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REPUBLIC OF TRINIDAD AND TOBAGO
IN THE COURT OF APPEAL
Civil Appeal No. 187 of 2011
BETWEEN
BAUHUIS COATING INTERNATIONAL LIMITED
Appellant
AND
THE BOARD OF INLAND REVENUE
Respondent
PANEL: A. Mendonça J.A.
R. Narine J.A.
M. Mohammed J.A.
APPEARANCES:
Mr. G. Pantin instructed by Ms. A. Peters for the appellant.
Ms. L. Lucky-Samaroo and Mr. D. Ali instructed by Ms. L. Singh-Dan for the respondent.
DATE OF DELIVERY: March 12th
, 2014
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JUDGMENT
Delivered by Mendonça, J.A.
[1] I have read the judgment of Mohammed, J.A. and I also agree that this appeal should be
allowed and with the order he proposes to make. I however wish to add a few words of my
own.
[2] This appeal is by way of the case stated from the Tax Appeal Board (the Board). The issue
in this appeal is whether commercial supplies made by the Appellant fall within Item 12 of
Schedule 2 of the Value Added Tax Act Chap. 75:06 (the VAT Act). Item 12 of Schedule 2
is 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.”
A supply of services falling within Item 12 is zero rated and is therefore not chargeable
to value added tax.
[3] The issue arose in this way. The Appellant is a company duly incorporated under the laws
of this jurisdiction. It was at all material times engaged principally in the business of
providing pipe coating services. It is a wholly owned subsidiary of Bauhuis Coating
Limited (BCL) a foreign company registered in Cyprus. The commercial supplies
concerned pipe coating services supplied under a contract between the Appellant and BCL.
The Appellant regarded those supplies as zero- rated under Item 12 because they were
supplied for a consideration that was payable in United States dollars to its parent company
who was not within Trinidad and Tobago at the time of the supply.
[4] The Board of Inland Revenue (the Respondent) did not agree with that position. It assessed
the Appellant in respect of the supplies of value added tax at 15% and varied the
Appellant’s liability to value added tax. The Respondent considered an objection to its
assessment by the Appellant but affirmed the assessment. On appeal to the Board, the
Board also affirmed the assessment. The Appellant now appeals to this Court.
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[5] Before the Board the parties filed and relied on a statement of agreed facts. The statement is
as follows:
1. The Appellant is a company duly registered under the laws of the Republic of
Trinidad and Tobago and whose registered address is c/o PricewaterhouseCoopers
11-13 Victoria Avenue, Port of Spain. The Appellant was with effect from August
17, 2000 registered pursuant to the provisions of section 20 of the VAT Act, as
number 118195. The tax periods under appeal are 200106, 200108, 200110 and
200112.
2. At all material times the Appellant provided pipe coating services under subcontract
to a non-resident company, BCL, registered in Cyprus. The Appellant performed all
activity under the contract in Trinidad and Tobago. All the supplies made by the
Appellant were commercial supplies.
3. BCL was not registered in Trinidad and Tobago, was not resident in Trinidad and
Tobago and had no branch here. The invoices were issued to BCL payable in United
States dollars.
4. The Appellant duly filed its value added tax returns for the tax periods and by
inadvertence reported no commercial supplies for the tax period 200106. It reported
no output value added tax. It reported its input value added tax as follows:
Period 200106 - $1,168,886.62
Period 200108 - $1,107,282.46
Period 200110 - $1,791,292.64
Period 200112 - $96,280.03
The Appellant regarded all its commercial supplies as zero rated under Item 12 of
Schedule 2 of the VAT Act. The Appellant, therefore, charged no output tax on its
supplies. It offset the above sums against the output tax of nil and claimed value
added tax refundable in each period to the full extent of the input tax.
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5. During an audit of the value added tax returns the Respondent discovered that
British Gas Trinidad and Tobago Limited had contracted with Allseas Marine
Contractors S.A. Switzerland (Allseas) for the procurement and installation of
certain pipelines in Trinidad and Tobago. Allseas had contracted with BCL to
provide coating services on the pipelines.
6. The Respondent was of the view that the commercial supplies were subject to tax at
the rate of 15%. As a result the Respondent adjusted the Appellant’s value added
tax liabilities for the periods 200106 to 200112.
7. By letter dated July 15, 2002 with accompanying statement and explanations of
adjustments the Appellant was informed of its revised value added tax liability as
follows:
Period 200106 - $385,872.33
Period 200108 - $5,858.11 (refundable)
Period 200110 - $745,472.36 (refundable)
Period 200112 - $212.081.26
8. The Notices of Assessment dated July 15, 2002 were served on the Appellant.
9. The Respondent acceded to a request for waiver of the deposit prior to objection
and the Appellant thereafter objected to the assessment.
10. After considering the objection and representations by the Appellant’s
representatives, the Respondent confirmed the assessments. The amount under
appeal for the four (4) periods is $4,010,364.77.
[6] Before the Board the Appellant argued that the sole question which arose for determination
was the identity of the recipient of the services within the meaning of Item 12. It argued
that the recipient was BCL and since that company was not within Trinidad and Tobago at
the time of the supply and as the consideration for the supply was payable in United States
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dollars the supply fell within Item 12 of Schedule 2 of the VAT Act and was therefore zero
rated. The Respondent on the other hand contended that British Gas Trinidad and Tobago
Limited (BGTT) was the recipient within the meaning of Item 12 and since that is a
Trinidad and Tobago company carrying on business in Trinidad and Tobago, the supply by
the Appellant did not qualify to be zero rated. It further submitted that even if the Board did
not agree that BGTT was the recipient, the supplies would still not be zero rated as BCL
was “within Trinidad and Tobago” as that term is used in Item 12.
[7] The Board, in affirming the assessment of the Respondent, based its decision in its
judgment on the ground that the recipient was BGTT. In the case stated (which
incorporated the judgment) the Board said that it found as a fact that BCL must be regarded
“as having a constructive presence within Trinidad and Tobago having regard to their
connection with the [Appellant]”. This finding of fact might support an alternative ground
for the Board’s decision namely that BCL was the recipient and within Trinidad and
Tobago for the purposes of Item 12.
[8] Before this Court, Mr. Pantin, Counsel for the Appellant, submitted that the Board erred in
law in concluding that the recipient was BGTT. He argued, as the Appellant had done
before the Board, that the recipient within the meaning of Item 12 on a proper construction
of the VAT Act could only be BCL. Accordingly the commercial supplies were caught by
Item 12 and were therefore zero rated.
[9] Ms. Lucky-Samaroo, Counsel for the Respondent, on the other hand sought (with one
exception) to support the conclusion of the Board.
[10] The exception to which reference is made is with respect to the Board’s view as to whether
the issue as to the identity of the recipient was a question of fact or law. The Board was of
the view that the issue was one of fact only. This is obviously material since an appeal lies
to the Court of Appeal from the Board on the questions of law only (see the Tax Appeal
Board Act section 9). Counsel for the Appellant submitted that this view of the Board was
erroneous as the identity of the “recipient” called for a proper construction of that word as
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it appears in the VAT Act and that was a question of law. Counsel for the Respondent did
not seek to support the position of the Board and conceded that the issues on appeal would
involve questions of law. This is clearly a correct concession.
[11] Before I come to consider the submissions in more detail it would be appropriate to put the
issue in its proper statutory context.
[12] Value added tax is charged on a commercial supply within Trinidad and Tobago of goods
and prescribed services by persons registered under the VAT Act (see section 6(b)). What
constitutes a “commercial supply” for the purposes of this appeal is dealt with in section
14 (1). This section provides as follows:
“14 (1) A supply of goods or prescribed services that is made in the course of, or
furtherance of, any business is a ‘commercial supply’ for the purposes of this
Act.”
It is not in dispute that in this case that there were commercial supplies and that the
supplies were of services.
