RECENT CASE NOTE: The THERML IMPAC-t on the Value Added Tax Objection Process

What does the Board of Inland Revenue have to do when a VAT Objection letter is lodged by a taxpayer? Good question! Read on….

Since the case of PriceSmart v the Board of Inland Revenue (“PriceSmart”) confirmed the High Court’s jurisdiction to adjudicate issues of tax administration, taxpayers have been emboldened to ventilate other issues of the Board of Inland Revenue’s (the “Revenue”) maladministration – issues that have vexed taxpayers for years.

Most recently, Rahim J., who, coincidentally, was also the Judge in PriceSmart, in the case of Therml Impac Affordable Homes Company Limited v The Board of Inland Revenue CV2020-02592 (“Therml Impac”), which decision was delivered on August 4, 2021, considered, amongst other things, the procedural obligations upon the Revenue when in receipt of a letter of objection from a taxpayer pursuant to section 40 of the VAT Act (“VA”), and the consequences emanating from its failure to meet those procedural obligations. The two main questions considered by Rahim J. were:

  1. When is an Objection under the VA perfected?
  2. Does receipt of an imperfect Objection impose any duties upon the Revenue nonetheless?

The above questions are important for a few reasons. First, where the Revenue fails to determine a taxpayer’s Objection to an assessment of its tax liability within a prescribed period of time, the Objection is deemed to have been determined in favour of the taxpayer. For assessments governed by the VA, section 40(3) sets that period at 6 months.

Secondly, as a matter of practice, such determination could affect whether the Revenue is able to unilaterally apply refunds to off-set liabilities in periods that are subject to an Objection (albeit ‘imperfect’). Concerning the latter, section 35(2) of the VA provides as follows:

“35. (2)  Where, in a return furnished to the Board in accordance with section 31, a refund of any amount is specified as being due, the Board shall satisfy the amount—

(a)  by paying the amount, or any of it, to the person to whom the refund is due; or

(b)  by applying the amount, or any of it, to the payment of any outstanding tax, interest or penalty payable under this Act or any other Act administered by the Board by the person to whom the refund is due.” [Emphasis Added]

Facts

Before we delve into the decision and its implication for tax practice, it is helpful to briefly mention the main facts.

1. Tax Periods in 2007

The taxpayer filed a number of objections under cover of letter dated May 14, 2007 (yet delivered on May 17, 2007) and provided security in lieu of payment of the assessed tax on May 1, 2008 (under cover of letter dated March 27, 2008).

2. Tax Periods in 2010

Two additional objections were later filed under cover of letter dated August 5, 2010 however the taxpayer neither provided security nor paid the liability assessed in relation to these objections.

3. Application of VAT refunds to off-set liabilities

The Revenue applied VAT refunds owed to the taxpayer in relation to other periods to set off liabilities assessed for the periods to which the taxpayer objected in 2007 and 2010.

Decision

Tax Periods in 2007

Rahim J. held that once the taxpayer has, along with the letter of objection, provided security to the Revenue’s satisfaction, that Objection becomes active/perfected (taking on the character of an Objection as envisaged in the VA) after allowing a reasonable period of time for the Revenue to peruse and approve same. The reasonable time was found to be 2 weeks. Consequently, 2 weeks after the taxpayer lodged its Objection it was considered “active” and time began to run for the purpose of 40(3). Ultimately, it was held that 6 months had elapsed without any determination of the Objections and, therefore, the 2007 Objections were deemed to be determined in favour of the taxpayer. The taxpayer was entitled to relief in the form of mandamus, and Rahim J. directed the Revenue to amend the assessments to reflect determinations of the said Objections in the taxpayer’s favour.

Tax Periods in 2010

It was held that upon receipt of the taxpayer’s letter of objection, the Revenue was mandated to make a decision concerning whether payment or security was required. At paragraph 58 of the decision, Rahim J said:

“Upon the lodging of the letter of objection … the taxpayer is to be notified by the BIR as to the amount and nature of security required in the case where the payment of full amount of the assessed liabilities is not made at the time the objection is lodged.”

In the Judge’s view, the indefinite delay of such decision would be wholly inconsistent and detrimental to good administration. Accordingly, a period of 1 month after receipt of the objection letter was deemed to be a reasonable time within which the Revenue should make its decision. Rahim J. further stated that such notice should, as a matter of fairness, indicate to the taxpayer the consequences of failure to provide such security and the requisite documentation. It would appear that this obligation arises even where the taxpayer does not raise the issue of security.

On the facts, the Revenue failed to exercise this duty to make a decision as to whether payment or security was required. Rahim J. held that independent of its statutory duty, the Revenue had also, by virtue of its established practice of exercising its discretion in relation to the security required at the objection stage, created a legitimate expectation that it would do so. In the absence of the payment of the assessed amount or approved security, the 2010 Objections remained imperfect and inactive and time had not begun to run for the purpose of section 40(3) of the VA. Rahim J. ordered that the Revenue make a decision in relation to whether payment or security was required and to inform the taxpayer within 30 days of the Order. 

Off-Set VAT Refunds

The 2007 Objections having been determined in favour of the taxpayer, Rahim J. condemned the application of VAT refunds owed to the taxpayer to the assessed liabilities to which the taxpayer objected in 2007. Interestingly, Rahim J also ordered that the set off of additional liabilities in respect of the 2010 Objections was stayed pending the determination of the Objections.

Implications

As this decision stands, it is now understood that a taxpayer has three different options available to it for filing an Objection, each with distinct consequences:

  • Filing an objection letter along with payment of the sum of liability for which the taxpayer has been assessed.

In this scenario, the 6-month timeline begins to run immediately and a failure on the part of the Revenue to make a determination of the Objection within that time would result in the determination being made in favour of the taxpayer with no regard to the merits or demerits of the taxpayer’s case.

  • Filing an objection letter initially without payment but providing payment or security subsequently.

In such event, the 6-month timeline is deemed to start after a “reasonable time” has elapsed since the security was provided. (2 weeks in this case)

  • Filing an objection letter without payment and without security.

While the 6-month timeline never begins in this circumstance, where a letter of objection is filed without payment or security, the Objection is not entirely void. It places an obligation upon the Revenue to determine whether it will waive a requirement for payment or security pursuant to section 40(2) of the VA – despite the fact the taxpayer did not formally request such consideration. Furthermore, it appears that from the time that an objection letter is lodged and until the Revenue makes such decision, this ‘imperfect’ Objection may act as a “stay” preventing the Revenue from applying its power to set off any VAT refunds against the taxpayer’s liability under section 35(2) of the VA. Interestingly, an ‘imperfect Objection’ never lapses or expires. In other words, should the Revenue fail to make a section 40(2) determination, the imperfect Objection effectively operates as a continuous bar to a unilateral section 35(2) set-off by the Revenue!

The instant case is an example of judicial review being employed to improve fairness and predictability in the conduct of the Revenue. While the specific implications of this decision bestow good news for the taxpayer, the true value is in the subtext – that there is a forum within which a taxpayer may ventilate issues where there is wider remit than that of the Tax Appeal Board; one within which fairness to the taxpayer is a central concern. This is – in no small measure – promising.

CAVEAT


The views expressed in this article are the views of the author(s) only and shared for discussion and information purposes only; they are not intended to constitute legal advice. Readers are encouraged to consult with their professional advisors for advice concerning specific matters. 

Trinidad and Tobago Tax Amnesty 2019

A welcome opportunity for taxpayers to wipe the slate clean before the implementation of the Trinidad and Tobago Revenue Authority (or is it just a tried and tested method for the T&T Government to generate Revenue before an election?)  

