Privy Council Clarifies “Core Income Generating Activities” for Mauritius Interest Exemption

Alteo Energy Ltd & Anor v Director-General, Mauritius Revenue Authority (UKPC 27, 30 June 2026)

The Privy Council has provided authoritative clarification on the interpretation of Mauritius’ post-2019 “substantial activity” regime governing the 80% exemption on interest income.

The Board dismissed the Mauritius Revenue Authority’s appeal and confirmed that:

• “Core income generating activities” refers to the activities generating the relevant category of income (here: interest income), not the company’s main or dominant business activities.
• The condition is satisfied where the core activities required to generate that interest are carried out in Mauritius.
• It is not necessary for the company’s principal business activity (e.g. electricity production) to include financing or lending activities.
• The regime is focused on substance and location of income-generating functions, not business classification.

Although the appeal was dismissed, the Privy Council significantly refined the interpretive framework for Mauritius’ substance rules, aligning them with OECD BEPS Action 5 principles.

Factual background

Alteo Energy Ltd, a Mauritius-incorporated company, operated primarily in electricity generation and supply. In the 2019/20 tax year:

• ~95.7% of income derived from electricity sales.
• A small portion (~0.25%) derived from interest on intra-group loans.
• Lending activity was incidental and not part of its core commercial operations.

Following Mauritius’ 2019 tax reforms, interest income could benefit from an 80% exemption, provided the taxpayer:

1. Carries out its core income generating activities in Mauritius;
2. Employs adequate qualified personnel; and
3. Incurs proportionate expenditure.

The Mauritius Revenue Authority denied the exemption, arguing that:

• “Core” meant the company’s principal business activity, and
• Lending was not a core business function of Alteo.

Legal issue

The central interpretive question was:

Does “core income generating activities” refer to:

• (A) the company’s core business activities overall; or
• (B) the core activities specifically generating the exempt income (interest)?

Decision of the Privy Council

The Privy Council rejected the MRA’s approach and held:

“Income” is category-specific

The word “income” in the substance condition refers only to the type of income benefiting from the exemption (here, interest income), not the taxpayer’s total income base.

This ensures the condition is logically connected to the relief being claimed.

“Core” refers to income-generating functions, not core business

The Court held that:

• “Core income generating activities” does not mean the company’s principal business activities.
• It refers to the key activities required to generate the relevant income stream, even if incidental to the broader business.

Accordingly, a trading or energy company can still satisfy the test in relation to incidental treasury or lending functions.

Substance is about location of relevant functions

The regime requires that:

• The essential income-generating functions are performed in Mauritius, and
• There is supporting substance (employees, expenditure).

It does not require a recharacterisation of the company’s business model.

Application to Alteo

Even though lending was incidental:

• The relevant financing activities were conducted in Mauritius; and
• All operations (including treasury-related functions) were Mauritius-based.

Therefore, the statutory conditions were met.

Key interpretive principles

The judgment establishes several principles relevant to Mauritius’ post-BEPS regime:

Activity linkage principle

There must be a direct nexus between income and the activities that generate it, not between income and the company’s principal trade.

OECD alignment

The Court expressly anchored its reasoning in OECD BEPS Action 5, confirming that:

• Substance rules are designed to prevent profit allocation disconnected from real activity;
• They are not designed to require reclassification of corporate purpose.

Functional (not structural) analysis

The analysis is functional:

• What activities generate the income?
• Where are those activities performed?
• Are they supported by adequate people and expenditure?

Not:

• What is the company’s main business?

Practical implications for Mauritius taxpayers

Broader eligibility for partial exemption regimes

Groups with diversified operations (e.g. manufacturing + intra-group financing) can:

• Qualify for interest exemptions even if lending is ancillary, provided substance exists.

Substance documentation becomes critical

Taxpayers should ensure evidence of:

• Decision-making around funding arrangements;
• Treasury or financing functions being performed in Mauritius;
• Staffing and governance over financial assets.

No requirement to “core-align” business lines

The ruling rejects any interpretation requiring that:

financing must be a “core business line” for interest exemption eligibility.

This is particularly relevant for conglomerates where treasury activity is embedded in operational entities.

MRA approach significantly narrowed

The Revenue Authority’s attempt to tie eligibility to “main business activities” has been rejected.

Future disputes will likely turn on:

• factual substance, not business categorisation.

Broader significance for Mauritius’ tax regime

This judgment reinforces Mauritius’ positioning as a jurisdiction aligned with:

• OECD BEPS substance standards
• But not overly restrictive “activity classification” tests

It confirms that the post-2019 reforms:

• Introduced substance requirements, not business-model restrictions
• Aim to ensure income is grounded in real local activity, not to limit corporate structuring flexibility

Concluding observation

The Privy Council’s decision is a significant clarification of Mauritius’ evolving substance regime.

While the appeal was dismissed on the facts, the reasoning establishes a durable interpretive framework:

The “core income generating activities” test is a functional linkage test between income and activity, not a classification test of a company’s main business.

For multinational groups using Mauritius holding or operating structures, the ruling provides both clarity and comfort but reinforces the importance of maintaining defensible local substance for any income stream benefiting from preferential treatment.

If your business earns interest or other qualifying income through Mauritius and you would like to assess whether your structure satisfies the substance requirements for the 80% partial exemption regime, our Mauritius tax specialists are ready to help you navigate the rules with confidence. Get in touch.