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Tourism Holdings Ltd v Fiji Revenue and Customs Authority [2014] FJHC 643; HBT11.2011 (29 August 2014)

IN THE TAX COURT, HIGH COURT OF FIJI
AT SUVA
[APPELLATE JURISDICTION]

Appeal No. HBT 6 of 2012

(On Appeal from the Judgment of the Tax Tribunal of 10 October 2012 in the Tax Tribunal Matter No. 11 of 2011)

IN THE MATTER of the Income Tax Act Cap 201 (Laws of Fiji)

AND

IN THE MATTER of Section 82 of the Tax Administration Decree 2009 (Decree 50 of 2009)

BETWEEN:

TOURISM HOLDINGS LIMITED, a company incorporated in New Zealand with head office at 83 Beach Road, Auckland, New Zealand.
Applicant

AND:

CHIEF EXECUTIVE OFFICER, FIJI REVENUE AND CUSTOMS AUTHORITY, National Revenue and Customs Complex, Queen Elizabeth Drive, Nasese, Suva.
Respondent

Appearance: Mr Naidu R with Mr Krishna R for the Appellant
Ms Gavidi F., Legal Officer of FRCA for the Respondent

Date of Judgment: 29th August 2014

JUDGMENT

1. This is an appeal from the Tax Tribunal delivered on 10th October 2012.

2. By the Notice of Appeal dated 6th of November 2012, the Appellant stated the following Grounds of Appeal:

8(2) (a) (ii): "Sale of Company"

"1. The Learned Tribunal erred in law and in fact in holding (despite his finding that the plain an ordinary meaning of the words was to dispose of the entity by sale) that a sale of a company occurred.

2. That in supporting the conclusion referred to in Ground 1 above, Learned Tribunal erred in law and fact in holding that:

(a) the share sale agreement (Agreement) to which the Appellant was party was for the Sale of a business; and

(b) Clause 5 of the Agreement supports such a conclusion.

Implication of Corporate Tax Credits and the Dividend Regulations.

3. The Learned Tribunal erred in law and fact in holding that the parties are in dispute as to the meaning of the term "tax credit from the previous year's" for the purpose of the definition of "A" and when they can be relief on within the formula found in Regulation 4 of the Dividend Regulations (the dispute is about the meaning of the term Corporate Tax paid in "A" and whether it includes Corporate Tax paid in the tax years preceding 1 January 2001).

4. The Learned Tribunal erred in law and fact in holding that the Appellant is arguing that the legislation should act prospectively (the Appellant was arguing that the legislation should be interpreted in accordance with its plain and ordinary meaning).\

5. The Learned Tribunal erred in law and fact in failing to consider the Appellant's argument in support of the Application for Review that:

(a) plain and ordinary meaning of the words would allow them to be read as allowing corporate tax paid before 2001 to be taken into account; and

(b) there is no dispute that in calculating "A" for the years after 2001, the Respondent may have taken into account Corporate Taxes paid in prior years. In that case consistency requires that the words of the Dividend Regulations be read in the same way for the 2001 year. To hold otherwise is to read into the regulations word (for example Corporate Tax paid in the income years after 2000) that do not exist.

6. The Learned Tribunal erred in law and fact in failing to take into consideration the initial intention and practice of the Respondent in applying the Dividend Regulation (including the training materials Respondent had prepared and presented to tax payers and tax professionals as was agreed in the evidence of Mr Kwong of the Respondent).

7. The Learned Tribunal erred in law and in fact in holding that any calculation of tax credits envisaged by virtue of Regulation (4) (of the Dividend Regulations) cannot be computed until at least expiry of the first full year.

8. The Learned Tribunal erred in law and fact in holding that carry forward of tax credits by virtue of the formula in Regulation 4(1) can only take place after that formula is allowed to apply to the first completed income year.

9. The Learned Tribunal erred in law and fact in failing to take into consideration the companies pay corporate tax in advance.

And further stated Appellant may advise any other grounds by way of amendments."

Analysis and Findings

3. A summary of the Appellant's submissions was handed to the court at the commencement of the hearing by the counsel for the Appellant and raised two issues in this matter:

(a) As to whether the sale of fewer than 100% of shares in a company is a Sale of a Company for the purposes of S.8 (2) a (ii) of the Act?

(b) As to whether income tax paid by a company before 2001 can be credited to a Tax payer under Section 8 of the Act together with Income Tax Dividend Regulations?