The Miscellaneous Provisions (Tax Amnesty, Pensions, Freedom Of Information, National Insurance, Central Bank, Companies And Non-Profit Organisations) Bill, 2019 was assented to on 25th June 2019. 

This Act includes a provision for another tax amnesty (the “Amnesty”) for the period 15 June to 15 September 2019, and waives the following:

(a)  interest on any outstanding tax due and payable for the years up to and including the year ending 31st December 2018, where the tax is paid prior to or during the prescribed period;

(b)  outstanding interest charged on any outstanding tax due and payable for the years up to and including the year ending 31st December 2018, where the tax is paid prior to or during the prescribed period;

(c)  all other penalties due and payable on or in respect of any tax or outstanding tax or interest for the years up to and including the year ending 31st December 2018, where the tax is paid prior to or during the prescribed period;

(d)  all penalties on any outstanding return for the years up to and including the year ending 31st December 2018, where the return is filed prior to or during the prescribed period; and

(e)  all penalties with respect to any return for the years up to and including the year ending 31st December 2018 and filed prior to 15th June 2019, where such penalties have not been paid.

The Amnesty applies to the following taxes: –

  • Corporation Tax;
  • Business Levy;
  • Green Fund Levy;
  • Income Tax;
  • Petroleum Tax;
  • Supplemental Petroleum Tax;
  • Unemployment Levy;
  • Financial Services Tax;
  • Hotel Accommodation Tax;
  • Insurance Premium Tax;
  • Health Surcharge;
  • Property Tax;
  • Stamp duty;
  • Online Purchase Tax; and
  • Value Added Tax.

The Honourable Minister of Finance (“MoF”) has stated that the purpose of the Amnesty is to enable the ‘soon to be established’ Trinidad and Tobago Revenue Authority (“TTRA”) to start with a clean slate.

The MoF urged taxpayers to take advantage of the Amnesty on the basis that that there would not be another Tax Amnesty after the TTRA comes on stream. The joint select committee report and amended legislation to bring the TTRA into force are expected to be laid before parliament soon.

The MoF has set a target to raise approximately TT$500M from this Amnesty, stating that the last tax amnesty generated TT$750M.

In the last ten years there has been four tax amnesties. The Amnesty provides another welcomed opportunity for taxpayers who have not yet paid all of the outstanding taxes up to and including the last tax year.

Jurisdiction and Judicial Review in Caribbean Tax Jurisprudence

A recent decision of the Trinidad and Tobago Tax Appeal Board reveals the limited scope of its jurisdiction to adjudicate on matters of interest to taxpayers, and raises legitimate questions whether Judicial Review to the High Court is an under-utilized remedy in Caribbean tax jurisprudence.

Background

In JAVC Limited v. the Board of Inland Revenue (“JAVC Limited”), the issue for the Tax Appeal Board (the “Board”) was whether it had jurisdiction to hear an appeal where the taxpayer implored it to find, inter alia, that it was improper for the Board of Inland Revenue (the “Revenue”) to commence enforcement proceedings against it founded upon a VAT assessment that had been superseded and / or discharged as evidenced by a subsequently dated VAT Clearance Certificate which stated:

“[The Appellant] has to date discharged all obligations and paid all taxes due under the provisions of the Value Added Tax Act, Chapter 75:06”

The triggering point for the Notice of Appeal was the taxpayer’s receipt of a letter from the Revenue indicating the commencement of collection proceedings in relation to the superseded and / or discharged assessment.

The Ruling

The Board is a Superior Court of Record established by the Tax Appeal Board Act, Chap. 4:50 (the “TAB Act”) to provide for appeals from assessments to income tax, corporation tax and other taxes.

Although in the Board’s reasons it acknowledged “the cardinal principle of natural justice which establishes the right of a taxpayer to challenge an assessment made upon it through the dispute resolution mechanism as specified with the tax legislative regime before the [Revenue] may undertake appropriate proceedings for the recovery of outstanding tax liabilities”, it nonetheless ultimately concluded that its jurisdiction was constrained by section 3(4) of the TAB Act as follows:

38. In our examination of the question as to whether the instant appeals were filed in accordance with the provisions of section 3(4) of the Tax Appeal Board Act, Chap. 4:50, we begin by considering the scope of the particular section which provides: –

‘(4) The Appeal Board shall have jurisdiction to hear and determine –

(a)                Appeals from the decision of the Board of Inland Revenue upon objections to assessment under the Income Tax Act;

(b)               Appeals from such other decisions of the Board of Inland Revenue as may be prescribed by or under that Act;

(c)                Such other matters as may be prescribed by or under this Act or any other written law.’

39. The section therefore establishes that the jurisdiction of the Tax Appeal Board relates to appeals from either the decision of the [Revenue] upon its determination of an objection or a decision of the [Revenue] in which the appeal process to the Tax Appeal Board is prescribed such as for example, where the [Revenue] has made a decision not to extend the time to a taxpayer for lodging an objection to an income tax assessment or to cancel the VAT registration of an aggrieved VAT registrant.” [Emphasis Added]

The decision further reveals that not only does the Board have limited jurisdiction to adjudicate in disputes between taxpayers and the Revenue, but it also takes a very restrictive view on what constitutes a “decision” for the purposes of section 3(4) of the TAB Act. Specifically, the Board also held

44. C. The communication which the Appellant has relied on as the decision of the [Revenue] upon which its Notices of Appeal have been founded, being the letter of the [Revenue] dated 22nd March 2017, is in our opinion not a letter in which the [Revenue] has made a decision but amounts to a notice in which the [Revenue] has communicated to the Appellant its intention to commence enforcement proceedings against it as it relates to its outstanding tax liability …”

The Board did not elucidate the legal distinction between a “decision” and a “notice of an intention to [take an action]” for the purposes of the TAB Act. In lieu of an explanation, we assume the Board is unlikely to view correspondence that is unilaterally issued by the Revenue to the taxpayer as a “decision” – even though such correspondence or notice may be indicative of the fact that a number of underlying decisions had been made prior to its issuance. Presumably, as a matter of form, the Revenue’s correspondence must be expressly referable to a specific request made by a taxpayer in order for the Board to consider it to be a “decision”.

Implications

This decision of the Board is a very useful precedent from the perspective of a tax practitioner. Specifically, the borders of the Board’s jurisdiction – unless and until subsequently redefined by statute or a higher court – are now clearly delineated. The Board deals, fundamentally, with (i) appeals following a decision by the Revenue in respect of an objection and (ii) other specific (and limited) areas listed in legislation that expressly confer a route of appeal to the Board. But where the taxpayer’s contention with the Revenue does not fit neatly into the “assessment-objection-appeal” conveyor belt, then the Board is not the appropriate arena for adjudication. So, for example, in circumstances that the taxpayer alleges that the Revenue’s conduct is in breach of certain principles of natural justice, or where the Revenue prohibits taxpayer from filing a Tax Return, or where the Revenue has not paid interest on an outstanding VAT refund in accordance with the VAT Act, or where the Revenue refuses to waive interest or penalties (to name just a few of the myriad of issues taxpayers in T&T routinely face), the appropriate judicial forum to obtain recourse may not be the Board.

Alternatively, section 5(1) of the Judicial Review Act, Chap 7:08 provides that an application for judicial review of a decision of an inferior Court, tribunal, public body, public authority or a person acting in the exercise of a public duty or function in accordance with any law, shall be made to the High Court in accordance with this Act and in such manner as may be prescribed by Rules of Court.

