Home | Databases | WorldLII | Search | Feedback Fiji Tax Tribunal

Company L v Fiji Revenue & Customs Authority [2013] FJTT 12; Miscellaneous Action Tax 01.2013 (24 September 2013)

IN THE STATUTORY TRIBUNAL, FIJI ISLANDS
SITTING AS THE TAX TRIBUNAL

Miscellaneous Action [Tax] No 01 of 2013

BETWEEN:

COMPANY L
Applicant

AND:

FIJI REVENUE & CUSTOMS AUTHORITY
Respondent

Counsel: Mr B Solanki, Solanki Lawyers for the Applicant
Ms I Ratuvuku, FRCA Legal Office, for the Respondent

Date of Hearing: Wednesday 11 September 2013
Date of Decision: Tuesday 24 September 2013

DECISION

Background

1. The Applicant Company L has by Notice of Motion, sought orders for an extension of time to be granted, for the making of an application for review against an Objection Decision of the Respondent, dated 28 September 2012.
   
2. The request is made in accordance with Section 82 (3) of the Tax Administration Decree 2009.
   
3. The relevant factual details relied upon by the Applicant are as follows:
   
   • Company L was established on or about February 1990 and its primary activity was in the production of PVC fittings that were exported to Australia;
     
   • In 2009, Company L stopped manufacturing in Fiji and now rents its industrial premises in Lautoka, Viti Levu;
     
   • In 2011, the Respondent undertook an integrated audit of the Applicant, after which it identified a tax shortfall of $348,936.60;
     
   • Following further communications between the parties, on 28 September 2012, the Respondent issued its Objection Decision;
     
   • In response to that decision, a Director of the Taxpayer, Ms B, met a person in Fiji in late November 2012, indicating that he was a 'former employee' of the Respondent and that he could assist in the making of an "appeal" to the Tax Tribunal;
     
   • That person advised Ms B that he had lodged such an "appeal" on 4 March 2013;
     
   • In early April 2013, the Directors of the Taxpayer sought to engage the services of their present Counsel to take carriage of the matter, as they had been advised by the 'former employee', that the matter was coming up for hearing on 24 April 2013;
     
   • Counsel shortly afterwards established that no such hearing date had been set and was asked to provide legal advice as to the strength of the 'appeal' and presumably recourse against the 'former employee';
     
   • Following receipt of legal advice, an extension of time application was prepared and filed on 2 July 2013.
     

Key Considerations

4. In Taxpayer K v Fiji Revenue & Customs Authority[1], this Tribunal set out the approach to be adopted in cases of this type, where it stated:
   

"In considering whether or not to exercise the discretion of the Tribunal in allowing an extension of time in which an application for review can be made, I have had regard to the following factors:

• the reason for the delay;
• the length of the delay;
• any action taken by the Applicant to dispute the Objection Decision;
• possible impact and prejudice to the Respondent; and
• the apparent merits of the application.
  

Such an approach is consistent with that of his Honour and President of the Supreme Court, Chief Justice Gates in NLTB v Ahmed Khan and Anor, [2] where the principles to be applied in the exercise of judicial discretion, are set out.

Analysis of Issues
Reason for Delay

5. The initial reason for delay that was provided by the Taxpayer, was due to the false representations made by a person claiming to have been a former employee of the Respondent.[3] Thereafter, Mr Solanki of Counsel, advised that he was asked to investigate the status of the matter in early April 2013. He then proceeded to provide advice to the Taxpayer in relation to prospects and then to initiate a request for extension of time, by filing a Notice of Motion on 2 July 2013.
   

Length of Delay

6. Section 82 of the Tax Administration Decree 2009 provides:
   

(1) A person dissatisfied with a reviewable decision may apply to the Tax Tribunal for review of the decision.

(2) An application under subsection (1) must —

(a) be i approvpproved form;

(b) incl stateotateof the reasons for the application;

(c) dged the Tahe Tax Tribunal unal within 30 consecutive days after the cant has been served with notice of the reve reviewable decision; and

(d) bempanied bied by the prescribed fee.

