Bob Geldof’s firm wanted to buy a chicken farm in Uganda, one of the poorest countries on earth. But first, an errand.
After soaring to fame in the 1980s for organizing Live Aid and other anti-famine efforts, the former Boomtown Rats rocker had shifted to the high-powered world of international finance. He founded a U.K.-based private equity firm that aimed to generate a 20% return by buying stakes in African businesses, according to a memorandum from an investor.
The fund’s investments would all be on the African continent. Yet its London-based legal advisers asked that one of its headquarters be set up more than 2,000 miles away on Mauritius, according to a new trove of leaked documents.
The tiny Indian Ocean island has become a destination for the rich and powerful to avoid taxes with discretion and a financial powerhouse in its own right.
One of the discussion points in the firm’s decision: “tax reasons,” according to the email sent from London lawyers to Mauritius.
Geldof’s investment firm won Mauritius government approval to take advantage of obscure international agreements that allow companies to pay rock-bottom tax rates on the island tax haven and less to the desperately poor African nations where the companies do business.
In 2012, American philanthropist Craig Cogut and his multibillion-dollar private equity firm, Pegasus Capital Advisors, looked 9,217 miles from the firm’s home base in Stamford, Conn., for a place to locate the management headquarters of one of its new investments. What unfolded is a textbook case of the way businesses can prosper by using Mauritius’ offshore tools.
A Pegasus fund had bought Six Senses, a luxury spa and hotel brand with more than 30 operations on four continents. Frequented by Hollywood stars and other global glitterati, Six Senses drips in luxury. Villas on private islands in the Seychelles, off East Africa, cost as much as $15,000 a night. The Al Bustan Palace spa in Oman, one of the less affluent countries on the Arabian Peninsula, offers private men- and women-only beaches and personalized face scrubs made with locally grown clove and myrrh.
As a “resident” firm of Mauritius, Sustainable Luxury could take advantage of the country’s super-low, effective maximum corporate tax rate: 3%. Sustainable Luxury also applied for — and received — special legal status from the government of Mauritius, allowing it to benefit from tax treaties between Mauritius and countries where Six Senses had spas and hotels. Treaties allow companies to reduce or entirely avoid common taxes received on cross-border payments, including interest, dividends and royalties.
Sustainable Luxury listed Oman among 11 countries where the company had investments and wished to apply for a special status and document issued by the government of Mauritius, according to company board meeting minutes. That document would allow the company to cut taxes paid to countries around the world that signed treaties with Mauritius. The leaked files don’t say whether the company ever received the document.
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