In Preston v Inland Revenue Commission, [1985] AC 835 (House of Lords) it was stated that:

Judicial review is available where a decision-making authority exceeds its powers, commits an error of law, commits a breach of natural justice, reaches a decision which no reasonable tribunal could have reached, or abuses its powers. Judicial review should not be granted where an alternative remedy is available. In most cases in which the commissioners are said to have fallen into error, the remedy of the taxpayer lies in the appeal procedures provided by the tax statutes to the General Commissioners or Special Commissioners. This appeal structure provides an independent and informed tribunal which meets in private so that the taxpayer is not embarrassed in disclosing his affairs and the commissioners are not inhibited by their duty of confidentiality. The commissioners and the tribunals established to hear appeals from the commissioners have wide knowledge and experience of fiscal law and practice. Appeals from the General Commissioners or the Special Commissioners lie, but only on questions of law, to the High Court by means of a case stated and the High Court can then correct all kinds of errors of law including errors which might otherwise be the subject of judicial review proceedings.

In Preston, the House of Lords stated that a taxpayer can apply for judicial review of a decision of the Revenue if it failed to discharge its statutory duty to taxpayers or abused its power. For the purposes of judicial review, abuse of power included the unfair exercise of a statutory power if the Revenue’s decision or action was equivalent to a breach of contract or breach of representation giving rise to estoppel.

Given, as stated in Preston, “judicial review should not be granted where an alternative remedy is available”, does the Board’s articulation of its own limited jurisdiction in JAVC Limited now fully support Judicial Review applications of Revenue decisions directly to the High Court  in circumstances that Caribbean tax practitioners had previously, and exclusively, sought recourse from the Board? We suspect that until and unless overturned, the JAVC Limited decision will help to establish a paradigm shift in Caribbean tax jurisprudence in favour of the High Court. Very interesting times are ahead.

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CAVEAT


The views expressed in this article are the views of the author(s) only and shared for discussion and information purposes only; they are not intended to constitute legal advice. Readers are encouraged to consult with their professional advisors for advice concerning specific matters. 


DISCUSSION FORUM


Your opinion is very important to us! What are your thoughts on this issue? Please share your comments below.

T&T Budget 2019: “Turnaround”

On October 1, 2018, the Minister of Finance released his Budget Document  entitled “Turnaround”. 

On October 1, 2018, Trinidad and Tobago‘s Minister of Finance released his Budget Document entitled “Turnaround”.

The following is a summary of the key proposed fiscal measures:

Subject Proposed Measure Proposed Date of Implementation
Tax Administration Trinidad and Tobago Revenue Authority

2019

(Full benefits of reform to manifest in 2020)

Property Tax Board of Inland Revenue to issue notices to property owners for the payment of property tax.

2019

Note: Property Tax will only be implemented and collected in respect of calendar year 2019

Agriculture Agriculture Financial Support Programme:

The provision of one-off grants for successful and approved agricultural producers with investment opportunities in a range of activities, including modern farming technology, research and product development, brand building, food safety compliance requirements, value added initiatives and energy-saving and labour-saving technology.

October 3, 2018
Fuel Subsidy Increase the cost of super gasoline from $3.97 per litre to $4.97 per litre. Immediately
Public Service Pension Minimum public service pension of $3,500 per month immediately upon retirement of the public servant. January 1, 2019
Crime Stoppers

Crime Stoppers to increase the current maximum reward from $10,000 to $100,000 for information on the 25 most wanted criminals as identified by the Trinidad and Tobago Police Service which will lead to the successful conviction of those persons.

An overall increase in the budgetary allocation for Crime Stoppers by $2.5 million.

January 1, 2019
Remote Health Centres Three (3) health centres located in Grand Riviere, Blanchisseuse and Cedros would remain open on a 24 hour / 7 days basis. January 1, 2019
Penalties Under Children’s Act An increase by 100% of all fines levied in connection with the prevention of cruelty to children as detailed in the Children’s Act. January 1, 2019
Stamp Duty The Stamp Duty threshold for residential property to be increased from $850,000 to $1.5 million for first time home owners. January 1, 2019
Penalties under the Litter Act 100% increase in all penalties under the Litter Act. January 1, 2019
Penalties for Bush/Forest Fires Increase the fine from $1,500 to $5,000 under the Agriculture and Fires Act for committing such an offence. January 1, 2019
Compliance with the Board of Inland Revenue January 1, 2019
  • TD1
Under section 98(2)(b) of the Income Tax Act – to increase penalty/fines from $3,000 to $10,000 for submission of incorrect information of TD1s regarding fraudulent documents to support claims.
  • Business Levy
Under section 5A (2)(c) Income Tax Act – the threshold for a self employed individual subject to Business Levy to be increased from $200,000 to $360,000.
  • Fraud
Under section 119 Income Tax Act – to increase the penalty for the offences in respect of Fraud from $50,000 to $250,000.
  • Registration of Clubs Act
Under the Registration of Clubs Act – the rate of interest for late payment of taxes is being increased from 15% to 20%.
Food Cards

Increase the value of the Food Card:

• for households with 1-3 persons: from $410 per month to $510 per month;

for households with 4-5 person: from $550 per month to $650 per month; and

for households with 6 and more persons: from $700 per month to $800 per month.

January 1, 2019
Disability Grants

Remove the age eligibility for the disability grant under the Public Assistance Act to allow disabled under the age of 18 to access the grant.

•Increase the Disability Grant for recipients 18 years and older from $1,800 to $2,000.

January 1, 2019
Public Assistance Grant

Increase the Public Assistance Grant by $150 as follows:

for 1 person from $1,150 to $1,300;

for 2 persons from $1,400 to $1,550;

for 3 persons from $1,600 to $1,750;and

for 4 or more persons from $1,750 to $1,900.

January 1, 2019
Senior Citizens’ Pensions The cap on the Senior Citizens’ Pensions will be increased to $6000. January 1, 2019
Tax Allowance for Tertiary Education The allowance for tertiary education expenses will increase from $60,000 to $72,000 per year. January 1, 2019

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Read Full Budget Document here:

BUDGET-STATEMENT-2019


DISCUSSION FORUM


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Bauhuis Coating International Limited v The Board of Inland Revenue

An oldie, but a goodie: Value Added Tax Implications of Bauhuis Coating International Limited v The Board of Inland Revenue

Background

Construction projects can be very expensive. Moreover, they often involve a number of specialist technical service providers, some of whom may not be resident in Trinidad and Tobago (“T&T”), and will not be registered for Value Added Tax (“VAT”).

For unregistered recipients of vatable services, VAT represents a 12.5% uplift on the overall cost of the Project. But make no mistake: registered receipts of vatable services are also affected by upfront VAT costs. Specifically, not only must such costs be financed, which naturally affects cash flow over the course of the project, but the prudent finance manager is cognizant of the deleterious impact of the time value of money 1 (i.e. that between the date the VAT expense is incurred, and the date a refund of overpaid VAT is received from the Board of Inland Revenue (the “Revenue”), the real value of the money to be refunded will have depreciated).

Tax Planning

Against the background that VAT is a real cost, multinationals seeking to do business in the region will be wise to consider whether opportunities exist to mitigate their exposure to VAT.

In T&T, the VAT Act is replete with opportunities for multi-nationals to limit exposure to VAT. One such provision is Section 12 of the 2nd Schedule of the VAT Act, Chap. 75:06 (the “VAT Act”), which provides as follows:

 “12.  Any services which are supplied for a consideration that is payable in a currency other than that of Trinidad and Tobago, to a recipient who is not within Trinidad and Tobago at the time when the services are performed.” [Emphasis Added]

A supply of services falling within Item 12 is zero-rated, and is therefore not chargeable to VAT. The scope of this provision has been considered by the Court of Appeal in Bauhuis Coating International Limited v The Board of Inland Revenue, Civil Appeal No. 187 of 2011 (“Bauhuis”).