[13] Section 7(1) prescribes the rate of tax. The amount of tax shall be calculated at the rate of
15% “or such other rate as the Minister by Order specifies, except in the case of an entry or
supply that is zero-rated”. Section 8 deals with the zero-rating of a supply of goods and
services and, insofar as is relevant to this appeal, provides as follows:
“8. (2) Where services are, or the supply of services is, prescribed in Schedule 2,
the supply of those services is zero-rated for the purposes of this Act.
(3) Where the entry or supply of any goods or the supply of any services is
zero-rated, the rate at which tax is regarded as being charged shall be nil, and
consequently no tax shall be charged on the entry or supply.”
[14] From a reading of these sections it is fair to say that for value added tax to be charged there
must be a commercial supply of services within Trinidad and Tobago which is not
prescribed in Schedule 2. Here the contention by the Appellant is that the commercial
supplies were caught by Item 12 of Schedule 2. The only issue in dispute is whether it was
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made to a recipient who was not within Trinidad and Tobago at the time the services were
performed.
[15] Counsel for the Appellant submitted that the Board misdirected itself on the meaning of
the word “recipient”. “Recipient”, he submitted, is the counterparty to the transaction
undertaken by the registered person. The counterparty is (a) the person to whom the
registered person is obligated to provide the commercial supply, (b) the person to whom
the registered person is obligated to provide the tax invoice and (c) the person who is
obligated to pay to the registered person sums in settlement of the tax invoice. This
position, it was submitted, is supported by reference to the provisions of the VAT Act.
Specific reference was made to sections 17(1), 36(1) and 37. Counsel contended that it was
clear on the facts of the case that BCL was the counterparty and therefore the recipient.
[16] Counsel for the Respondent submitted to the contrary. She argued that it was clear from
the provisions of the VAT Act that the word “recipient” refers to any person who receives
goods or services. As BGTT had pipe coating services provided to its pipelines it was clear
that BGTT was the recipient within the meaning of the Act. The Respondent further
contended that it was open to the Board to find that BCL was within Trinidad and Tobago
when the commercial supplies were made.
[17] The reasoning of the Board is I think evident from the following paragraph of the case
stated:
“18.5 ...what is not in doubt is the location and beneficiary of the Recipient which
was BGTT. The ordinary principles and scheme of the VAT Act is that VAT is
charged in the place where the supply takes place or is deemed to have taken
place. The basic rule with the supply of services is that services are deemed to be
supplied where the supplier’s business is established or located. There is no doubt
in this case that the supplier is a company registered in and having its place of
business in Trinidad and Tobago. It is also not in doubt that the actual supply was
carried out in Trinidad and Tobago, nor is it in doubt that the subject matter for
the purposes of the VAT Act was owned by a Trinidad and Tobago company,
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BGTT. As such although the contract for these services was between two non-
resident companies, this is not a matter which could legitimately influence the
Court to hold the supply as a zero-rated supply under Schedule 2 Item 12, and as
such that output tax should be charged on the recipient of the supply.”
This is essentially repeated in the judgment at paragraph 14.5.
[18] The Board was therefore of the view that there were three material considerations, namely:
(1) that the supply of the services was within Trinidad and Tobago; (2) the services (i.e.
the coating services) were actually performed in Trinidad and Tobago and on pipelines
owned by BGTT, a local company; and (3) the contractual arrangements were not relevant.
[19] It is difficult to apprehend the Board’s reliance, in determining the recipient, on the place
of supply as occurring within Trinidad and Tobago. Section 6 of the VAT Act provides
that value added tax shall be charged on a commercial supply of goods or services within
Trinidad and Tobago. Item 12 is an exception to this general rule. It acknowledges that if
the exception does not apply that value added tax will be charged on a commercial supply
occurring within Trinidad and Tobago. The exception has nothing to do with the place of
supply but rather who is and the place of the recipient. Identifying the place of supply
therefore does not bring one any closer to understanding the exception or in this case
determining whether the supply was made to a recipient who was not within Trinidad and
Tobago.
[20] Similarly the fact that the services were actually performed in Trinidad and Tobago is of
no assistance to determining who is the recipient. That fact might be relevant to the place
of supply but not the identity of the recipient (see s. 16(1)(b) (ii)).
[21] The Board placed great emphasis on its finding that BGTT was the owner of the pipelines.
It was of the view that this “crucial finding of fact overshadows all the issues contended
for by the Appellant” (see para. 22 of the case stated).
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[22] There is, however, really no evidence to support the finding that BGTT was the owner of
the pipelines. The agreed facts do not identify BGTT as the owner of the pipelines and that
is not a reasonable inference that can be drawn from them. According to the agreed facts
BGTT contracted with Allseas Marine Contractors S.A. Switzerland (Allseas) (see para. 5
of the agreed facts at para. 5 of this judgment) for the provision and installation of
pipelines in Trinidad and Tobago. Allseas retained the services of BCL to provide coating
services to the pipelines which in turn subcontracted that work to the Appellant. The only
reasonable inference is that Allseas in the performance of its contract with BGTT required
the pipelines to be coated. BGTT did not contract for the supply of coated pipelines but
rather the procurement and installation of pipelines. It is not reasonable to infer that BGTT
was the owner of the pipelines before Allseas performed its contract and installed the
pipelines. There is no evidence that that had taken place and the only reasonable inference
is that it had not.
[23] In any event ownership of the pipelines is not relevant to determining who is the recipient
of the coating services. I think this can be demonstrated by a simple example. A home
owner retains the services of a contractor to paint his house. The contractor has quoted a
price for the job inclusive of labour and materials. As he is registered under the VAT Act,
he charges value added tax on that price. The contractor must purchase paint from a paint
shop to do the job. The recipient of the supply of paint by the paint shop is the contractor,
not the home owner although he is the owner of the house and in the end may be the
ultimate beneficiary of the paint; ownership of the house is not relevant.
[24] By considering the owner of the pipelines to be material, what the Board seems to have
done is considered that the ultimate consumer of the services is the recipient. But that is
not the correct approach. The fact of the matter is that before a supply of goods or services
reaches the final consumer there may be several stages at which a supply of goods or
services is made to a recipient and at which value added tax is chargeable. The principle
behind the value added tax system is that at each stage value added tax will be charged on
the value added. It is not correct to look down the road and say that the recipient of an
earlier supply is the end user. To do so will be to defeat the principle of the value added
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tax system. The question at each stage of the supply chain is who is the recipient of that
particular supply. It is evident from the provisions of the VAT Act that the answer to that
question is the person to whom the particular supply of goods or services is made. In other
words, the recipient is an immediate party to the transaction not some remote party that
may ultimately benefit from the supply.
[25] The first section of relevance is section 3. This section defines “recipient” as follows:
“recipient”, in relation to a supply of goods or services, means the person to
whom the goods or services are supplied.”
It is relevant to note that the definition uses the words “in relation to a supply”. Bearing in
mind that throughout the chain of the supply of goods or services to the end user there may
be different stages at which a supply is made, the definition refers to the recipient of a
supply at each stage.
[26] The other relevant sections are sections 17, 36 and 37.
[27] Section 17 deals with when a supply takes place. Section 17(1) is of note and provides that
a supply takes place on the occurrence of any one or three events (whichever is the earlier),
namely; (a) when an invoice for the supply is given by the supplier, or (b) when payment
is made for the supply or (c) when the goods are made available, or the services are
rendered, as the case may be, to the recipient.
[28] Although under section 17(1) a supply may take place before an invoice is given by the
supplier, section 36 requires the tax invoice to be given to the recipient. An invoice may be
provided to the recipient either to accord with section 36(2) or 36(3). Common to both
sections is that the invoice must make reference to the consideration for the supply and
must include the tax. Under 36(2) it seems that the tax must be set out separately from the
price of the supply (see 36(2)(f) and (h)) whereas under section 36(3) the invoice must set
out the consideration for the supply inclusive of tax.
