Tanzania's court of appeal, Dar es Salaam
Dar es Salaam. Upstream oil and gas exploration
company, Ophir Tanzania (Block 1) Limited, is to pay the Tanzania
Revenue Authority (TRA) Sh18.3 billion after losing a legal battle to
challenge the tax liability imposed on it in 2014.
This follows the
decision of the Court of Appeal that on Friday upheld two previous
decisions that rejected the company’s attempts to unhook itself from the
tax liability.
Justices Ferdinand Wambali, Lugano Mwandambo and
Lilian Mashaka have insisted that the oil and gas exploration company
was duty bound to withhold tax for payments made to service providers
who were non-residents.
Withholding tax is the amount of tax retained
by one person when making payments to another person in respect of
goods supplied or services rendered by the payee.
The verdict has
answered the legal quandary among investors and tax law experts on
whether companies are obliged to withhold tax for the payments they made
to non-residents who provide service outside Tanzania, for services
utilized in Tanzania.
The company became embroiled in the tax dispute
with the taxman since 2014 when national tax collector audited the
firm’s tax affairs for the years of income 2010 to 2013. The audit
found, among other things, a difference between Ophir’s figures on
imported services in the VAT returns compared to those reported in the
withholding tax returns.
Several efforts to settle the dispute
amicably proved futile, prompting the taxman to issue the Ophir with
withholding tax bill of Sh18.3 billion, being principal tax and interest
due.
Ophir lost the initial attempt to challenge the tax bill at the
Tax Revenue Appeals Board (Trab) before its second appeal against the
tax liability was equally dismissed by Tax Revenue Appeals Tribunal
(Trat).
The root of Ophir’s complaint at the Court of Appeal was that
Trat wrongly interpreted section 69 (i) (ii) read together with
sections 6 (1) (b) and 83 (1) (b) of the Income Tax Act (ITA) which
allegedly resulted in the erroneous finding it was responsible to
withhold tax for payments it made to non-residents.
The oil and gas
firm argued that Trat erred in holding that the payment it made to
non-residents, irrespective of place of rendering the service, were
subject to withholding tax under sections 6 (1) (b), 69 (1) (i) and 83
(1) (b) of the ITA, 2004.
It also contended that Trat erred by
confirming the decision of the Trab that Ophir had obligation to
withhold tax for the payment made to its non-residents service provider
outside Tanzania for services utilized in Tanzania.
The lawyer who
represented Ophir, Mr Wilson Mukebezi, described Trat’s interpretation
of as utterly misconceived on the ground that it focused on the place
where the recipient resides and where the services are consumed contrary
to the intended meaning of the law.
He submitted that section 6 (1)
(b) of the ITA imposes tax liability to non-resident person’s income
only to the extent that it has a source in Tanzania.
He also made
reference to section 69 (1) (ii) of the ITA and argued that the key
condition for the payment of service fee to have a source in Tanzania
was that it must be attributable to services rendered in Tanzania.
The
counsel also considered section 83 (1) (b) of the ITA which, according
to him, imposes the obligation to withhold tax on service fee only if
the source requirement under section 69 (i) (ii) of the Income Tax Act
is satisfied.
He maintained that the service fee payment could only
have had a source in Tanzania if it was attributable to services offered
in Tanzania.
On the contrary, he argued, in the instant case, the services were rendered outside Tanzania.
Senior
state attorney who represented TRA, Ms Gloria Achimpota, supported
Trat’s holding that Ophir had an obligation to withhold income tax from
the payments made to non-residents for the services rendered.
She maintained that the payments made by the appellant had a source in Tanzania.
“As
the service for which the payments were made were consumed by the
appellant (Ophir) in Tanzania for purpose of earning income in Tanzania,
the payments made for such services had a source in Tanzania, thus the
appellant had to withhold tax under section 83 (1) (b) of the ITA,” said
the lawyer.
She further stated that since the payments were made in
Tanzania they were subject to withholding tax under section 83 (1) (c)
of the ITA read together with section 6 (1) (b) of the same Act.
In
their decision, Justices--Ferdinand Wambali, Lugano Mwandamba and Lilian
Mashaka sided with the taxman that Ophir was duty bound to withhold tax
on payments that were made to non-residents.
It is important at this
point to not that the decision of Trat was heavily influenced by the
previous decision in the Civil Appeal No 24 of 2018 between Tullow
Tanzania Bv VS The Commissioner General, Tanzania Revenue Authority.
Mr
Mukebezi strongly criticized the application of the case on the ground
that the court wrongly relied on improper definition of the word
“rendered” to arrive to the conclusion that withholding tax was
applicable for payments made to non-resident for services rendered
outside Tanzania.
The lawyer further faulted the holding of the court
in Tullow Tanzania Bv for holding that the word “rendered” used under
section 69 (i) (ii) of the ITA was synonymous to the words “supplied” or
“delivered”.
Ms Achimpota of TRA supported Trat’s reliance in the
Tullow Tanzania Bv case, saying it was supported by evidence that the
services were rendered and performed in Tanzania and the appellant
failed to prove the contrary when the payment was made to a
non-resident.
In their decision, the judges said: “We must state that
we have thoroughly scanned the record of appeal and we are satisfied
that the fact and circumstances of the case in the present appeal are
similar with that obtaining in Tullow Tanzania Bv.
“In the
circumstances we are settled that Trat correctly decided as it did and
properly followed the decision of the court in Tullow Tanzania Bv.”
No comments :
Post a Comment