4. There is no dispute with regard to the facts between the parties Statement of Agreed facts and issues filed in the Tribunal. I will now proceed to make my conclusions on the issue (a) whether there was a Sale of a Company

As to Whether there was a Sale of a Company

5. The Share Sale Agreement was between the Appellant PA Lal Holdings (PAL) and Allied Tours Services Pacific Limited (ATS) who were the purchasers of the share holding of the Appellant in Tourist Transport (Fiji) Limited (TTFL) and Great Signs Fiji Limited (GSFL). For Residency Tax purposes, THL is a New Zealand incorporated company and a non resident for the income tax purposes in Fiji. Both TTFL and GSFL are residents for the purposes of income tax in Fiji.

The share holding structure is as follows:

Both parties have indicated the share holding in the graph above.

THL (Tourism Holdings Ltd)

100% NZ

______________________________________________________________
50%

TTFL (Tourist Transport [Fiji] Ltd)

GSFL (Great Sights [Fiji] Ltd)

FIJI

50%

6. The above shareholding clearly shows that THL owns 100% of GSFL and THL holds 50% of the shareholding of TTFL direct and balance of 50% of TTFL is owned through GSFL. It is evident that 100% of TTFL is owned by THL.

7. The Learned Tribunal concluded that the 100% shareholding of the TTFL was sold by the THL Holding. For better understanding, I am citing the relevant paragraphs from the Judgment of the Learned Tribunal. (In the Judgment TTFL is referred to as Company 'T' and GSFL is referred to as Company 'G'):

"5. At the time of settlement of the Share Sale Agreement, the retained earning balances of the companies were as follows:

6. On 14 December 2011, the Respondent issued Notice of Assessment to Companies 'T' and 'G' for Non-resident dividend withholding tax in accordance with Section 8(2) (a) (ii) of the Income Tax Act.

7. In the case of Company 'T', that a sum was applied to 52.31% of the deemed distribution to the Holding Company and was assessed in the amount of $50,206.03."

8. I also refer to the following paragraphs of the Judgment of the Tribunal:

"Has there been a Sale of a Company 'T'?

16. The first issue I am being asked to consider, is whether there has been a sale of a company for the purposes of Section 8(2)(a)(ii) of the Act, where in the case of Company 'T', only 50% of its issued shares were sold.

17. The Applicant submits that a 'sale of company' only occurs when all its shares are sold.

18. The argument here appears to be, that no direct sale of the 50% shares held by Company 'G' in Company 'T' was undertaken, so defeating Section 8(2)(a)(ii).

19. It is true as Counsel for the Applicant content, that no meaning for the term "sale of company" is easily found.

20. In Gartside v. Inland Revenue Commissioner, Lord Reid said:

"It is always proper to construe an ambiguous word or phrase in light of the mischief which the provision is designed to prevent, and in light of the reasonableness of the consequences which follow from giving it a particular construction."

21. For that reason, I will give the words their plain and ordinary meaning and find for this purpose that the term means, to dispose of the entity by sale.

22. To determine whether or not that has taken place, one needs to look no further than the Share Sale Agreement entered into between the Holding Company and its purchases on 15 September 2010.

23. The sale agreement was for the sale of a business. So much is clear from the language of Clause to that agreement. The Holding Company agreed to manage and conduct Companies 'T' and 'G' as going concerns, until the transfer of all of their shares to the purchaser took place. Company 'T' was sold to the purchasers.

24. This is not an argument in relation to the disposition of 50% share ownership in Company 'T', but whether or not there has been a sale of a company. I find that there has been."

9. Lengthy submission was made by the counsel for the Appellant on the issue of Sale of the Company. I have considered the submissions by both parties. The counsel for the Appellant submitted commissioner cannot decide whether there is a sale of the company. I disagree with the argument for the reasons set out hereinafter. The Commissioner has authority to decide on the issue as to whether the company was sold or not. I concur with the Learned Tribunal's finding that there was a Sale of the Company and the argument by the Appellant that the company was sold partially cannot be considered on the submissions made by the Appellant and I too agree with the Tribunal's view that the Share Sale Agreement was pertaining not only to the limited transfer of its assets, it's with the business and inclusive of the employees. This is evident from the Share Sale Agreement dated 15 September 2010 and the License Agreement dated 15 September 2010 and now I elaborate on further considerations which I have taken into account, to decide on this issue.