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[29] Section 37 deals with credit and debit notes in respect of a commercial supply that is
cancelled, altered or returned. Section 37(2) provides as follows:
“37(2) Where this section applies, the supplier shall give to the recipient a credit
note or a debit note, as the case requires, to adjust the amount shown on the tax
invoice as being in respect of tax to the amount, if any, that would have been so
shown if -
(a) the cancellation or alteration referred to in subsection (1)(a) or (b)
had taken place before the tax invoice was given; or
(b) the goods or services returned had not been supplied, as the case
requires.”
[30] The VAT Act, therefore, requires that an invoice be provided to the recipient. The
recipient under the VAT Act is the person to whom the supply of goods or services is
made. As the invoice is provided to the recipient he also is the one liable for the
consideration and the tax in respect of the supply. This is also a clear inference from
section 37(2) which provides that credit and debit notes shall be given to the recipient
where a supply is altered, cancelled or returned. If the recipient was not also liable for the
tax but was in receipt of a credit or debit note the situation might arise where although
there is no liability on the part of the recipient to pay the tax on the supply, he might be
obligated either to increase his liability to tax or be entitled to reduce his liability to tax.
[31] In my judgment when the sections are read together they point to the conclusion that the
recipient is an immediate party to the transaction in respect of the supply. He is the person
to whom the supply is made and is liable for the consideration for the supply and the tax.
He is certainly not 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.
[32] The Board found as a fact that the supply was made to a party which was a foreign entity
(see para. 15.8 of the case stated). That is so and that foreign entity is BCL. There is no
disputing that BCL was the entity to which contractually the services were to be supplied,
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was contractually liable for the consideration for the supplies, including the tax if
chargeable, and the one to whom the invoice should have been sent and was indeed sent. It
should follow from that, that the recipient is BCL. The Board, however, thought it could
ignore the contractual arrangements between the Appellant and BCL, and between the
latter and Allseas and between Allseas and BGTT and somehow reconstruct the
contractual arrangements to regard them as one between the Appellant and BGTT. This is
evident from paragraph 18.5 of the case stated, which was quoted earlier in this judgment,
and also from paragraph 16. (2) where the Board stated:
“We also hold that in applying the provisions of the VAT Act there is no room to
permit any concession to the supplier of services for substituting a contractual
recipient for the bona fide presence of the owner of the pipelines during the time
of the particular VAT periods.”
[33] Counsel for the Respondent submitted that the Board was entitled to do just that. She
submitted that the Board was entitled to disregard those contracts that had no commercial
purpose and to look at the end result. The Board was in the circumstances entitled to
disregard the arrangements between BGTT and Allseas, between Allseas and BCL and
between BCL and the Appellant. When those arrangements are disregarded the reality is a
supply of the coating services by the Appellant to BGTT. The Board in adopting this
approach, it was submitted, was making the distinction between tax avoidance and tax
evasion and implementing the principles laid down in the case of W.T Ramsay Limited v
IRC [1982] AC 300.
[34] In the Ramsay case the taxpayer sought to create an allowable loss to offset a gain that
was chargeable to tax. It sought to create the loss without in fact suffering any and it did so
by entering into a series of transactions whereby both losses and matching gains were
created. The House of Lords held that the Court was not bound to consider individual steps
in a series of transactions, where the steps were so closely associated with each other as to
form a single composite arrangement. The Court was therefore entitled to have regard to
the effect of the transactions as a whole and was not bound to have regard to individual
components of the arrangements. Lord Wilberforce in his judgment said (at pp 323-324):
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“1. A subject is only to be taxed upon clear words, not upon
‘intendment’ or upon the ‘equity’ of an Act. Any taxing Act of Parliament is
to be construed in accordance with this principle. What are ‘clear words’ is
to be ascertained upon normal principles: these do not confine the courts to
literal interpretation. There may indeed should, be considered the context
and scheme of the relevant Act as a whole, and its purpose may, indeed
should, be regarded: ....
2. A subject is entitled to arrange his affairs so as to reduce his liability to
tax. The fact that the motive for a transaction may be to avoid tax does not
invalidate it unless a particular enactment so provides. It must be
considered according to its legal affect.
3. It is for the fact-finding commissioners to find whether a document, or a
transaction, is genuine or a sham. In this context to say that a document or
transaction is a “sham” means that while professing to be one thing, it is in
fact something different. To say that a document or transaction is genuine,
means that, in law, it is what it professes to be, and it does not mean
anything more than that. I shall return to this point.
Each of these three principles would be fully respected by the decision we are
invited to make. Something more must be said as to the next principle.
4. Given that a document or transaction is genuine, the court cannot go
behind it to some supposed underlying substance. This is the well-known
principle of Inland Revenue Commissioner v. Duke of Westminster [1936]
A.C. 1. This is a cardinal principle but it must not be overstated or
overextended. While obliging the court to accept documents or transactions,
found to be genuine, as such, it does not compel the court to look at a
document or a transaction in blinkers, isolated from any context to which it
properly belongs. If it can be seen that a document or transaction was
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intended to have effect as part of a nexus or series of transactions, or as an
ingredient of a wider transaction intended as a whole, there is nothing in
the doctrine to prevent it being so regarded: to do so is not to prefer form to
substance, or substance to form. It is the task of the court to ascertain the
legal nature of any transaction to which it is sought to attach a tax or a tax
consequence and if that emerges from a series or combination of
transactions, intended to operate as such, it is that series or combination
which may be regarded.....
For the commissioners considering a particular case it is wrong, and an
unnecessary self limitation, to regard themselves as precluded by their own
finding that documents or transactions are not ‘shams,’ from considering what, as
evidenced by the documents themselves or by the manifested intentions of the
parties, the relevant transaction is....”
[35] Following Ramsay therefore where a tax avoidance arrangement involves artificial steps
designed to bring the arrangement within applicable taxing legislation the courts are
prepared to disregard such artificial steps and consider the effect and reality of the
arrangement as a whole. In that way a tax avoidance scheme may be found to be liable to
tax.
[36] The Ramsay principle however has its limitations. These were highlighted in Furniss
(Inspector of Taxes) v Dawson [1984] AC 474 where Lord Brightman said (at p. 527):
“The formulation by Lord Diplock in Inland Revenue Commissions v Burmah
Oil Company Limited [1982] S.T.C. 30,33 expresses the limitation of the Ramsay
principle. First, there must be a pre-ordained series of transactions; or, if one
likes, one single composite transaction. This composite transaction may or may
not include the achievement of a legitimate commercial (i.e. business) end....
Secondly, there must be steps inserted which have no commercial (business)
purpose apart from the avoidance of a liability to tax - not “no business effect.” If
those two ingredients exist, the inserted steps are to be disregarded for fiscal
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purposes. The court must then look at the end result. Precisely how the end result
will be taxed will depend on the terms of the taxing statute sought to be applied...
The formulation, therefore, involves two findings of fact, first whether there was a
preordained series of transactions, i.e., the single composite transaction,
secondly, whether that transaction contained steps which were inserted without
any commercial or business purpose apart from a tax advantage. Those are facts
to be found by the commissioners. They may be primary facts or, more probably,
inferences to be drawn from primary facts. If there are inferences, there are
nevertheless facts to be found by the commissioners.
[37] The application of the Ramsay principle is therefore one that is dependent on the finding
of certain facts. There must be the finding of the facts as outlined by Lord Brightman. The
Board in this matter did not make such findings of fact. Moreover, there was no basis on
which the Board could have found such facts on the evidence that there was before it.
Indeed it would have been unfair and prejudicial for the Board to have so decided as there
were no issues before it that the arrangements between the various parties constituted a
single composite transaction and that steps had been inserted which had no commercial or
business purpose apart from the avoidance of a liability to tax. Similarly it is unfair and
prejudicial for these issues to be raised before this Court even if there were some basis on
which the Board could have come to those findings of fact. In the circumstances it was
wrong for the Board to disregard the contractual arrangements between the parties.
[38] In the circumstances the question regarding the recipient does not lend itself to any doubt
in this case. BCL contracted with its subsidiary to provide the coating services. There was
a supply by the Appellant to BCL, its parent company, which was liable as between itself
and its subsidiary for the payment of the consideration and the value added tax, if
chargeable. There is nothing sinister in a company subcontracting works to another
company, even its subsidiary. For the purposes of Item 12 therefore the recipient is BCL.
