Question 1 (40 Marks) (a) The concept of permanent establishment (PE) connotes extension of business activity in another jurisdiction and underlines that a country has a right, under international taxation laws, to tax a foreign enterprise if the enterprise has a PE within that country. Both the OECD Model Convention and the UN Model convention include three types of PE. Required: (i) List the three types of PE. (3 marks)(ii) For each type, give a brief description indicating also the conditions that must be satisfied in order to constitute a PE. (5 marks)

(b) Indira is an Indian citizen employed by an Indian company. Her employer sends her to Mauritius for 2 months to carry out market research. Required: Is she liable to tax in Mauritius? Give reasons for your answer (3 marks)

(c) Company XYZ, a mobile company incorporated in Malaysia, decides to open a local branch in Mauritius for the sale of mobile phones. For this purpose, Yusuf, a sales manager employed by Company XYZ is sent to Mauritius. Yusuf spends 5 months in Mauritius to supervise the project. The local branch reimburses to company XYZ all the expenses connected with Yusufs stay in Mauritius. Required: Will Yusuf be liable to tax in Mauritius on the emoluments earned for work done in Mauritius? (4 marks) Give reasons for your answer.

(d) MNO Co Ltd (resident of UK) runs his enterprise in UK. The business profit in UK amounts to 500,000. In Mauritius MNO Co Ltd runs a shop in a shopping mall. Two employees of this shop sell MNO Companys goods to customers in Mauritius. Profits attributable to that shop amount to 200,000. Furthermore, MNO Co Ltd sells goods directly to customers in Mauritius, if they order goods via the internet. Such profits amount to 50,000. Required: By referring to the relevant provisions of the Mauritius-UK Tax Treaty explain how the treaty would apply in the case of MNO Co Ltd indicating clearly which country will have the right to tax its profit. (5 marks)

(e) Q Ltd and R Ltd are foreign construction companies which have entered into contracts with the Mauritian Government. Details are provided below: Q Ltd R Ltd Country in which resident China India Duration of contract 10 months 10 months Required: Is profit derived by Q Ltd and R Ltd taxable in Mauritius? Give reasons for your answer. (5 marks)

(f) Blue Bank Co Ltd is incorporated and managed in Malaysia. It wishes to make loans to persons in Mauritius. Blue Bank Co Ltd sets up a representative office in Mauritius. It rents office space and sends four of its employees to work there. Blue Bank Co Ltd also hires two local clerical staff. The employees collect information on privatisation and economic developments in Mauritius. Any potential clients who enquire at the representative office about getting loans from Blue Bank Co Ltd are referred to head office which processes all loan applications, including documentation. In the course of making decisions about loan applications, head office often asks the representative office to make various enquiries and provide information about potential borrowers. Required: Does Blue Bank Co Ltd have a permanent establishment in Mauritius? If so, what profits are taxable there? (5 marks)

(g) Manufacturer Co Ltd is incorporated and managed in South Africa. It wishes to sell its products in Mauritius. Manufacturer Co Ltd appoints Jacob as its agent in Mauritius. Previously he has worked as an agent for various foreign companies, but since two years he spends all his time on the business of Manufacturer Co Ltd. Jacob solicits orders from customers and forwards them by fax to the head office of Manufacturer Co Ltd for action. The clerical assistant of the Sales Manager in head office has instructions to follow all recommendations of Jacob. Orders are filled by shipment direct from head office to the person who placed the orders. Required: Does Manufacturer Co Ltd have a permanent establishment in Mauritius? If so, what profits are taxable there? (5 marks)

(h) Equipment AG is incorporated and managed in Germany. It sells manufacturing equipment to persons in Mauritius. The equipment comes with a two year warranty. Equipment AG sets up a repair workshop in Mauritius. The workshop carries out repairs under warranty on equipment sold by Equipment AG. No charge is made for these repairs. It also carries out repairs on the equipment outside the warranty period, and charges cost plus 20% for this service. The employees of the workshop also regularly buy components from manufacturers in Mauritius which are then shipped to head office in Germany. Head office attributes a buying commission of 5% on these components to the workshop when preparing its management accounts to ascertain the profitability of its various operations. Required: Does Equipment AG have a permanent establishment in Mauritius? If so, what profits are taxable there? (5 marks)