The material issue in Bauhuis was whether, in certain circumstances, commercial supplies made by a VAT registrant in T&T for the ultimate benefit of a person who is also within T&T, may nonetheless classify as a zero-rated transaction for the purposes of Item 12 of Schedule 2 of the VAT Act. The “certain circumstances” being the interposition of non-resident persons between the ultimate service provider and ultimate beneficiary in a supply chain of sub-contracted services.

The material facts of Bauhuis are as follows:

British Gas Trinidad and Tobago Limited (“BGTT”), a company resident in T&T, entered into a master contract with Allseas Marine Contractors S.A. Switzerland (“AS”), a company resident in Switzerland, for the procurement (“P”) and installation (“I”) of pipelines in T&T.

AS thereafter contracted with Bauhuis Coating Limited (“BCL”), a Cyprus resident company, to coat (“C”) the pipelines. BCL then subcontracted this responsibility to its wholly owned subsidiary, Bauhuis Coating International Limited (“BCIL”), which was resident in T&T. BCIL thereafter physically executed the pipe coating services within Trinidad in accordance with the contract (the said contract) with their parent Company BCL.

Chart of Service Supply Chain:

BCIL regarded all its commercial supplies performed under the said contract as zero-rated under Item 12 of Schedule 2 of the VAT Act because, pursuant to its contract, it provided services  (i) to BCL who was not within T&T at the time of the supply; and (ii) for a consideration that was payable in United States dollars.

During an audit of the value added tax returns the Revenue discovered the numerous contractual linkages in the procurement and installation of pipelines service supply chain, and formed the view that the commercial supplies provided by BCIL were subject to VAT at the then rate of 15%. BCIL filed an appeal against the assessment. Specifically, the Revenue contended that BGTT was the recipient within the meaning of Item 12 and since that is a T&T company carrying on business in T&T, the supply by the Appellant did not qualify to be zero rated.

The Tax Appeal Board, in affirming the assessment of the Revenue, based its decision in its judgement on the ground that the recipient was BGTT for the purposes of Item 12.

Issue:

Ultimately, the decision of the Court of Appeal turned on the definition of “recipient” in the VAT Act.

The Decision

The term “recipient” under the Act does not envisage a third party – i.e. some remote person who between himself and the supplier has no liability for the consideration or the tax, but at some point down the chain of supply may derive a benefit from a supply made higher up the chain. Instead, the recipient is an immediate party and/or counterparty to the transaction in respect of the supply. The counterparty for such purposes can be identified as the person: –

(a) To whom the registered person is [contractually] obligated to provide the commercial supply;

(b) To whom the registered person is obligated [pursuant to the VAT Act] to provide the tax invoice; and

(c) Who is [contractually] obligated to pay to the registered person sums in settlement of the tax invoice

Crucially, the Court concluded that the Revenue was not permitted to ignore the intermediate contracts between BCL and AS as having no commercial or business purpose apart from the avoidance of a liability to tax and hold that there was once single composite transaction between BCIL and BGTT unless there are two findings of fact:

(i) There was a preordained series of transactions, i.e. the single composite transaction (e.g. pre-ordained that BCIL and BGTT will be the supplier and beneficiary); and

(ii) that transaction contained steps which were inserted without any commercial or business purpose apart from a tax advantage (AS and BCL add no value and were solely interposed in order to derive a tax benefit),

Bauhuis has been more recently applied in the Tax Appeal Board’s decision of T Limited v the Board of Inland Revenue, Tax Appeal Nos. v33 – 40 of 2009.

Implications

The decision affirms the sacrosanct rule of privity of contract2 by declaring that the Revenue must consider the immediate commercial arrangements set up between two parties to a contract and the attendant obligation of each party, albeit there are a series of linkages along the supply chain by virtue of several subcontracts.

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CAVEAT


The views expressed in this article are the views of the author(s) only and shared for discussion and information purposes only; they are not intended to constitute legal advice. Readers are encouraged to consult with their professional advisors for advice concerning specific matters. 


DISCUSSION FORUM


Your opinion is very important to us! What are your thoughts on this issue? Please share your comments below.

Res Judicata in Tax Matters

Does a decision in one year’s tax assessment bar the Revenue or court from considering the same or similar issue in a subsequent year?

Issue

It is not uncommon for taxpayers to make decisions to treat with certain items of income and / or expense in a manner that can have tax implications spanning over a number of Years of Income. For example, if a taxpayer consistently treats certain purchases required in the furtherance of his business venture as “revenue” as opposed to “capital” expenditure – or certain property related expenses as “repairs” instead of “improvements” – then this is a potential tax exposure in successive years if the Revenue disagrees with the taxpayer’s initial classification.

In these circumstances, a question that is often raised is whether the Revenue is precluded from raising an issue in an assessment that was previously determined in favour of the taxpayer by the Court in respect of a prior year of assessment? Specifically, does the public policy and common law doctrine of res judicata, also known as estoppel per rem judicatam (or “claim preclusion” in English), which holds that a matter that has been adjudicated by a competent court may not be relitigated by the same parties, preclude the Revenue from raising the same issue on identical facts in subsequent years?

Against this background, it is noteworthy that the Tax Appeal Board is a Superior Court of Record and is subject, caeteris paribus, to the Civil Proceedings Rules, 1998 (the “CPR”). As such, the arsenal of procedural sanctions contained in the CPR that can facilitate the determination of an Appeal or issue without a trial are at its disposal.1

Background to the Doctrine

The doctrine of estoppel per rem judicatam is based upon the following Latin maxims:

(i)     interest rei publicae ut sit finis litium (“in the interest of society as a whole, litigation must come to an end“); and

(ii)    nemo debet bis vexare pro una et eadem causa (“no man ought to be twice troubled or harassed if it appears to the court that it is for one and the same         cause“)2

The rule – as is evident from the passage above – operates to bar a party to an action from subsequently relitigating the same cause of action or issue incidental to the cause of action where a prior decision was decided upon its merits by a court of competent jurisdiction (save by way of appeal).3

Estoppel per rem judicatam has been described as a “portmanteau doctrine” as it combines cause of action estoppels and issue estoppels. Cause of action estoppel operates where there is a complete bar to a duplicitous cause of action, and issue estoppel operates where the litigant is seeking to raise the same issue from prior final decision involving the same parties.4

Applicability of the doctrine in tax matters

The Trinidad and Tobago Court of Appeal in Phoenix Park Gas Processors Limited v The District Revenue Officer Couva/Caroni5 (“Phoenix Park”) considered the scope of doctrine in tax matters. The Court referred to the Privy Council case of Caffoor v Commissioner of Income Tax, [1961] AC 584 (P.C). prior to concluding that: “the Revenue (is not) precluded from accepting a particular interpretation of a taxing statute since neither issue estoppel nor res judicata applies to assessments to tax in different tax years” (the “Caffoor Principle”).