[39] This leaves the question whether the recipient was within Trinidad and Tobago at the time
when the services were performed. I do not think that “performed” in Item 12 carries a
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different meaning to “supplied”. So the question therefore is whether the recipient was
within Trinidad and Tobago at the time when the services were supplied.
[40] Item 12 was not always worded in its present form. The provision was amended in 1989
and had formerly read:
“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 neither a
resident of Trinidad and Tobago nor within Trinidad and Tobago at the time
when the services are performed.“
The amendment therefore removed any requirement for the recipient to be a non-resident
of Trinidad and Tobago.
[41] The literal meaning of “within” is “inside the range of an (area or boundary)” (see Oxford
Dictionary of English (2nd
ed.)). I do not think that the word is used to convey any
meaning other than its natural meaning in Item 12 and simply means that the recipient
must be in Trinidad and Tobago. A company having a registered office, place of business
or agent in Trinidad and Tobago would be within Trinidad and Tobago for the purposes of
Item 12.
[42] According to the agreed statement of facts, BCL was not registered in Trinidad and
Tobago, nor resident and had no branch in Trinidad and Tobago. The Board, however,
found that BCL must be regarded as having a constructive presence having regard to its
connection with the Appellant. It is not correct, in my judgment, to infer or imply that BCL
is present in Trinidad and Tobago simply because the Appellant is its subsidiary. A
subsidiary is separate and distinct from its parent company. Moreover, a company has a
legal identity separate and apart from its shareholders. The presence of the subsidiary in
Trinidad and Tobago cannot be regarded as the presence of its shareholders and
accordingly that of BCL.
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[43] It was submitted by the Respondent that the construction of Item 12 should be influenced
by section 16(1)(b)(ii). This section is as follows:
“16. (1) For the purposes of this Act, the supply of goods and services shall,
subject to subsections (3) and (4), be regarded as taking place within Trinidad
and Tobago if-
(b) the supplier is not resident in Trinidad and Tobago but-
(ii) in the case of a supply of services, the services are physically
performed in Trinidad and Tobago by a person who is in Trinidad and
Tobago at the time the services are performed.”
[44] As far as I understand the submission it was to the effect that insofar as the section treats
the supply of services as taking place within Trinidad and Tobago where it is physically
performed in Trinidad and Tobago by a person who is in Trinidad and Tobago so too in
such cases the recipient should be regarded as within Trinidad and Tobago.
[45] I however see no merit in that submission. Section 16 is relevant to determining the place
of the supply not the recipient. It has no bearing on that question. Further, if the contention
of the Appellant is correct that the place of supply is relevant to determining the meaning
of recipient within Item 12, it would mean that since value added tax is chargeable on a
commercial supply within Trinidad and Tobago, in every case the recipient would be
regarded as within Trinidad and Tobago. The result would be that Item 12 would never be
applicable. This would produce an absurd result and could not have been intended by the
draftsman.
[46] In my judgment the evidence does not establish that BCL was within Trinidad and Tobago.
On the agreed facts the appropriate inference is that it was not within Trinidad and Tobago
at the time of the supply of the services. As Mohammed, J.A has pointed out, the position
might have been different if there were provisions in our VAT Act similar to sections 9
and 43 of the 1994 VAT Act of the United Kingdom.
Page 18 of 44
[47] In the circumstances the commercial supplies in this matter fell within Item 12 of Schedule
2. There were supplies of services for a consideration payable in a foreign currency to a
recipient not within Trinidad and Tobago at the time when the services were performed.
The supplies were therefore zero-rated and consequently no value added tax was
chargeable on them.
A. Mendonça,
Justice of Appeal
Delivered by Mohammed J.A.
[48] This appeal was made by way of case stated pursuant to Part 61 of the Civil Proceedings
Rules 1998 (the CPR) and sections 9 and 10 of the Tax Appeal Board Act1. The decision
under review is that of the Tax Appeal Board (the Appeal Board) dated July 21st 2001,
whereby the respondent’s (the Board of Inland Revenue [the BIR]) assessment of the
appellant’s (Bauhuis Coating International Limited [BCIL]) Value Added Tax (VAT)
liability for the tax periods 200106, 200108, 200110 and 200112 was upheld.
[49] The BIR’s assessment was based primarily on the interpretation given to the word
“recipient” as contained in the Value Added Tax Act (the Act).2 The Appeal Board upheld
the BIR’s interpretation of the word “recipient” and concluded that a recipient, in relation
to the Act, was a third party to whom a service was provided and not a parent company in
a situation where it created, and contracted with, a subsidiary to provide services to that
third party. The Appeal Board rejected BCIL’s arguments and concluded that the various
contractual relationships it entered into amounted to a “mask”, established simply to derive
financial benefits under the Act. It further concluded that BCIL’s parent company could
not be the recipient of services and had a constructive presence in Trinidad and Tobago by
virtue of its subsidiary, BCIL.
1 Chap. 4:50.
2 Chap. 75:06.
Page 19 of 44
[50] I am of the view that the BIR, and subsequently the Appeal Board, erred in their
interpretation of the Act as to the meaning of the term “recipient”. A finding that the term
“recipient”, in relation to the Act, encompassed a third party ultimate recipient ignored the
plain wording of the Act as well as the commercial reality of business transactions.
Accordingly, the commercial supplies provided by BCIL were properly zero rated as it
was supplied for a consideration that was payable in a currency other than that of Trinidad
and Tobago, to a recipient who was not within Trinidad and Tobago at the time when the
services were performed. The recipient was not within Trinidad and Tobago as merely
having a subsidiary within a jurisdiction does not, without more, amount to a constructive
presence of the parent company in that jurisdiction.
[51] The interpretation of the Act is purely a question of law and accordingly, this court has the
jurisdiction to review the Appeal Board’s ruling. The case stated will be amended and the
Appeal Board’s decision is hereby reversed.
Facts
[52] An agreed statement of facts was filed before the Appeal Board on December 16th
, 2003.3
BCIL was duly registered under the laws of Trinidad and Tobago4 and at all material times
provided pipe coating services, under a subcontract, to a non-resident company, Bauhuis
Coating Limited (BCL).
[53] BCIL coated pipelines for the ultimate benefit of British Gas Trinidad and Tobago Limited
(BGTT). BGTT contracted with Allseas Marine Contractors S.A. Switzerland (Allseas) for
the procurement and installation of certain pipelines in Trinidad and Tobago. Allseas then
contracted with BCL, a Cyprus based company, to coat these pipes. BCL subcontracted the
actual coating of the pipelines to BCIL, a wholly owned subsidiary of BCL. BCIL
performed these services locally and issued invoices to BCL, payable in U.S. Dollars.
3 See pgs 9-10 of the case stated by the Appeal Board.
4 See The Companies Act Chap. 81:01; section 20 of the Value Added Tax Act Chap. 75:06.
Page 20 of 44
There was no dispute that all the services were physically performed in Trinidad and
Tobago and were classified as commercial supplies.5
[54] BCIL filed its VAT returns for the periods indicated below and reported its input VAT6 as
follows:
a. Period 200106 - $1,168.886.62
b. Period 200108 - $1,107,282.46
c. Period 200110 - $1,791,292.64
d. Period 200112 - $ 96,208.03
[55] BCIL reported no output VAT7 as it regarded all its commercial supplies as zero rated in
accordance with Schedule 2, Item 12 of the Act. Schedule 2 identifies goods and services
which are zero rated for the purpose of the Act8 and Item 12 lists as zero rated, “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.”
[56] Having reported no output tax, BCIL claimed VAT refundable to the full extent of the
input tax recorded in each period. However, during an audit of BCIL’s VAT returns, the
BIR discovered that the services provided by BCIL were for the ultimate benefit of BGTT.
