Privy Council clarifies Mauritius tax exemption test in Alteo Energy ruling

The Privy Council has dismissed an appeal brought by the Director-General of the Mauritius Revenue Authority (MRA), settling a contested point of statutory interpretation concerning the partial tax exemption available to companies earning interest income in Mauritius.

The case, Alteo Energy Ltd and another v Director-General, Mauritius Revenue Authority [2026] UKPC 27, concerned section 7(2) of the Income Tax Act 1995 and regulation 23D(2) of the Income Tax Regulations 1996, which together allow an 80 per cent exemption on interest income provided a company "carries out its core income generating activities in Mauritius". The regime was introduced in 2019 following reforms designed to align Mauritius with the OECD's substantial activity requirements under its Base Erosion and Profit Shifting Action Plan.

Alteo Energy Ltd, part of a group operating primarily in the sugar industry, generates most of its revenue from electricity production and sales to the Central Electricity Board. Interest income, derived from certain loans, made up only around 0.25 per cent of its total income for the 2019/20 tax year and was incidental to its main business. The MRA assessed the entirety of this interest as taxable, arguing that the lending activities generating it were not "core" to Alteo's business and therefore could not satisfy the statutory condition.

The Assessment Review Committee upheld the assessment, but the Supreme Court of Mauritius allowed Alteo's appeal, taking a broader view of "income" in regulation 23D(2) as encompassing all income generated by the company rather than only the interest income capable of benefiting from the exemption.

Delivering the Board's judgement, Lord Leggatt held that the Supreme Court's interpretation of "income" was incorrect, agreeing instead with both parties' original position that the term referred only to income of the type specified in item 7, namely interest. This conclusion was supported by the structural purpose of regulation 23D(2), the underlying OECD substantial activity rationale, and the consistent use of the phrase "core income generating activities" across multiple exemption items in the Second Schedule, each tailored to a different category of income.

On the separate question of what "core" means, the Board rejected the MRA's submission that the relevant activities must constitute the company's core business operations. Lord Leggatt held that the word "core" qualifies the income generating activities themselves, requiring only that the essential activities producing the relevant interest be carried out in Mauritius, not that interest generation form part of the company's principal business. The Board found no textual basis in regulation 23D(2) for restricting the nature of a company's wider business activities.

Applying this reasoning to Alteo's circumstances, the Board considered that a broader assessment, looking at the company's overall operations rather than narrowly at the loan transactions themselves, was the more appropriate approach, given that the interest was a by-product of its principal activity. As all of Alteo's relevant activities, employees and expenditure were located in Mauritius, the condition was satisfied regardless of whether a narrow or broad view was taken.

The appeal was accordingly dismissed, with the Board reaching the same outcome as the Supreme Court of Mauritius, albeit by a different route of statutory construction.