The Caffoor principle applied

More recently, in the case of R. v Board of Inland Revenue (“R v. the BIR”) the Tax Appeal Board gave further consideration to the question of whether the doctrine of res judicata is applicable in tax matters. On the specific facts, the issue was whether the taxpayer was entitled to claim capital allowances on the costs of assets, inclusive of the stamp duty. By way of background, the Court had previously held, in respect of prior years, that accounting standard IAS 16 was instructive in determining that the Stamp Duty incurred by the Appellant was an essential facet of the acquisition costs of the assets, and properly included in the capital allowance calculation. In the instant appeal, an issue for determination was whether the doctrines of res judicata and/or abuse of process precluded the Revenue from relitigating the same issue in the current year of income. Concerning this, the court remained pellucidly clear about the inapplicability of issue estoppel to tax proceedings: –

“having considered the totality of the factors….against the background of the applicability of res judicata and issue estoppel principles in taxation      matters….we therefore hold that the Respondent was not bound in the years of income 2006 to 2008 by the previous decision of this Court concerning the year of income 2005 in the exercise of its assessment of the liability to tax of the Appellant for those years of income. For this reason, we also hold that there is also no justification to conclude that there has been an abuse of process in the actions of the Respondent in it raising an assessment on the Appellant for the years of income 2006 to 2008 despite the correlation of the underlying facts between those years with that in the previously decided matter involving the year of income 2005.”6

The implications of the decision

On the basis of Phoenix Park and R v. the BIR it is clear that the doctrines of res judicata and/or abuse of process cannot found the basis of a “strike out” type Application in circumstances that the taxpayer is relying on a decision of the Tax Appeal Board in respect of a prior year of income.

It is the view of the writer, however, that the taxpayer may have had more success if it sought to obtain summary judgment pursuant to 15.2 (a) of the CPR whereby the Revenue (respondent) had no realistic prospect of success on the basis that:-

(i)      The instant appeal fell square and centre within the precedent established in respect of the prior years; and

(ii)     The factual matrix in the instant appeal was identical to that in prior years which were subject to the earlier decision.

Specifically, whilst the court in R v. the BIR was reluctant to depart from the deeply engrained Caffoor principle, it is noteworthy that the Court also refused to depart from the rationale that formed the basis of its decision in respect of prior years, and applied the same reasoning in order to grant the taxpayer ultimate success in the instant appeal. In short, the fundamental doctrine of stare decisis et non quieta movere, which translates to “stand by decisions and not to disturb settled matters” or, more simply, cases must be decided the same way when their material facts are the same remains inviolate – no matter the area of law, or the year of assessment.

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CAVEAT


The views expressed in this article are the views of the authors only and shared for discussion and information purposes only; they are not intended to constitute legal advice. Readers are encouraged to consult with their professional advisors for advice concerning specific matters. 


DISCUSSION FORUM


Your opinion is very important to us! What are your thoughts on this issue? Please share your comments below.

Recent Tax Case: C. Limited (No. 2) v The Board of Inland Revenue

Is “insufficient documentation” sufficient grounds for the Board of Inland Revenue to raise an additional assessment upon a taxpayer?

It is the bane of every taxpayer, and every tax professional who represents taxpayers, to receive the following reason in an “Explanation of (Audit) Adjustments” from the Board of Inland Revenue (the “Revenue”) as the purported justification for why an additional assessment was raised upon the taxpayer:

•  “The Company failed to provide adequate documentary evidence to substantiate the claim in respect of XXXXXX”; or

•  “The documents presented were insufficient to substantiate this claim”.

By way of background, the Trinidad and Tobago (“T&T”) Income Tax Act, Chap. 75:01 (the “ITA”) provides that where it appears to the Revenue that a taxpayer has not been assessed, or has been assessed at less than that which ought to have been charged, the Revenue may, within the year of income or within six years after the expiration of the year of income or three years from the date the tax return is filed, whichever is later (the “Statutory Deadlines”), assess such person at such amount or additional amount as according to its judgment ought to have been charged.

Against the background of the Statutory Deadlines, it is very common in T&T for a taxpayer to (a) file a tax return in year 1; (b) hear nothing from the Revenue for the next 5 years; and (c) months (sometimes weeks) before the expiration of the Statutory Deadlines receive correspondence from the Revenue that it has been (i) shortlisted for an audit, (ii) must attend meetings and (iii) provide supporting documents within a very limited period of time. Thereafter, and no matter what is provided to the Revenue (at least from the perspective of the taxpayer) the Revenue will conclude that “insufficient documents” were provided to it in order to substantiate the expense claim(s), and an additional assessment will be raised on the taxpayer days before the expiration of the Statutory Deadlines.

This practice begs the following questions:

•  Is “adequacy of documentary evidence” a subjective standard in the absolute discretion of the Revenue to determine?

•  Does the fact that the general burden to prove the correctness of the tax filing is upon the taxpayer justify the Revenue’s performance of a perfunctory audit?

These issues were the subject of the Tax Appeal Board’s deliberations in the recent case of C Limited (No. 2) v The BIR.

 

C. Limited (No. 2) v The Board of Inland Revenue

(Decision delivered November 13, 2017)

Counsel: Barrie Attzs, for the Appellant; Kishore Maharaj, for the Revenue

Material Facts

The taxpayer submitted its Corporation tax return in respect of year of income 2000 in May 2001. The Revenue initially accepted the return. However, in 2005 the Revenue informed the taxpayer that it had been selected for an audit. Thereafter, the Revenue raised an “additional assessment” on the taxpayer on the basis, inter alia, that the taxpayer did not provide satisfactory documentary evidence to support certain expense claims.

At trial, the Revenue led no evidence in respect of:

(i)                 why after accepting the Return initially it subsequently selected the taxpayer for an audit in 2005; or

(ii)                what information or material it acted on in arriving at its additional assessment.

Legal Issue

The primary issue for the Court’s consideration was whether, on an additional assessment:

•  the burden is upon the taxpayer to prove that it has sufficient documentation to substantiate its claim(s); or

•  there is an onus upon the Revenue to demonstrate a positive fact or error of law that justifies the raising of an additional assessment after it had initially accepted the taxpayer’s tax filings.

Held

Appeal allowed.

The Revenue has an onus to establish the facts which caused it to appear to it that the taxpayer was under-assessed and, as a consequence, that it rightfully raised an additional assessment. In short, the Revenue is not permitted to justify its additional assessment on a bare subjective opinion that insufficient evidence in support of the impugned claims was furnished by the taxpayer to it during the audit and objection stages despite numerous requests being made for same. On the contrary, there is an evidential burden placed upon the Revenue to demonstrate the discoveries it had made during its examination in relation to the adjustments that form the basis of its additional assessment.

Implications for Tax Practice 

The ability of the Revenue to raise an additional assessment is a powerful statutory weapon within its legislative arsenal in the exercise of its monitoring of the compliance of taxpayers within the self-assessment system. However, this power is not absolute and is subject to evidential safeguards to ensure that the additional assessment is not founded on mere suspicion or on an arbitrary or purely subjective basis. Specifically, the Revenue must discover new information or material which warrants such additional assessment. This acts as a judicial mechanism to counteract any potential abuses by the State in the exercise of its statutory powers.

This case is therefore particularly significant because the vast majority of contested “assessments” in respect of corporate tax payers in T&T are “additional assessments” as opposed to “best of judgment assessments” (which arise when the taxpayer either makes a Return of Income which is not accepted by the Revenue or fails to make a Return of Income altogether).

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CAVEAT


The views expressed in this article are the views of the authors only and shared for discussion and information purposes only; they are not intended to constitute legal advice. Readers are encouraged to consult with their professional advisors for advice concerning specific matters. 


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Your opinion is very important to us! What are your thoughts on this issue? Please share your comments below.

T&T Budget 2017: Changing the Paradigm

On October 2, 2017, the Minister of Finance released his Budget Document  entitled “Changing the Paradigm”.