The BIR then assessed BCIL’s output tax at the standard rate of 15%, as it concluded that
the recipient of the services provided, for the purposes of the Act, was BGTT, a company
within Trinidad and Tobago at the time the services were supplied. By notice of
assessment dated July 15th
2002, the BIR made adjustments to BCIL’s tax returns which
resulted in VAT liabilities as follow:
a. Period 200106 - $385, 872.33
b. Period 200108 - $ 5, 858.11 (refundable)
c. Period 200110 - $745, 472.36 (refundable)
5 See section 14(1) of the VAT Act Chap. 75.06.
6 VAT which is deductible.
7 VAT which is payable.
8 See section 8 of the VAT Act Chap. 75.06.
Page 21 of 44
d. Period 200112 - $212,081.26
[57] BCIL appealed each assessment and by order dated June 30th
2003, the four appeals were
consolidated and heard together as all appeals raised one central issue – whether the
supplies made by BCIL were zero rated under the Act.9
The Tax Appeal
[58] The relevant sections of the Act which were set out before the Appeal Board in an attempt
to resolve the issue were as follows:
Section 3(1):
“recipient” in relation to a supply of goods or services, means the person to whom
the goods or services are supplied;
“supplier” in relation to a supply of goods or services, means the person by whom
the goods or services are supplied;
“tax invoice” means a tax invoice given under section 36.
Section 4:
(1) In this Act “business” includes any trade, profession or vocation.
(2) For the purposes of this Act—
(a) an activity that is carried on, whether or not for pecuniary profit, and
involves or is intended to involve, in whole or in part, the supply of goods or
services for consideration;
(b) the activities of a club, association or organisation, other than a trade
union registered under the Trade Unions Act, in providing, for a
subscription or other consideration, facilities or advantages to its members;
or (c) an activity involving the admission, for a consideration, of persons to
any premises.
9 See pg 5 of the case stated by the Tax Appeal Board.
Page 22 of 44
Section 14:
(1) A supply of goods or prescribed services that is made in the course of, or
furtherance of, any business is a “commercial supply” for the purposes of this Act.
Section 16:
(1) For the purposes of this Act, the supply of goods and services shall, subject to
subsections (3) and (4), be regarded as taking place within Trinidad and Tobago
if—
(a) the supplier is resident in Trinidad and Tobago; or
(b) the supplier is not resident in Trinidad and Tobago but—
(i) in the case of a supply of goods, the goods supplied are in
Trinidad and Tobago at the time of the supply; or
(ii) in the case of a supply of services, the services are physically
performed in Trinidad and Tobago by a person who is in Trinidad
and Tobago at the time the services are performed.
(2) For the purposes of this Act, the supply of goods or services shall, subject to
subsections (1)(b) and (5), be regarded as not taking place within Trinidad and
Tobago if the supplier is not resident in Trinidad and Tobago.
Section 17:
(1) Except as otherwise provided in this section, a supply of goods or services takes
place, for the purposes of this Act, when—
(a) an invoice for the supply is given by the supplier;
(b) payment is made for the supply; or
(c) the goods are made available, or the services are rendered, as the case
may be, to the recipient,
whichever is the earlier.
Section 36:
(1) Subject to subsection (3A), a registered person making a commercial supply
exceeding the sum of twenty dollars on or after the appointed day shall, at the time
when the supply takes place, give the recipient a tax invoice, in accordance with
Page 23 of 44
subsection (3), in respect of the supply or, if he is requested by the recipient to do
so, a tax invoice in accordance with subsection (2).
……..
(3A) A registered person carrying on a business listed in Schedule 3A may make a
commercial supply without issuing a tax invoice but such person shall, if requested
by the recipient to do so, give a tax invoice in accordance with subsection (2).
Section 37:
(1) This section applies where a registered person has given a tax invoice in
respect of a commercial supply and thereafter—
(a) the supply is cancelled;
(b) the consideration for the supply is altered, whether due to a discount or
otherwise; or
(c) the goods or services, or any part of the goods or services supplied, are
returned to the supplier.
(2) Where this section applies, the supplier shall give to the recipient a credit note
or a debit note, as the case requires, to adjust the amount shown on the tax invoice
as being in respect of tax to the amount, if any, that would have been so shown if—
(a) the cancellation or alteration referred to in subsection (1)(a) or (b) had
taken place before the tax invoice was given; or
(b) the goods or services returned had not been supplied,
as the case requires.
(3) A credit note or debit note required by subsection (2) to be given shall
include—
(a) the words “credit note” or “debit note”, as the case requires, shown
conspicuously thereon;
(b) the name, address and registration number of the supplier;
(c) the name and address of the recipient;
(d) the date on which the credit note or debit note, as the case requires, is
given;
(e) the identifying number of the tax invoice to which it relates and the date
on which it was given;
Page 24 of 44
(f) the amount shown on the tax invoice as being in respect of tax, the
adjusted amount, and the amount of the credit or debit, as the case requires,
that is necessary to make the adjustment; and
(g) a brief explanation of the circumstances giving rise to the note being
given.
Schedule 2, Item 12 as outlined at paragraph 55 above.
[59] BCIL submitted that the sole question was, who was the recipient of services in the context
of the provisions of the Act. It contended that the issue should be resolved with guidance
from other provisions of the Act and argued that section 17 identified that the two pertinent
parties to a transaction were the supplier and the recipient. Further, BCIL submitted that
section 36 of the Act outlined that the supplier and recipient were the two parties to the tax
invoice and the recipient was the person from whom VAT was claimed. Taking that into
account, it was submitted that the commercial supplies made by BCIL were zero rated
because they were supplied, for a consideration that was payable in U.S. dollars, to the
recipient, BCL, which was not within Trinidad and Tobago at the time when the services
were performed.
[60] The BIR defended its assessment with assistance from the definition of the term
“recipient” as outlined by section 3(1) of the Act. According to the BIR, the identity of the
recipient was simply and readily identifiable. The BIR contended that BCIL coated
pipelines belonging to BGTT and as such BGTT was the recipient of the services provided
by BCIL services. Further, matters of privity of contract and the issuing of tax invoices
were not relevant when determining the identity of the recipient as the imposition of
several contracts might well obscure the true picture. It was further contended that even if
BCIL’s arguments were accepted, on an altogether separate limb, the commercial supplies
were still not zero rated as the test of presence in Trinidad and Tobago was gleaned from
whether or not the company was involved in commercial activity in Trinidad and Tobago
in accordance with section 16 (1)(b) of the Act. The BIR submitted that for the purposes of
the Act, BCL must be considered to be within Trinidad and Tobago since it made supplies
in Trinidad and Tobago.
Page 25 of 44
[61] In response to the BIR, BCIL submitted that the Act must be construed as a whole and the
use of the word “recipient” throughout the Act must be consistent with the meaning set out
in the definition at section 3(1). Sections 17, 36 and 37 identifies the recipient as the
second party to the contract, which is the person named on the invoice, and this informs
and substantiates the meaning to be given to the word “recipient” in Item 12 of Schedule 2.
In addition, the absence of a contractual relationship between BCIL and BGTT precluded
BGTT from being the recipient under the Act. Any suggestion to the contrary was an
attempt to impermissibly enlarge the restricted meaning of the term “recipient”, there
being nothing to suggest that the meaning of the term in Item 12 of Schedule 2 had
suddenly varied from its meaning throughout the Act. Further, BCIL reasoned that a
finding that the services were supplied in Trinidad and Tobago could not by itself deem
BCL to be within Trinidad and Tobago for the purposes of the Act. BCIL contended that
such a conclusion required a specific deeming provision in the Act to facilitate it, since it
ignored the realities of the world of commerce and contract.
The decision of the Tax Appeal Board
[62] The consolidated appeals were dismissed on July 27th
2005. However, due to technical
difficulties the written judgment was delivered July 21st, 2011.