10. In Schedule I to the Share Sale Agreement item 2 states as follows:

"Item 2 TTFL and GSFL's completion date consolidated adjusted Net Tangible Assets as prepared by the Vendors Accountants in final form (Final Consolidated NTA) within 40 days of completion date."

It is decided by the agreement to consolidate the tangible assets. If it is a part sale of TTFL how the Appellant can agree for the consolidation of Net tangible assets of both companies in the Share Sale Agreement dated 15 September 2012? This supports the finding of the Learned Tribunal that there was actual Sale of a Company. Accordingly, the submissions made by the Appellant with regard no Sale of Company had taken place fails and I uphold the Learned Tribunal's decision. I further determine that does the Respondents assessment under Section (2) (a) (ii) of the Income Tax Act is correct and the total value of retained earnings of TFL the sum of $1,279,705.00 is deemed to be amount distributed as dividend to its share holders of THL and GSFL (final beneficiary is THL). There is no issue with regard to the value of retrained earnings of GSFL since it was fully owned by the Appellant THL.

11. I also observe that in the Share Sale Agreement, THL as the Vendor is to deliver to the Purchasers as irrevocable consent and in respect of GSFL by Dayaram Govind and in respect of TTFL, signed by GSFL of the pre-emptive rights by the respective Articles of Association of GSFL and TTFL in respect of the Transfer of Shares. I reproduce the relevant clause in page 10 of the Agreement paragraph ix:

"(ix) an irrevocable consent and waiver signed:

(A) in respect of GSFL by Dayaram Hargovind;

(B) in respect of TTFL by GSFL;

of the pre-emptive rights conferred on them by the respective Articles of Association of GSFL and TTFL in respect of the Transfer of Shares."

What does this show? When the consolidated net tangible assets are not divided into the percentage of share holdings of the two companies transfer of shares. It is 100% of both TTFL and GSFL. This situation further establish that there was actual sale of a company and the Appellant failed in its argument on the issue detailed in paragraph 9(a) of this Judgment.

As to Whether that the Tax Paid by a Company before 2001 can be Credited to a Tax Payer under Section 8(2) (a) (ii) of the Act and the Dividend Regulation

12. Section 8(2) (a) (ii) of the Income Tax Act states:

"Non Resident dividend withholding tax:

8-(1) – Not withstanding anything to the contrary in the other provision of this Act, there shall be paid a tax, to be known as 'non-resident dividend withholding tax,' in respect of the payments specified in subsection (2) at the rate of 15 percent of the gross amount payable.

(2) – Such tax shall be payable in respect of:

(a) a portion dividend declared, paid or credited by a company incorporated in Fiji.

For the purpose of this paragraph –

"dividend" means any amount distributed by a company whether carrying on business in Fiji or not, to its shareholders;

Amount distributed shall be deemed to include –

-----------------------------------------------

-----------------------------------------------

-----------------------------------------------

(ii) in the case of a sale of a company, the total value of retained earnings shall be deemed to be dividends distributed to shareholders"

13. Now I proceed to consider the issue [para 9(b)] as to whether income tax paid by the company before 2001 can be credited to a Tax Payer under Section 8 of the Act together with the Income Tax Dividend Regulation.

14. The Appellant's argument was that once it is accepted that the previous year's Corporate Tax is to be included as "Corporate Tax Paid" in variable A of Regulation 4 to exclude corporate taxes by reference to the year to which they relate.

Section 8(2)(a) states: Variable A – Corporate Tax paid including excess tax credits from previous years and income tax paid on dividends received from other companies.

"(a) the portion of a dividend declared paid or credited by a company incorporated in Fiji and which has been paid or credited either wholly, or partly, from chargeable income upon which no tax has been paid by that company."

Regulation 2 of the Income Tax (Dividend) Regulations 2001 states:

"Corporate tax means tax paid on the chargeable income of the company."

15. The Appellant argues nothing in Section 8(2)(a) or the Dividend Regulation excludes 'corporate tax' from pre 2001 income year being used for the purpose.

16. The Appellant further submitted if in 2001 a company distributes profits earned in 2000 that distribution should be only to the extent of those are paid ........from chargeable income upon which no tax been paid by the company.........(Section 8(2)(a) referred to in paragraph 14 of this Judgment.

