Section 85: Excess of remuneration or share of profits

85. Excess of remuneration or share of profits (1) Subject to subsection (3), where— (a) a taxpayer carries on any business or other income earning activity and employs a relative, or, being a company, employs a relative of a director or shareholder of the company, to perform services in connection with the business or activity; I5 – 47 [Issue 6] Income Tax Act (b) a taxpayer carries on any business or other income earning activity as an associate with any person, whether or not any other person is a member of the société, and— (i) a relative of the taxpayer is employed by the société to perform services in connection with the business or activity; or (ii) where one of the associates is a company, a relative of a director or shareholder of the company is employed by the société to perform services in connection with the business or activity; or (c) a taxpayer carries on any business or other income earning activity in association with a relative or with a company of which a director or shareholder is a relative of the taxpayer or, being a company, carries on business or other income earning activity in association with a relative of a director or shareholder of the company, whether or not any other person is a member of the société, and the Director-General is of opinion that the remuneration, salary, share of profits or other income payable to, or for the benefit of, that relative or company under the contract of employment or on the terms of the société exceeds the amount which is reasonable, having regard to the nature and extent of the services rendered, the value of the contributions made by the respective associates by way of services or capital or otherwise, and any other relevant matters, the Director-General may apportion the net income of the business or other income earning activity, without deducting any amount payable to that relative or company, between the parties to the contract of employment or the associates or any of them in such shares and proportions as he considers reasonable, and the amounts so apportioned shall be deemed to be income derived by the persons to whom those amounts are so apportioned and by no other person. (2) Subject to subsection (3), where any sum paid or credited by a company, being or purporting to be remuneration for services rendered by a person who is a relative of a director or shareholder of the company, is apportioned to that company in accordance with subsection (1), the amount so apportioned to the company shall be deemed to be a benefit referred to in section 86A received by that person as a shareholder of the company. (3) This section shall not apply to a contract of employment or an agreement to form a société where— (a) the contract or agreement is in writing and signed by all parties; (b) no associate and no person employed under the contract or agreement was a minor at the date on which the contract was signed; (c) the contract or agreement is binding on the parties for a term of not less than 3 years and cannot be terminated by any party before the expiry of that term; [Issue 6] I5 – 48 Revised Laws of Mauritius (d) each party to the contract has a real and effective control of the remuneration, salary, share of profit, or other income to which he is entitled under the contract; and (e) the remuneration, salary, share of profits, or other income payable to a relative or to a company of which a director or shareholder is a relative is not of such an amount that the transaction con han 3 years and cannot be terminated by any party before the expiry of that term; [Issue 6] I5 – 48 Revised Laws of Mauritius (d) each party to the contract has a real and effective control of the remuneration, salary, share of profit, or other income to which he is entitled under the contract; and (e) the remuneration, salary, share of profits, or other income payable to a relative or to a company of which a director or shareholder is a relative is not of such an amount that the transaction constitutes a gift or other disposition of property without adequate consideration in money or money’s worth. [S. 85 amended by s. 11 (f) of Act 23 of 2001 w.e.f. the income year commencing on 1 July 2001.]