The submissions of both
parties were considered and the Tax Appeal Board stated:
“13.4 …… We agree fully with the Respondent on the identity of the recipient. It
has been clearly established at this trial that it was British Gas Trinidad and
Tobago Ltd. which requested BCL the parent company to provide it with these
goods and services. It would be a contradiction in terms to regard BCL, the
company responsible for forming its subsidiary, that is BCIL, as the recipient of
these goods and services.
13.5 We do not accept the contentions of the Appellant that various contractual
relationships can supplant the legal status of the recipient of the services from the
Appellant. Further, the Appellant should not be allowed to mask that very
Page 26 of 44
important fact as it relates to the Value Added Tax Act in order to derive financial
benefits under the said VAT Act.
….
14.5……..The basic rule with the supply of services is that services are deemed to
be supplied where the supplier’s business is established or located. There is no
doubt in this case that the supplier is a company registered in and having its
place of business in Trinidad and Tobago. It is also not in doubt that the actual
supply was carried out in Trinidad and Tobago, nor is it in doubt that the subject
matter for the purposes of the VAT Act was owned by a Trinidad and Tobago
company, BGTT. As such, although the contract for the services was between two
non-resident companies, this is not a matter which could legitimately influence
the Court to hold that the supply is a zero rated supply under Schedule 2 Item 12,
and as such that output tax should not be charged in the recipient of the supply.
….
16.2 ……the Appellant has not satisfied the legal onus of proof which was placed
on it, and has not discharged the onus of providing that in each appeal the
assessment by the Respondent, the Board of Inland Revenue is excessive or
wrong.”10
[63] The Appeal Board also found, as a fact, that BCL must be regarded as having a
constructive presence within Trinidad and Tobago, having regard to its connection with
BCIL.11
[64] By letter dated August 12th
2005, BCIL requested that the Appeal Board state and sign a
case for the court of appeal as BCIL was dissatisfied with the decision of the Appeal Board
as being erroneous in point of law. The Appeal Board contended, by way of case stated,
that there was no question of law submitted for the opinion of the court of appeal as the
10
See Bauhuis Coating International Limited v The Board of Inland Revenue Tax Appeal Nos. V12-V15 of
2003 at pgs 26-28. 11
See pg 34 of the case stated by the Tax Appeal Board.
Page 27 of 44
matter turned on one of fact only. That was, that the recipient of the supplies from the
appellant was BGTT with respect to all four appeals.12
Submissions of the appellant on this appeal
[65] BCIL sought the following reliefs:
1. That the court of appeal amend the Appeal Board’s case stated by deleting
paragraph 31 and inserting “The points of law for consideration by, and the opinion
of, the court of appeal are:
i. Whether the Tax Appeal Board was correct in its statutory construction
and/or interpretation of the word “recipient” as defined by section 3(1) of
the Value Added Tax Act (“VAT Act”) for the purposes of the VAT Act;
and
ii. Whether the Tax Appeal Board was correct in its application of the VAT
Act as it so construed and interpreted to the facts as agreed between the
appellant and respondent by the Agreed Statement of Facts filed in the tax
appeals on 16th
December 2003.”
2. That the court of appeal reverses the determination of the Tax Appeal Board;
3. That the Respondent pay the appellant the costs of this appeal; and
4. Any further relief as the court deems just.
[66] In support of the reliefs requested, BCIL noted the Appeal Board’s statement that the sole
question which arose for determination was “who in the context of the provisions of the Vat
Act was the recipient of the services from the Appellant?”13
According to BCIL, the
resolution of this issue required the statutory interpretation and construction of the word
“recipient” and the interpretation of a term used in a statutory provision was a question of
law.14
Therefore the Appeal Board’s purported finding of fact, that BGTT was the
recipient, was not in substance a finding of fact but rather was based on a determination of
a point of law and thus subject to review by the court of appeal.
12
ibid at paragraph 31. 13
ibid at paragraph 13.1. 14
See Adam v Newham London Borough Council [2001] EWCA Civ 916.
Page 28 of 44
[67] BCIL further submitted that the Appeal Board erred in its construction of the word
“recipient” as it failed to consider the meaning of the word “recipient” in its full and true
context within the four corners of the VAT Act.15
In construing the section, the Appeal
Board was entitled to look at other sections of the Act for guidance and an analysis of
other sections in the Act, as was contended in BCIL’s submissions at the tax appeal,
clearly illustrated that, for the purposes of the Act, the parties to the tax invoice must be
the supplier and the recipient.
[68] BCIL also submitted that the decision of the Appeal Board was perverse in that no
reasonable tribunal could have arrived at such a decision, that for the purposes of the Act,
a recipient of commercial supplies could be a third party entity (BGTT). By parity of the
reasoning of the Appeal Board, Allseas was also the beneficiary of commercial supplies
(to whom services were rendered by BCL in fulfillment of its contract) and so it could be
argued that Allseas should be considered a recipient under the Act. BCIL contended that
the Appeal Board’s conclusion left room for uncertainty as to who the recipient would be
for the purposes of the Act.
Submissions of the respondent on this appeal
[69] The BIR contended that the question of who is a recipient must at least be a mixed
question of law and fact. However, it submitted that if a literal interpretation was applied,
the recipient would be the entity ultimately receiving the services, that being BGTT. It was
argued that limiting the meaning to a person to whom an invoice was sent made a mockery
of the legislative intent of taxing legislation.
[70] Further, a company need not be registered in nor resident in Trinidad and Tobago for the
purpose of Item 12 and since there was no agreement on whether or not BCL was within,
or not within, Trinidad and Tobago when the commercial supply was made, the Appeal
Board was entitled to make that finding of fact, if that finding was necessary for the
determination of the appeals. In support of this contention the wording of the current Item
15
See Reynolds v Income Tax Commissioner 7 WIR 154 at pages 156-157 per Wooding CJ.
Page 29 of 44
12 of Schedule 2 was distinguished from that used in the previous Item 12 of Schedule 2,
amended December 22nd
1989. Item 12 now reads:
“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.”
[71] Item 12 formerly read:
“…..to a recipient who is neither a resident of Trinidad and Tobago nor within
Trinidad and Tobago at the time when the services are performed.”
[72] The BIR submitted that in amending the Act, the legislature must have intended that there
was no requirement for the recipient to be a non-resident. Even if the supplier was not a
resident, it may be deemed to be within the country for the purposes of the Act.
[73] In response to BCIL’s argument that the decision of the Appeal Board was perverse, the
BIR contended that it was entirely appropriate for the Appeal Board to consider the other
contracts for the purpose of determining the nature of the transactions and the bona fides of
the tax invoice. By taking into account the other contracts and arrangements, the Appeal
Board was making the distinction between tax avoidance and tax evasion by analyzing a
series of connected transactions as a whole with emphasis being given to the end result.16
What were considered self cancelling transactions were disregarded, as was the
recommended approach for interpreting taxing statutes.17
[74] Taken as a whole, it was contended that BCIL failed to show that the Appeal Board erred
on a point of law and so the appeal should be dismissed.
Appellant’s reply to the submissions of the respondent
[75] BCIL objected to the BIR’s response on the basis that it introduced, for the first time, the
issue of whether BCIL’s actions constituted tax avoidance or tax evasion. Accordingly, it
16
See W.T. Ramsay Ltd v IRC [1982] AC 300. 17
See Statuory Interpretation 4th
Edn F A R Bennion at section 32.
Page 30 of 44
was inappropriate at this stage for the court to consider that argument. The argument was
also challenged as being inappropriate given the legislative framework of the Act. It was
contended that unlike other taxing legislation, there was no express provision in the Act
which requires the BIR to consider whether any transactions constituted a tax avoidance or
tax evasion scheme.18
Rather than applying what has become known as the “Ramsay
approach” reflexively, the court ought to be mindful of the reasoning in McNiven (H.M.
Inspector of Taxes) v Westmoreland Investments Limited 3 ITLR 342, which cautioned
against the over-literal application of the Ramsay approach in an area of the law which was
not appropriate for absolutes and which also recognized the paramount importance of the
interpretation of the particular statutory context and its application to the relevant facts.
