Case Study: Alteo Energy Ltd and another (Respondents) v Director-General, Mauritius Revenue Authority (Appellant) [2026] UKPC 27
On 30 June 2026, the Judicial Committee of the Privy Council (“JCPC”) delivered its judgment in Alteo Energy Ltd and another v Director-General, Mauritius Revenue Authority (“MRA”), dismissing the MRA’s appeal and upholding the taxpayer’s entitlement to the partial exemption on interest income under the Income Tax Act 1995 (“ITA”).
BACKGROUND
Alteo Energy Ltd (“Alteo”) is incorporated and domiciled in Mauritius. Its principal activity for the tax year 2019/20 was electricity production (95.7% of total income). Alteo also received interest income on loans, constituting approximately 0.25% of its total income, which was incidental to its main activity.
The MRA denied Alteo the 80% partial exemption on interest income under item 7 of Sub-part B of Part II of the Second Schedule to the ITA, on the basis that its lending activities did not constitute core business activities.
The Assessment Review Committee (“ARC”) upheld the MRA’s assessment. The Supreme Court reversed the ARC’s findings, and the MRA appealed to the JCPC.
The partial exemption regime, effective from 1 January 2019, was introduced to comply with OECD BEPS Action 5’s substantial activity requirement. Item 7 provides an 80% exemption on interest income, subject to substance conditions, which are further detailed in regulation 23D(2) of the Income Tax Regulations 1996 (“ITR”), namely that the company:
(i) carries out its core income generating activities (“CIGA”) in Mauritius;
(ii) employs an adequate number of suitably qualified persons; and
(iii) incurs minimum expenditure proportionate to its level of activities.
ISSUES
The central issue was the proper interpretation of “core income generating activities” in regulation 23D(2) of the ITR:
- Whether “income” refers only to interest income or to all income generated by the company; and
- Whether “core” requires the interest-generating activities to be core business activities of the company, or simply requires that the core activities generating interest income are carried out in Mauritius.
ANALYSIS
TThe Board disagreed with the Supreme Court’s interpretation of “income” as encompassing all company income. It held that “income” refers only to interest income — the type capable of benefitting from the exemption. This was supported by:
(i) the logical function of regulation 23D(2) of the ITR as a gateway to the item 7 exemption;
(ii) the OECD’s substantial activity requirement linking qualifying income to core activities; and
(iii) the standardised use of “core income generating activities” across multiple legislative provisions covering different income types.
On the meaning of “core”, the Board rejected the MRA’s contention that it imposed a qualitative threshold requiring interest-generating activities to be central to the company’s main operations. Instead, “core” qualifies the income generating activities themselves — requiring only that the core activities which generate the relevant income are performed in Mauritius. The law places no restriction on the nature of the company’s business.
As all of Alteo’s activities were conducted in Mauritius, the condition was whether a narrower or broader view was applied. However, the Board preferred the broader interpretation —considering the company’s operations as a whole, including interest generated incidentally from deploying surplus funds.
DECISION
The JCPC dismissed the MRA’s appeal, holding that:
- “Core income generating activities” requires only that the core activities generating the relevant income are carried out in Mauritius —not that they be core business activities of the company;
- “Income” in regulation 23D(2) of the ITR refers to the category of income capable of benefitting from the exemption, in this case the interest income only;
- The law places no restriction on the nature of the company’s business; and
- On the agreed facts, Alteo satisfied the condition as all its activities were conducted in Mauritius. Alteo was therefore entitled to the 80% partial exemption on its interest income.
The Board reached the same conclusion as the Supreme Court, albeit for different reasons. This judgment is of particular significance as it is understood to be the first judgment by an apex court on the interpretation of the “substantial activity requirement” under BEPS Action 5. It confirms that access to a preferential tax regime requires real substance in Mauritius but does not require that exempted income arise from the company’s principal line of business.