7. The request for extension comes some 8 months after the ordinary time limitation imposed by Section 82(2) of the Tax Administration Decree 2009.
   

Action Taken to Dispute Objection Decision

8. While the evidence of the Taxpayer is that there were steps in place to dispute the Objection Decision, clearly there were not. Again I accept that Ms B has presented within her Affidavit an account of events that gave her the impression that her challenge of the decision was in place, however more importantly, it is clear that by early April 2013, the Taxpayer was well aware that no action had been taken to dispute the objection.
   
9. Approximately 2 ½ months passed between the time of that realisation and the making of an application for the extension of time.
   

Impact to Respondent

10. Counsel Ratuvuku submitted to the Tribunal, that while the actions of the Taxpayer may have been understandable prior to the engagement of Mr Solanki, it did not explain why a further 74 days lapsed prior to the making of this application.[4]
    
11. The impact to the Respondent needs to be considered in the context of the scheme that it administers. It would be easy to envisage the number of taxation officers within the Respondent to double or triple should there be an open ended approach as to when a Taxpayer could have its assessment reviewed. The entire taxation system could run to a stop, if there were simply no parameters to the rights and entitlements of all parties, within financial or taxation year cycles.
    

Apparent Merits of the Application

12. As his Honour, the Acting President stated in Datt v Datt[5],
    

When the length of the delay is extreme and the explanations for it are wholly unsatisfactory, it is still necessary, in exercising the discretion given to the Court, to assess the chances of the proposed appeal succeeding.

13. Let us then consider the merits of the Taxpayer's substantive case.
    
14. The Respondent has imposed Non-Resident Withholding Tax against the Taxpayer, calculated based on the uncollected sales of goods to a related Australian entity. In short, the Taxpayer 'wrote off' as a bad debt to its related entity Company T, an amount of $2.3 million. That is, $2.3 million that otherwise would have been regarded as export revenue and amenable at some stage,[6] to taxation.
    
15. The Respondent submitted that they did not allow the 'write off' and deemed it material earnings of the Taxpayer, for the purposes of Section 8(2) of the Income Tax Act (Cap 201).[7]
    
16. Relevantly, Section 8 provides:
    

Non-resident dividend withholding tax

8.—(1) Notwithstanding anything to the contrary in the other provisions of this Act, there shall be paid a tax, to be known as ―non-resident dividend withholding tax, in respect of [a dividend]1 specified in subsection (2) at the rate of [15]2 per cent of the gross amount payable.

(2) Such tax shall be payable in respect of—

(a) [the portion of a dividend]3 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]4;

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"5 shall be deemed to include—

(aa) subject to paragraph (ee), in relation to a company that is being wound up or liquidated, any profits distributed, whether in cash or otherwise, other than of a capital nature, earned before or during the winding up or liquidation;

17. Counsel for the Taxpayer makes clear in his submission, that his client has not gone into liquidation nor has it been wound up. While it would seem that the Taxpayer is doing no more in Fiji, than leasing out its former premises, I nonetheless accept that the business has not gone into liquidation nor has it been wound up. It would seem safe to conclude though, that it is no longer conducting the business for which it had been established. That is, Company L is no longer in the business of making various PVC industrial products for commercial and residential use.
    
18. The merits of the case need to be properly considered through an analysis of the statutory provisions. The Respondent has deemed export sales as material earnings. That is, it is not influenced by the fact that the Taxpayer has claimed to have 'written off' the monies owed, particularly when it is doing so for the benefit of a related entity. That matter does not appear to be in dispute.
    
19. What does is whether the export sales by the Taxpayer to its related entity Company T, can be considered to be a "dividend" for the purposes of Section 8 of the Act.
    

The Structure of Section 8

20. As the language of Section 8 makes clear, the non-resident dividend withholding tax is calculated in respect of a divided specified in subsection (2) of the provision.
    
