm’s length, but until now there were no formal transfer pricing documentation obligations.
That changes with the Finance Act 2025, which introduces, for the first time, a requirement for taxpayers to maintain documentation to support their transfer pricing positions. This development brings Mauritius into closer alignment with international practice and reflects the global movement towards transparency and accountability in cross-border related-party dealings.
The Background: An Arm’s-Length Rule Without the Paperwork
Section 75 of the Income Tax Act has long required that related-party transactions be conducted at arm’s length. In practice, however, the absence of explicit documentation rules meant that compliance was often informal, with companies relying on internal justifications or broad benchmarking. This lack of structure limited the ability of the Mauritius Revenue Authority (MRA) to review or challenge arrangements systematically and placed Mauritius somewhat behind its peers in terms of transfer pricing compliance.
The Finance Act 2025: A Turning Point
The Finance Act 2025 formally introduces transfer pricing documentation requirements into Mauritian law. While the details will be clarified through forthcoming regulations, it is expected that taxpayers will need to maintain structured files in line with international best practice. This is a clear signal that the MRA intends to tighten its scrutiny of related-party transactions and will expect taxpayers to demonstrate, with evidence, that their transfer pricing policies comply with the arm’s-length principle.
What Documentation Is Likely to Be Required?
Although the legislation itself is high-level, the direction of travel is clear. Based on international standards, particularly the OECD Guidelines, taxpayers should anticipate:
- Functional and economic analysis: An explanation of the functions performed, assets used, and risks borne by each party, and an analysis of whether outcomes reflect what independent parties would have agreed.
- Local file and master file: The local file would set out detailed information on the Mauritian taxpayer’s intercompany transactions, while the master file would cover the wider group’s global operations, structure, and transfer pricing policies.
- Benchmarking studies: Evidence from comparable transactions or companies to support pricing decisions.
The MRA has already shown its willingness to adjust transactions where no arm’s-length evidence is available for example, imputing interest on related-party loans advanced interest-free. Formal documentation requirements will now provide the MRA with a structured basis to make such adjustments.
Why It Matters
For businesses operating in or through Mauritius, these developments have significant implications. Transfer pricing documentation is not merely an administrative burden but a defence mechanism. Having robust, contemporaneous documentation will be essential to reduce the risk of adjustments, penalties, and disputes with the MRA.
This change also underscores Mauritius’s continuing evolution as an international business hub. Aligning with global transfer pricing practices enhances the jurisdiction’s credibility but also raises the compliance bar for taxpayers. Multinationals and local groups alike will need to prepare for a more rigorous reporting environment.
Key Takeaways
- Mauritius has long had an arm’s-length rule, but without formal documentation requirements.
- The Finance Act 2025 introduces, for the first time, an obligation to maintain transfer pricing documentation.
- Expected requirements will align with OECD standards, including functional/economic analyses, local and master files, and benchmarking.
- The MRA has already shown increased scrutiny of related-party transactions, and documentation will now be the taxpayer’s key protection.
This marks a significant step in Mauritius’s progression towards global best practice in tax governance.
Conclusion
In short, transfer pricing in Mauritius has moved from principle to practice. Taxpayers will need to put systems in place now to ensure that, when the regulations land, they are ready to comply and to defend their positions with evidence.
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