On October 2, 2017, Trinidad and Tobago‘s Minister of Finance released his Budget Document entitled “Changing the Paradigm”.

The following is a summary of the key proposed fiscal measures:

Subject Proposed Measure Proposed Date of Implementation
Corporation Tax for Commercial Banks Commercial banks will be subject to a flat 35% rate of tax. January 1st 2018
Corporation Tax (Generally) Companies will be subject to a new flat 30% rate of tax. January 1st 2018
Export Allowance for the Manufacturing Sector To re-establish export allowances to manufacturers; to establish a framework that would allow a reduction on tax for revenues generated from incremental exports to existing markets. January 1st 2018
Energy Sector 12.5% royalty rate would be applicable on the extraction of all gas, condensate and oil. The fair market values of oil and gas will be fixed by the Petroleum Pricing Committee. December 1st 2017
• Making the Supplemental Petroleum Tax responsive not to price but to underlying profitability. TBA
Extending the Supplemental Petroleum Tax to gas. “”
Reconciling and simplifying of the fiscal regimes applicable to the exploration and production and production sharing systems. “”
Gambling Industry The existing rate of duty on all mechanical games of chance for gambling of 20% be increased to 40%. October 20th 2017
The introduction of a 10% tax on all cash winnings by the National Lotteries Control Board. December 1st 2017
Electronic roulette devices operating in bars throughout the country, under the Liquor Licence Act, Chap 84:10 will now attract a flat device tax of $120,000 annually. January 1st 2018
The gaming tax which shall be payable annually under the Liquor Licence Act, Chap 84:10 will be increased from $3,000 to $6,000 in respect of each amusement game. “”
Various taxes on gaming tables and other devices by private members’ clubs would be increased. “”
Property Tax The payment of Property Tax under the Property Tax Act had been waived for the period January 1st 2010 to January 1st 2016. This is to be put into effect. 2018
Tax Administration Introduction of the Trinidad and Tobago Revenue Agency (“TTRA”). The TTRA will manage both the Customs and Tax Divisions, and will also manage its own Human Resources. Legislation to establish TTRA to be tabled before Parliament in December 2017. 2018
Vehicles using Clean or Alternative Fuels 25% increase on the motor vehicle tax and customs duty on private passenger vehicles with engine sizes exceeding 1599cc and not exceeding 1999cc.

Moratorium up to December 31st 2017 for private passenger vehicles already in transit or already in Trinidad and Tobago.

October 20th 2017
Removal of all taxes and duties on CNG vehicles with engine sizes under 1599cc. “”
Import Duty on Tyres Used tyres will attract the same 30% customs duty as new tyres. However, the customs duty on the importation of new tyres utilized on buses and lorries will remain at 15%. October 20th 2017
Environmental tax of $20.00 per tyre on all tyres imported into Trinidad and Tobago. December 1st 2017
Fuel Subsidy An adjustment to the subsidy plus the increase in Gross Margins will increase the price of Super Gasoline from $3.58 per litre to $3.97 per litre and the price of Diesel from $2.30 per litre to $3.41 per litre. Immediately

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Read Full Budget Document here:

BUDGET STATEMENT 2018 BOOKLET


DISCUSSION FORUM


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Avoiding interest on quarterly taxes in Trinidad and Tobago

In Trinidad and Tobago, interest may be avoided by a company on the payment of quarterly taxes should the required amounts be paid to the Board of Inland Revenue on or before the due dates. The due dates for the payments of quarterly taxes are 31st March, 30th June, 30th September and 31st December. The 4th quarter for 2016 ends on 31st December and it is important that the quarterly taxes due are correctly determined and paid on time.

In Trinidad and Tobago, interest may be avoided by a company on the payment of quarterly taxes should the required amounts be paid to the Board of Inland Revenue on or before the due dates. The due dates for the payments of quarterly taxes are 31st March, 30th June, 30th September and 31st December. The 4th quarter for 2016 ends on 31st December and it is important that the quarterly taxes due are correctly determined and paid on time. Should a downward adjustment be required to be made for the payment, an application should be made and approved by the Board of Inland Revenue.  Interest of 20% per annum is imposed on the late payment of quarterly taxes.

Corporation tax is charged for the calendar year in which the accounting period ends, on taxable profits earned during the accounting period. Taxable profits is determined after deduction of capital allowances and the revenue expenses wholly and exclusively incurred in producing income. Corporation tax is based on 25% of taxable profits of a company.

In an income year quarterly corporation tax is based on the taxable profits of the previous year. The corporation tax payable for each quarter in 2016 is based on taxable profits for the income year 2015. The corporation tax installment payable for each quarter in 2016 is determined based on the following formula.

Taxable profits for 2015   X   25%

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Should the taxable profits for 2016 be expected to exceed the taxable profits for 2015, by 31st December the company is required to pay to the Board of Inland Revenue, quarterly taxes equal to the liability for income year 2015 in addition to 80% of the increase for 2016 over 2015.

Should the taxable profits for 2016 be expected to be less than the taxable profits for 2015, an application should be made to the Board to Inland Revenue for approval to reduce the quarterly tax installment. A company is required to pay the higher of corporation tax or business levy.

Business levy is charged at the rate of 0.6% of gross sales or receipts of a company. A credit is given against business levy liability for any corporation tax paid for the income year, the result being that only the higher of the corporation tax or the business levy liability is payable.

Green fund levy is charged at the rate of 0.3% of gross sales or receipts of a company. Green fund levy must be paid in addition to corporation tax or business levy.


DISCUSSION FORUM


If you have any questions or comments about quarterly tax computation, please ask or comment below.

Case comparison and analysis: A Ltd. v The Board of Inland Revenue and SG Inc. v The Board of Inland Revenue

Can a taxpayer submit an amended tax return to the Board of Inland Revenue in order to correct a previous filing? If so, what are the conditions to be met and the procedure that should be followed? If not, by what other means (if any) may a taxpayer correct a previous filing?


Issue


Can taxpayers submit an amended tax return to the Board of Inland Revenue (the “Revenue”)? If so, what are the conditions to be met and procedure to be followed? If not, by what other means (if any) may a taxpayer correct a previous filing? 

Intro/Abstract

 

Although the Revenue has the right to re-assess a taxpayer if it considers, inter alia, that a taxpayer has been under-assessed or not assessed whether the taxpayer has filed a tax return or not, the Income Tax Act, Chap. 75:01 (ITA) does not expressly give a taxpayer the equivalent privilege to file an amended tax return in order to rectify an error in its previous filing which may have given rise to an over-assessment. Conversely, the ITA does not expressly state that a taxpayer cannot file an amended tax return either.

It is intuitive that a taxpayer ought to be able to file an amended return, given that the taxpayer is under a statutory obligation to file an accurate return in the first place. It is logical, therefore, that if a taxpayer subsequently discovers an inaccuracy in its initial tax return, that its implicit statutory duty ought to be to rectify it. For example, if the taxpayer incorrectly omitted to include a zero on its gross revenue line and thereby inadvertently filed a return with a $300,000 figure when it was meant to be $3,000,000 – is the taxpayer meant to remain silent and wait for the Revenue to notice the error? To extrapolate this example, suppose the taxpayer says nothing, the Revenue observes the mistake that resulted in a gross underpayment of taxes and decides to lead evidence in Court that the taxpayer was aware of this mistake and did nothing about it. Will the Court accept the taxpayer’s defence that there is nothing in the ITA that specifically says it must correct an error of this nature? Furthermore, given that the Revenue inherently has a right to re-assess a taxpayer three years after a tax return is filed, what prejudice is there to the Revenue if the taxpayer re-files its Return?