21. The term "dividend" means:
    

Any amount distributed by a company, whether carrying on business in Fiji or not, to its shareholders.

22. The notion of what is meant by the words "amount distributed" is further defined to specifically include, various illustrations of what could constitute types of dividend. One such example, is provided at the deeming provision at paragraph (aa) where it reads:
    

subject to paragraph (ee) in relation to a company that is being wound up or liquidated, any profits distributed, whether in cash or otherwise, other than of a capital nature, earned before or during the winding up or liquidation

23. Another example is that give at paragraph (ii), that reads:
    

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

24. The term "dividend" is therefore given a wider meaning, than its ordinary meaning.
    
25. Essentially the argument of the Taxpayer and its Counsel is this. That, the Respondent cannot charge the Taxpayer under Section 8 (1) of the Act, on the basis that the amount distributed of the Dividend, does not relate to a company that is being wound up or liquidated for the purposes of the deeming provision at paragraph (aa) of Subsection 2.
    
26. The Submissions of the Applicant provided as follows:
    

The words "wound up" obviously are derived from the words "winding up". These phrases can be interchangeable and actually mean the same thing. The Income Tax Act or similar taxing legislations do not define these terms. 'wound up" or "winding up" is a legal phrase which emanates from company law. Winding up is sometimes called the liquidation of a company. It is a specific process of external administration which is provided for in the relevant company activities. ......... (Company L) has not been "wound up" or "liquidated".[8]

27. I reject entirely Counsel's deconstruction of the relevant provision.
    
28. Firstly, the expression referred to in paragraph (aa), is:
    

in relation to a company that is being (my emphasis) wound up or liquidated.

29. That word "being" plays a significant role within that deeming provision. It does not speak of a company "that has been wound up or liquidated", but one "that is being wound up or liquidated". The distinction is an obvious one. The first example, speaks of events passed. The second deals with activities that are in some stage of development, albeit that it remains somewhat unclear.[9]
    
30. To that end, the submissions of Counsel seem to be indifferent to the various modes of winding up a company that exist at Section 213 of the Companies Act (Cap 247).
    
31. But the emphasis on paragraph (aa), is perhaps unnecessary at this juncture. The focus of the Non-Resident Dividend Withholding Tax (NDWT) should firstly be placed on whether or not, the total credit sales of approximately $2.7 million FJ is amendable to the 15 % taxation. There are no submissions before the Tribunal whether the Taxpayer's Directors have made a decision to wind up the Company, or whether or not they have thereafter complied with the relevant requirements of Part VI of the Companies Act.
    
32. To my mind, the primary issue for statutory interpretation is this. Are the total credit sales of the Taxpayer, to be regarded as being:
    

"an(y) amount distributed by a Company, whether carrying on business in Fiji or not, to its shareholders"?

33. While it is noted within the correspondence sent to the Taxpayer by the Respondent on 2 February 2012, that the total credit sales were in fact regarded as "retained earnings left in the company when the company ceased operations"[10], it is also noted within that same correspondence, that the Respondent prepared a table that appears to classify the relevant deeming paragraph as Section 8(2)(a)(aa) of the Act.
    
34. As I indicated to the parties during the hearing of this application, in some ways the manner in which Section 8 of the Act, requires interpretation, is analogous to that of Section 11. That is, you commence from the beginning of the provision and look at the work that the legislature intended for those words.
    
35. The deconstruction of Section 8(2)(a), should take the following approach:-
    
    • (i) Are the Written Off Total Credit Sales Declared, Paid or Credited by a Company Incorporated in Fiji?

The Respondent appears to have treated this answer, as yes. That is, that it has not accepted that there is evidence of the 'writing off' of the debt and on that basis seems to have maintained the position that the sales should be regarded as credited to the book of accounts as retained earnings, of which no tax has been paid.

(ii) Was this credit of sales, from chargeable income from which no tax has already been paid?

Again the answer to this question would appear to be yes. There have certainly been no taxes imposed on the value of the sales. The sales would ordinarily amount to chargeable income, insofar as they would otherwise contribute to profits from a trade.