Issues
[76] The three main issues raised on in this appeal are:
1. Whether the tax appeal was determinable on a question of fact or one of law? If it is
found that the question was one of a point of law, then this court was permitted to
delve further and to consider the second and third issues.
2. What is the interpretation to be given to the word “recipient” in relation to the Act?
3. Whether BCL was ‘within’ Trinidad and Tobago for the purposes of the Act?
1. Question of law or fact?
[77] Section 9 of the Tax Appeal Board Act19
provides:
“the court of appeal shall hear and determine any question or questions of law
arising on the case and shall reverse, affirm or amend the determination in
respect of which the case has been stated or shall remit the matter to the appeal
board with the opinion of the court thereon or make such other order in relation
to the matters as to the court may seem fit.”
18
See section 67(1) of the Income Tax Act Chap. 75:01; the Corporation Tax Act Chap. 75:02. 19
ibid (n. 1).
Page 31 of 44
[78] The BIR has not, on this appeal, taken any issue that, at its highest, the point involved is a
mixed question of fact and law. The only issue involved is one of statutory construction,
and thus, a question of law.
2. What is the interpretation to be given to the word “recipient”?
The Law
[79] In W.T. Ramsay Ltd v IRC [1982] AC 300, Lord Wilberforce said at page 323:
“While the techniques of tax avoidance progress and are technically improved,
the courts are not obliged to stand still. Such immobility must result either in loss
of tax, to the prejudice of other taxpayers, or to Parliamentary congestion or
(most likely) to both. To force the courts to adopt, in relation to closely integrated
situations, a step by step, dissecting, approach….would be a denial rather than an
affirmation of the true judicial process.”
[80] In the case of McNiven v Westmoreland, Gibson L.J. summarized the principles
developed from the Ramsay case at pages 350-352:
“First, when it is sought to attach a tax consequence to a transaction, the task of
the courts is to ascertain the legal nature of the transaction. If that emerges from
a series or combination of transactions, intended to operate as such, it is that
series or combination which may be regarded. Courts are entitled to look at a
prearranged tax avoidance scheme as a whole. It matters not whether the parties’
intention to proceed with a scheme through all its stages takes the form of a
contractual obligation or is expressed only as an expectation without contractual
force.
Second, this is not to treat a transaction, or any step in a transaction, as though it
were a ‘sham’, meaning thereby, that it was intended to give the appearance of
having a legal effect different from the actual legal effect intended by the parties
(see the classic definition of Diplock LJ in Snook v London and West Riding
Investments Ltd [1967] 2 QB 786 at 802). Nor is this to go behind a transaction
Page 32 of 44
for some supposed underlying substance. What this does is to enable the court to
look at a document or transaction in the context to which it properly belongs.
Third, having identified the legal nature of the transaction, the courts must then
relate this to the language of the statute. For instance, if the scheme has the
apparently magical result of creating a loss without the taxpayer suffering any
financial detriment, is this artificial loss a loss within the meaning of the relevant
statutory provision? Thus, in W T Ramsay Ltd v IRC [1981] STC 174, [1982] AC
300 the taxpayer company sought to create an allowable loss to offset against a
chargeable gain it had made on a sale-leaseback transaction. It sought to do so
without suffering any financial detriment, by embarking on and carrying through
a scheme which created both a loss which was allowable for tax purposes and a
matching gain which was not chargeable. In rejecting the efficacy of this
contrived ‘loss-creating’ scheme, Lord Wilberforce observed that a loss which
comes and goes as part of a preplanned, single continuous operation ‘is not such
a loss (or gain) as the legislation is dealing with’….
The Ramsay principle or, as I prefer to say, the Ramsay approach to ascertaining
the legal nature of transactions and to interpreting taxing statutes, has been the
subject of observations in several later decisions. These observations should be
read in the context of the particular statutory provisions and sets of facts under
consideration. In particular, they cannot be understood as laying down factual
prerequisites which must exist before the court may apply the
purposive Ramsay approach to the interpretation of a taxing statute. That would
be to misunderstand the nature of the decision in Ramsay. Failure to recognise
this can all too easily lead into error. In particular, the much-quoted observation
of Lord Brightman in Furniss (Inspector of Taxes) v Dawson [1984] STC 153 at
166, [1984] AC 474 at 527 seems to have suffered in this way. Lord Brightman
described, as the "limitations of the Ramsay principle", that there must be a
preordained series of transactions, or a single composite transaction, containing
steps inserted which have no business purpose apart from the avoidance of a
Page 33 of 44
liability to tax. Where those two ingredients exist, the inserted steps are to be
disregarded for fiscal purposes.
....The Ramsay approach is no more than a useful aid. This is not an area for
absolutes. The paramount question always is one of interpretation of the
particular statutory provision and its application to the facts of the case. Further,
as I have sought to explain, Ramsay did not introduce a new legal principle. It
would be wrong, therefore, to set bounds to the circumstances in which the
Ramsay approach may be appropriate and helpful. The need to consider a
document or transaction in its proper context, and the need to adopt a purposive
approach when construing taxation legislation, are principles of general
application. Where this leads depends upon the particular set of facts and the
particular statute.”
[81] The Vat Act of the United Kingdom (UK Vat Act)20
contains provisions which specifically
identify how one determines where a recipient is located and addresses the tax liability to
be attributed to groups of companies.
[82] Sections 9 and 43 of the UK Vat Act provides:
9. Place where supplier or recipient of services belongs
(1) Subsection (2) below shall apply for determining, in relation to any supply of
services, whether the supplier belongs in one country or another and
subsections (3) and (4) below shall apply for determining, in relation to any
supply of services, whether the recipient belongs in one country or another.
(2) The supplier of services shall be treated as belonging in a country if—
(a)he has there a business establishment or some other fixed establishment
and no such establishment elsewhere ; or
(b)he has no such establishment (there or elsewhere) but his usual place of
residence is there ; or
20
1994 Chapter 23.
Page 34 of 44
…………
(4)Where subsection (3) above does not apply, the person to whom the supply is
made shall be treated as belonging in a country if—
(a)either of the conditions mentioned in paragraphs (a) and(b) of subsection
(2)above is satisfied ; or
(b)he has such establishments as are mentioned in subsection (2) above both
in that country and elsewhere and the establishment of his at which, or
for the purposes of which, the services are most directly used or to be
used is in that country.
…………
(5)For the purposes of this section (but not for any other purposes)—
(a)a person carrying on a business through a branch or agency in any
country shall be treated as having a business establishment there ; and
……..
43. Groups of companies
(1)Where, under the following provisions of this section, any bodies corporate are
treated as members of a group any business carried on by a member of the group
shall be treated as carried on by the representative member, and—
(a)any supply of goods or services by a member of the group to another
member of the group shall be disregarded ; and
(b)any other supply of goods or services by or to a member of the group
shall be treated as a supply by or to the representative member; and
………….
Analysis
[83] Section 17 of the Act outlines the occurrences under which a supply of goods or services is
regarded as having taken place under the Act. The first occurrence mentioned is where an
invoice for the supply is given by the supplier.
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[84] The term “recipient” for the purposes of the Act and in relation to a supply of goods and
services is defined by section 3(1) of the Act to mean the person to whom the goods or
services are supplied.
[85] In the circumstances of this case which involved subcontracts, any tax evaluation which
sought to identify a third party ultimate recipient of services would have had to be wholly
fact based and explicitly founded upon the clearly articulated premise that the scope of that
exercise involved going behind the face of commercial arrangements set up. The case
before the Appeal Board did not proceed on that explicit premise.
[86] The argument that the term “recipient” under the Act, can, purely as an issue of statutory
construction and on a literal interpretation, encompass a third party ultimate recipient of
services, is not sustainable because it ignores the plain wording of the Act as to the
meaning of the term “recipient”. This meaning is consistently reinforced in other sections
of the Act. To construe it in the manner contended for by the BIR would be out of line
with the meaning of the same term in other provisions of the Act, without there being
anything to suggest that the term is meant differently or is to derive its meaning, in a
somewhat non-uniform fashion, according to the factual context.