Let us now look at the statute. The ITA stipulates that the Revenue will serve upon each taxpayer a Notice of Assessment which states the amount of his chargeable income and the amount of tax payable by him (s.86(1) ITA). The ITA identifies two instances where a taxpayer’s quantified liability to tax, as expressed in its tax return, may be subsequently revised:

(i)     via an assessment pursuant to s.83 and s.89 of the ITA; or

(ii)     pursuant to a repayment of tax application under s.90 of the ITA.

Section 89(1) of the ITA contemplates the instance where a taxpayer has not been assessed or has been assessed at a lesser amount than he ought to have been charged. Section 90(1) anticipates the circumstance where a taxpayer has paid tax in excess of what he should have paid and seeks a repayment.

If a taxpayer disputes his tax assessment by the Revenue, s.86 of the ITA identifies the following procedure must be followed:

1.      He may apply to the Revenue by Notice of Objection in writing for the Revenue to review and revise the assessment made. The application must state the grounds of his objection and must be made within 15 days of the service of the Notice of Assessment.

2.     This application may be made outside of the 15 days if the Revenue is satisfied there was a reasonable excuse for not making the application within the time limit and if the application was therefore made without unreasonable delay.

3.     If the Revenue disallows the objection to be made under this ground, the taxpayer may appeal to the Appeal Board.

Two recently decided Trinidadian cases treat with this issue of reassessment, specifically in the context of  a corporation tax return. In giving its ruling in these cases: A Ltd. v. The Board of Inland Revenue, I 36 of 2014 and SG Inc. v. The Board of Inland Revenue, I 97 of 2013, the Tax Appeal Board had to determine the issue of whether a statutory right to file an amended return exists. In both cases, the Tax Appeal Board acknowledges that application of the procedure identified under s.86 is the source of great confusion for both the taxpayer and the Revenue and sought to clarify the statutory requirements in its rulings.


“… Given that the two cases have substantially similar facts, and were issued by the same Court no more than five days apart, on a superficial level one would expect a substantially similar result with substantially similar reasoning … [O]n the face of it, the cases have materially different results and apparently inconsistent reasoning … On a closer read of the decisions, however …”


What follows is an examination of both cases, with an analysis of the efficacy of the rulings in addressing this identified problem and clarifying the statutory procedure. In accordance with the Caribbean’s common law tradition, we look at these recent cases to determine what precedent the court may have established regarding this area of tax law by summarising the material facts of each case and analysing the decisions handed down.

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A Ltd. v The Board of Inland Revenue, I 36 of 2014

(Delivered 15th July, 2015)


Material Facts


     Appellant’s tax return for 2007 was dated 21st July 2007 and was submitted and accepted by the Respondent on 30th December 2009.

•     The Revenue did not serve a Notice of Assessment.

•     By letter dated 30th December 2013 the Appellant’s authorised agent wrote to the Chairman via the Officer in Charge of the Objection Section of the Revenue, requesting an amendment to the aforementioned tax return. While the tax losses brought forward remained the same, the tax loss generated increased and there was a resultant increase in the tax loss carried forward.

•     The amendments were attached to the letter. The amended tax return submitted was undated and unsigned.

•     The Respondent responded by letter dated 16th January 2014 stating the aforementioned letter from the Appellant did not constitute a valid Letter of Objection as per s.86 of the ITA since it was submitted in excess of fifteen days from the date of service of the Notice of Assessment to the taxpayer and that before the Revenue could accept it, the taxpayer needed to satisfy it that there was a reasonable excuse for not making the application in a timely manner and that the application was made without unreasonable delay.

•     The Appellant appealed by notice of appeal dated 26th February 2014 on the grounds of the Respondent’s refusal to accept the amended corporation tax return and the Respondent’s failure to make a reassessment further to refusing the return.

•     On 28th April 2014 the Respondent purported to issue a Notice of Assessment to the Appellant for year of income 2007 confirming the initial return.


Taxpayer’s Arguments


The taxpayer argued, inter alia, that:

(i)     the Revenue is obligated to either accept the return and issue a Notice of Assessment or refuse to accept the return and make a best of judgment assessment;

(ii)     it enjoyed a legitimate expectation that it is entitled to submit an amended return based on the Revenue’s previous and well-established practice in respect of amended returns;

(iii)     the Revenue’s categorization and treatment of the taxpayer’s amended return as an “objection” is an arbitrary and unlawful exercise of its power. Specifically, although the amended return was delivered to the Chairman via the Objection Section, the Revenue was wrong to deny the amended return on the grounds that it constituted an “objection” that was filed “out of time” given that as of the date the taxpayer attempted to file the amended return the Revenue had not issued a Notice of Assessment against the taxpayer and, consequently, there was nothing in law for the taxpayer to “object” to (i.e. the 15 day statutory time clock could not have expired because in law it had not even commenced).

(iv)     in the alternative to (iii) (i.e. even if the Revenue was correct that the amended return constituted an “objection” that was filed “out of time”) the Revenue was nonetheless obliged to accept it, because the taxpayer filed the amended return without undue delay upon learning of the error in its initial tax return filing and therefore had a reasonable excuse in law for not filing the amended return beforehand.

(v)     an amended tax return filed under cover of a dated and signed letter from its professional advisers (a big four professional accounting firm) was a composite filing and, therefore, did not need to be signed in order to be treated as valid where the nature of amendments/revisions were clear and there was no question that the professional advisers were duly authorized to act on behalf of the taxpayer. 


Ruling & Reasoning


Appeal dismissed.

(i)     The amended Corporation Tax form must be signed and dated in order to be valid. The statutory requirement does not give the Respondent the discretion to allow for a composite filing of a signed covering letter with an unsigned return.

(ii)     The A Ltd’s request to seek a revision of its 2007 Corporation Tax return by way of the objection procedure was premature because there was no Notice of Assessment issued which would have activated an objection.

(iii)     In the circumstances, A Ltd’s communication to the Revenue to seek a revision of its initial filing should have been directed to the Chairman of the Revenue.

(iv)     The Objection Process is activated by the dissatisfaction of a taxpayer on the assessment made by the Respondent as has been indicated in its Notice of Assessment.

(v)     The Notice of Objection must be made within 15 days from date of service of the Notice of Assessment (s.86(2) of the ITA).

(vi)     The A Ltd’s request to seek a revision of its 2007 Corporation Tax return by way of the objection procedure was premature because there was no Notice of Assessment issued which would have activated an objection.

(vii)     A Ltd’s right to make an application to lodge an objection to the Revenue’s subsequent Notice of Assessment dated 28th April 2014 remained intact, subject to the requirement of satisfying the Revenue that there was a reasonable excuse for not making the application in a timely manner and that the application was made without unreasonable delay. 

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SG Inc. v The Board of Inland Revenue, I 97 of 2013 

(Delivered: 20th July, 2015)


Material Facts


•     The Appellant’s tax return for 2007 was dated 29th April 2008 and received by the Respondent 7th July 2008.

•     The Respondent accepted the return and made an assessment of the Appellant’s 2007 income.

•    A Notice of Assessment of the Appellant for 2007 was made and issued, dated 2nd October 2010.

•     The Appellant sought a re-assessment of its taxes for 2007 by letter dated 10th October 2013 written to the Chairman of the Revenue and directed to its Objection Section.

•     An amended 2007 tax return was attached to the taxpayer’s cover letter. The amended return was undated and unsigned. The Appellant claimed tax relief for losses incurred which had not been claimed in the original filing and its effect on the Appellant’s declared tax liability. The chargeable profits and tax before loss relief remained the same.

