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
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