17. The Definition of "A" the Appellant submitted it can be compared with the definition of "C". "A" reads as Corporate Tax paid including excess tax credits from previous years and income tax paid on dividends received from other companies. "C" means Company Tax rate in the year of distribution.

The Appellant submitted no such limitations were placed in the definition of "A".

18. The Appellant submitted that the plain and ordinary meaning of the words means that Corporate Tax paid from the time of last distribution is included in the calculation of "P" (Percentage of dividend subject to Corporate Tax) as stated in the Dividend Regulations 2001 and submitted no distinction can be made between pre and post 1 January 2001 periods.

19. The Respondent submitted that the Dividend Regulation came into effect from January 2001 and the calculation of variable "A" in regulation 4(1) and regulation 7 of the Dividend Regulation correctly excluded pre-2001 tax Corporate Tax paid.

20. It was further submitted by the Respondent, the Dividend Regulations show clear intent that only taxes which has been paid since the commencement of the dividend regulations and the amendments to Section 8 of the Income Tax Act, can be taken into account in determining the percentage of dividend subject to income tax and likewise.

21. The Appellant argued if the intention of the legislature was that the relief be available on the basis of Corporate Tax paid in 2001 and later years it could have easily stated that by defining "A" as corporate tax paid in 2001 and after ........and submitted there is no indication that the legislature intended the exclusion of pre 2001. In my view, this argument does not carry any merits. If the legislature intended to include the corporate tax paid pre-2001 it would have been stated that the legislation is applicable retrospective effect or included the previous years applicable. It is well accepted principle in law if the legislature imposes a regulation it comes into force from the date it is enacted unless if it states otherwise. The more sensible argument is that if it is applicable for pre 2001 period it would have been stated in the regulation otherwise it is applicable from the date the legislation enacted.

22. The Appellant's counsel referred to page 119-136 of the Court Record and stated the materials were admitted into evidence by FRCA's witness Kwong. This is part of a document of Ministry of Finance published in 2009 and submitted that if the intention of the legislature was not to include pre 2001 corporate tax paid that matter would clearly in 2001 be relevant to model calculation. This is far fetch argument. The said document deals with the 2010 Economic and Fiscal update of Fiji's economic and financial performance outlining government's fiscal strategy for the medium term. This document had no bearing on the Appellant's argument. In page 125 of the court record refers to the Revenue Policy, I reproduce the paragraph 4.10:

"4.10 Revenue and taxation policies for 2010 budget and guided by the following key principles;

(i) maintaining the integrity of the vat system;

(ii) minimizing the level of distortions;

(iii) ensuring simple, transparent and equitable tax system;

(iv) tightening compliance within the tax system;

(v) improving collection of tax arrears; and

(vi) promoting user pay principle."

There is no statement whatsoever any regulation being made retrospective effect and the Appellant's argument fails. There is no basis to adopt Appellant's argument that legislation has retrospective effect prior to 2001 and there is no presumption can be made since all legislations are presumed to have prospective effect.

In the Fiji Court of Appeal case of Silatolu vs The State [2006] FJCA 13 (unreported decided on 10 March 2006) cited the statement made by Wright J in Re Lord Athlumney [1898] UKLawRpKQB 163; [1898] 2 Q.B. 547, 551:

"No rule of construction is more firmly established that this; that a retrospective operation is not to be given to a statute so as to impair an existing right or obligation; otherwise than as regards matters of procedure, unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only".

The same principle being followed in the cases of Maxwell vs. Murphy [1957] HCA7; (1957) 96CLR 261, 267.

It is well established in case of legislation to indicate any intention that it should have retrospective effect should be incorporated in the legislation itself.

23. I agree with Learned Tribunal arrive at its conclusions made with regard to Section 8(2)(a)(ii) of the Income Tax Act (Cap 201) and the Dividend Regulation the intention of the legislature is effective after 2001 and not pre 2001 and as such the formula suggested by the Appellant is not applicable. The other Grounds of the Appeal are dependent upon the success of the grounds indicated in paragraph 9 of this Judgment and having concluded the two grounds in favour of the Respondent, I determine no merits in the other Grounds of Appeal.

Accordingly, I dismiss the appeal and the Appellant is ordered pay summarily assessed cost of $2,500.00 to the Respondent.

Delivered at Suva this 29th Day of August, 2014

C. KOTIGALAGE
JUDGE