•     The Respondent responded by letter dated 29th October 2013 stating the Notice of Objection (the aforementioned letter from the Appellant) had not been made within 15 days and that the Appellant did not satisfy the board that there was a reasonable excuse for not making the application in a timely manner and therefore constituted an unreasonable delay. The Respondent informed of the right to appeal to the Tax Appeal Board.

•     The Appellant appealed on the grounds of the Respondent’s refusal to accept the amended corporation tax return in support of a claim for a refund under s.90 and the resultant failure to reassess the Appellant.

•     The Respondent, however, argued the correct procedure to be followed was for the taxpayer to file an objection pursuant to s.86(2) of the ITA.


Taxpayer’s Arguments


The taxpayer argued, inter alia, that:

(i)     the Revenue is obligated to either accept the return and issue a notice of assessment or refuse to accept the return and make a best of judgment assessment;

(ii)     it enjoyed a legitimate expectation that it is entitled to submit an amended return based on the Revenue’s previous and well-established practice in respect of amended returns;

(iii)     the Revenue’s categorization and treatment of the taxpayer’s amended return as an “objection” is an arbitrary and unlawful exercise of its power;

(iv)     in the alternative to (iii) (i.e. even if the Revenue was correct that the amended return constituted an “objection” that was filed “out of time”) the Revenue was nonetheless obliged to accept it, because the taxpayer filed the amended return without undue delay upon learning of the error in its initial tax return filing and therefore had a reasonable excuse in law for not filing the amended return beforehand; and

(v)     The taxpayer was entitled to have the amended return assessed pursuant to s.90 of the ITA and any tax which had been paid in excess of the amount to which it was properly chargeable should be refunded.


Ruling & Reasoning


Appeal allowed. The Revenue was instructed to reassess the Appellant based on its application of 10th October 2013.

The court ruled that:

(i)     Where a taxpayer has overpaid taxes, a claim may be made for a repayment of tax. The taxpayer must satisfy the Revenue that he paid in excess of what he is properly chargeable for the year in question.

(ii)     The application for repayment must be made within six years from the end of year of income to which the claim relates.

(iii)     If the Revenue is satisfied, it will issue a certificate of the amount to be paid. The Comptroller of Accounts shall issue the repayment upon receipt of the certificate.

(iv)     Section 90 of the ITA application does not require the submission of an amended tax return. An amended tax return merely demonstrates the revised calculation of the taxpayer’s tax liability. This computation can also be shown within the application letter itself.

(v)     Once the application is made within the statutorily mandated six-year period, it is subject to the Revenue’s verification procedures. This is a condition precedent for its acceptance.

(vi)     In determining whether the application is one which falls within the ambit of s.90 of the ITA the critical factors are:

(a)      whether the Appellant had submitted a tax return;

(b)      whether the Appellant had been assessed in a sum in excess in the amount contained in the tax return; and

(c)      whether the application under s.90 was made within six years from the end of the year of assessment to which the claim relates.

(vii)     “The fact that an unsigned Corporation Tax Return was submitted by the Appellant with its letter to the Respondent of 10th October, 2013 in support of the application made is not prejudicial to its claim, there being no requirement prescribed under s.90 for a revised or amended Tax Return to be submitted with the application. It is our view that the purpose of the unsigned Amended Corporation Tax Return in this instance was merely to demonstrate the revised calculation of the tax liability of the Appellant by the application of loss relief which it did not claim in the original filing. The revised computation as a result of its claim may have been alternatively shown within the body of the application letter.”

(viii)     “The distinguishing feature between treating the application in question as being within the realm of s.90 as distinct from one made under the objection procedure under s.86 is the specific requirement under s.90(3) which provides that no repayment of tax shall be made where the taxpayer has been assessed in excess of the amount contained in his return. In this instance, the taxpayer has been assessed for the 2007 year of income consistent with the amount in its filed return. If the taxpayer had been assessed in a greater amount and was in disagreement with such, the procedure to be followed would have been by way of filing an objection to the assessment with the Respondent as prescribed under s. 86(2).”

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Analysis & Conclusion


Given that the two cases have substantially similar facts, and were issued by the same Court no more than five days apart, on a superficial level one would expect a substantially similar result with substantially similar reasoning. However, on the face of it, the cases have materially different results and apparently inconsistent reasoning.

For example, in A Ltd. it was fatal to the taxpayer’s claim that the amended return was unsigned and undated, although in SG Inc. it was not. Further, in A Ltd. the taxpayer was faulted for submitting the tax return to the Objections department, whereas this was not an issue in SG Inc.

On a closer read of the decisions, however, the material difference between the two cases is that in A Ltd the Tax Appeal Board analysed the issue as an attempt by the taxpayer to file a return pursuant to s.76 of the ITA, whereas in SG Inc. the Tax Appeal Board analysed the filing within the context of s.90 of the ITA.

In other words, where the taxpayer seeks to file an amended return as an amended return, then it must be signed and dated. However, where a taxpayer seeks to obtain a refund/repayment pursuant to s.90 of the ITA, the Court has held that since that section does not prescribe a form for that application, the amended return does not have to be signed because its purpose is “merely to demonstrate the revised calculation of the tax liability”. 

While several uncertainties undoubtedly remain regarding this area of tax law, the rulings in these two cases have arguably established the following guidelines for the Caribbean tax practitioner:

(i)     where the taxpayer seeks a refund of overpaid taxes, taxpayers should, out of an abundance of caution, expressly state that the filing is made pursuant to s.90 of the ITA, in which case they will have six years from the filing of the initial return to make the application, and said application need not be in the form of a dated and signed amended tax return;

(ii)     if a Notice of Assessment has been issued by the Revenue, and the Notice of Assessment gives rise to a liability that is in excess of the amount contained in the taxpayer’s initial tax return filing, then the s.90 procedure is not available to the taxpayer. In that circumstance, the appropriate procedure is for the taxpayer to “Object” to the Notice of assessment;

(iii)     if there has been no Notice of Assessment issued by the Revenue (as in the A Ltd case), neither the “objections” procedure nor the “s.90 procedure” is applicable to the taxpayer. In such a circumstance, the taxpayer should direct its communication to the Chairman in order to seek the applicable revision.

These case analyses demonstrate the challenges that face the tax practitioner who must marry interpretation of Caribbean tax legislation with its application in practise. Without the luxury of the legislative drafter’s frequent amendments to ensure the law remains current, the burden falls on the court to keep this static legislation dynamic so as to meet the on-going needs of the taxpayer.

As was seen in these two cases, the role of the tax attorney was to aid and interpret the law and determine the most appropriate and accurate application. It is arguable that the attorneys in these cases had a secondary but no less important role – to identify and address the lacunas and inconsistencies in the law that resulted in confusion for their clients and affected the clients’ ability to meet their statutory obligations.

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The guidelines handed down by the court in these two rulings will no doubt prove useful in future. In fact, it is suggested that the attorney’s role in the development of tax law through the courts could only be aided by publication of the decisions of the court, as this facilitates the examination and discussion that leads to growth and advancement. We at caribbean-tax.com look forward to further elucidation regarding the re-assessment of a taxpayer and the procedures relevant in each circumstance.


CAVEAT


The views expressed in this article are the views of the authors only and shared for discussion and information purposes only; they are not intended to constitute legal advice. Readers are encouraged to consult with their professional advisors for advice concerning specific matters. 


DISCUSSION FORUM


Your opinion is very important to us! What are your thoughts on this issue? Please share your comments below.