36. This does not appear to be a category of case that falls within the deeming provision that is paragraph (ii) of Section 8(2)(a) of the Act, insofar as there is no sale of a company. But even if that is so, the deeming provisions are not exhaustive of the categories of case, but merely inclusive of what can be caught by the words, "amount distributed".[11]
    
37. A far greater analysis of the case law would be required to form any conclusive view. Though having said that, there is no evidence before the Tribunal as to the circumstances in which the monies credited as sales had been written off; the state of the related entities and if in fact those entities had been or were in the process of being wound up or liquidated. There appears to have been a deliberate omission of the Taxpayer in providing the Tribunal with any understanding of those matters.
    

Overall Exercise of Discretion

38. Having regard to the overall principles that are to be exercised by the Tribunal when considering the discretion to entertain an application for extension for time, I am not convinced on balance that the Taxpayer's case is one that should be allowed. Firstly, in Datts case referred to above, the Appellant on that occasion had attempted to conduct the proceedings with:-
    
    • limited assistance;
    • no financial means;
    • non-existent knowledge of the legal procedure and apparent limited education.
      
39. The Honourable Acting President took these issues into account, when forming the view that there were special circumstances in the interest of justice that warranted the exercise of the Court's discretion. In the case before me, I do not consider that an analogous set of facts and circumstances are at play.
    
40. In the first place, as the sworn Affidavit of Ms B dated 22 June 2013, reveals, the communications made to the Tribunal that gave rise to the Objection Decision, seem highly developed and most likely to have been provided with the assistance of the Accountant, who appears to be a counter signatory to such correspondence. It is also noted that the same Accountant, is the registered office of the Taxpayer.
    
41. This does not explain the situation given in the Affidavit and made in submissions, that in some way the Taxpayer was the victim of a 'shyster' who made various representations that he would represent the Taxpayer and commence the review application, though in my mind it does present an extraordinary account of events, if that were the case. Be that as it may, upon learning of that fact that no application for review had been made, the Taxpayer and its Counsel should have acted swiftly. The Taxpayer did nothing to remedy the situation in a timely fashion. The fact that a further 78 days passed before an approach to this Tribunal was received to consider an enlargement application, is simply not good enough. The Respondent cannot operate in an environment where there is such uncertainty, nor can this Tribunal. There are good reasons why the statutory time frames have been imposed. They cannot be waived without special or exceptional circumstances.
    
42. Further, the Taxpayer has also failed to explain in any detail, why it has written off $2.3 million of possible profits to its related entity. Keep in mind that Section 21 of the Tax Administration Decree 2009 imposes a burden on the Taxpayer to prove the assessment is excessive.
    
43. On balance, I am not satisfied with the reasons given for the delay, whether that is considered in the context of the initial or subsequent reasons. The length of time is too long in the circumstances and the disruption to the orderly dealing of such matters, particularly given the assessment cycle and timelines of the Respondent are also relevant considerations.
    
44. The application for an extension of time is refused.
    

Mr Andrew J See
Resident Magistrate

24/9/2013

^[1] [2013] FJTT 10

^[2] CBV0002.2013

^[3] The Respondent did not require the evidence of Ms B to be tested, so I accept that account of events.

^[4] The Tribunal is mindful of the strength of this submission.

^[5] [2013]FJCA 58 at [13]

^[6] Whether directly or indirectly.

^[7] Specifically refer to definition of “amount distributed” at paragraph (aa).

^[8] See Paragraphs 14-17 of the Applicant’s Undated Written Submissions.

^[9] For example, Section 227 of the Companies Act would recognise that it commences where its Directors have formally decided to commence that process.

^[10] See Affidavit of Director of the Taxpayer at Annexure PB1.

^[11] Had it been an exhaustive list, it would have been easy for those making the laws, to say so. The expression “amount distributed” is given specific examples that are to be “include(d)”. It is not a finite list, for otherwise it is likely the word “means” would have been used.