[87] In addition, if the term “recipient” was to be construed in that generalized manner, then in
a situation which involves subcontracts, its application could be stretched quite artificially
beyond the usual boundaries of commercial arrangements and attendant obligations of
each discreet transactional arrangement. This is well illustrated by the facts of this case. If
the BIR’s argument is valid, then Allseas would also fall to be classified as a “recipient” of
services. Such a generalized interpretation would lead to highly undesirable uncertainty in
the operation of the VAT Act, especially where the provision of goods and services is
executed by various subcontractors.
[88] An example of this uncertainty would arise where goods and services are provided in
Trinidad and Tobago, by Company Y, for a local company (X), the ultimate beneficiary
being its parent company (Z), located in a foreign jurisdiction. If the BIR’s interpretation
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of the term “recipient” is valid, then if the local company issued an invoice for these goods
and services in U.S. dollars to Company Z, the local company might not be called upon to
pay output tax because they could reasonably argue that the ultimate recipient was the
parent company, which was outside of Trinidad and Tobago. This would, however,
completely ignore the fact and underlying commercial reality that, under a contract, the
goods were actually provided to a local company and so tax should be charged. The
generalized meaning of the term “recipient” under the Act contended for by the respondent
would then permit a selective application of the Act.
[89] In this case, if the BIR’s argument is correct, it would lead to the highly anomalous
position where BGTT is regarded as being the recipient of services although there was no
privity of contract between BCIL and BGTT. This would contradict commercial and
contractual reality.
[90] The conjoint effect of sections 3(1), 17, 31 and 36 of the Act is that the "recipient” of a
supply is the counterparty to the transaction undertaken by the registered person. That
counterparty being:
(a) The person to whom the registered person is obligated to provide the commercial
supply;
(b) The person to whom the registered person is obligated to provide a tax invoice
identifying among other things, the recipient and the value of the supply; and
(c) The person who is obliged to pay to the registered person the sums in settlement of
the tax invoice.
3. Whether BCL was within Trinidad and Tobago?
[91] Having concluded that the word “recipient” in the Act refers to the entity receiving the tax
invoice, the ability to zero rate the goods and services provided by BCIL was dependant on
the company proving the following:
i. That the tax invoice was quoted in U.S. dollars; and
ii. That the company recipient was not ‘within’ Trinidad and Tobago.
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[92] There is no dispute that the tax invoice was quoted in U.S. dollars. The only issue was
whether BCL was ‘within’ Trinidad and Tobago because the services were being
performed via its subsidiary, BCIL. The BIR contended that there was no need for BCL to
be physically present in the jurisdiction but rather, conducting business in Trinidad and
Tobago sufficed to establish that a company was ‘within’ the jurisdiction. However, a
conclusion that BCL had a constructive presence in Trinidad and Tobago ignores the
commercial realities involved in a situation with subcontracts. For the notion of
constructive presence to be legitimately incorporated into the Act, an explicit statutory
provision would have been necessary so as to in effect permit the displacement of the
usual prima facie inferences which attend commercial arrangements involving
subcontracts.
[93] If the equivalent of sections 9 and 43 of the UK Vat Act were contained in our legislation,
the subcontract between the subsidiary company (BCIL) and its parent company (BCL)
could, with explicit statutory sanction, be ignored and both entities treated as having the
same identity. Therefore, BCL would be considered to be within Trinidad and Tobago.
However, there is no counterpart to sections 8 and 29 of the UK Vat Act in Trinidad and
Tobago.
Disposition
[94] Rule 61.7(2) of the CPR deals with the way in which the court of appeal may treat with the
amendment of a case stated and establishes that:
“the court may amend the case or order it to be returned to the person or tribunal
stating the case for amendment.”
[95] The questions which arose in this matter were questions of law. The BIR erred in its
interpretation and the questions of law are answered in the following way:
i. The word “recipient” in the Act referred to the company with whom BCIL
contracted, that being, BCL; and
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ii. BCL was not ‘within’ Trinidad and Tobago, for the purposes of the Act, when
the invoices for the services provided by BCIL were issued.
[96] The Appeal is allowed. The Appeal Board’s decision is hereby reversed and the case stated
by the Tax Appeal Board is amended by deleting paragraph 31 and inserting “The points
of law for consideration by, and the opinion of, the court of appeal are:
i. Whether the Tax Appeal Board was correct in its statutory construction and/or
interpretation of the word “recipient” as defined by section 3(1) of the Value
Added Tax Act (“VAT Act”) for the purposes of the VAT Act; and
ii. Whether the Tax Appeal Board was correct in its application of the VAT Act
as it so construed and interpreted to the facts as agreed between the Appellant
and Respondent by the Agreed Statement of Facts filed in the tax appeals on
16th
December 2003.”
[97] In the context of the provisions of the Act the commercial supplies made by BCIL were
properly zero rated because they were supplied for a consideration that was payable in
U.S. dollars to the (transactional) recipient BCL, which was not in Trinidad and Tobago at
the time when the services were performed.
[98] The parties will be heard on the issue of costs.
M. Mohammed
Justice of Appeal
Delivered by Narine J.A.
[99] Regretfully, I disagree with the decision of my learned brothers on the outcome of this
appeal. The main issue that arises on this appeal is whether the service provided by the
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appellant attracts value added tax (VAT) at the standard rate of 15%, or whether the
service provided was zero rated.
[100] The facts of this appeal are adequately set out in the judgment of my brother
Mohammed J.A. and I will repeat them only in so far as my reasons require. The facts
that are not in dispute are:
i. British Gas Trinidad and Tobago Limited (BGTT) contracted with Allseas
Marine Contractors S.A. Switzerland (Allseas) for the procurement and
installation of pipelines in Trinidad and Tobago.
ii. Allseas contracted with Bauhuis Coating Limited (BCL) to coat the pipes.
iii. BCL then subcontracted with the appellant (BCIL) a wholly owned subsidiary
of BCL, to coat the pipes in Trinidad and Tobago.
iv. Allseas and BCL are foreign companies, the former registered in Switzerland
and the latter registered in Cyprus.
v. BCIL and BGTT are registered in Trinidad and Tobago.
vi. The coating of the pipes were physically carried out in Trinidad and Tobago by
BCIL.
[101] It seems to me that the outcome of this appeal depends on a construction of the relevant
provisions of the VAT Act, with a view to answering two basic questions namely:
i. Was it the clear intention of the VAT Act that the service provided in this case
should attract VAT at the standard rate?
ii. If the answer to (i) is in the affirmative, are their other provisions in the VAT
Act which are inconsistent with that intention?
[102] For the purpose of considering the first question, the relevant provisions are:
Section 3(1):
“recipient” in relation to a supply of goods or services, means the person
to whom the goods or services are supplied;
“supplier” in relation to a supply of goods or services, means the person
by whom the goods or services are supplied.
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Section 14:
(1) A supply of goods or prescribed services that is made in the course of, or
furtherance of, any business is a “commercial supply” for the purposes of
this Act.
Section 16:
(1) For the purposes of this Act, the supply of goods and services shall,
subject to subsections (3) and (4), be regarded as taking place within
Trinidad and Tobago if—
(a) the supplier is resident in Trinidad and Tobago; or
(b) the supplier is not resident in Trinidad and Tobago but—
(i) in the case of a supply of goods, the goods supplied are in
Trinidad and Tobago at the time of the supply; or
(ii) in the case of a supply of services, the services are physically
performed in Trinidad and Tobago by a person who is in Trinidad
and Tobago at the time the services are performed.
(2) For the purposes of this Act, the supply of goods or services shall, subject
to subsections (1)(b) and (5), be regarded as not taking place within Trinidad
and Tobago if the supplier is not resident in Trinidad and Tobago.
Section 17(1):
Except as otherwise provided in this section, a supply of goods or services
takes place, for the purposes of this Act, when—
(a) an invoice for the supply is given by the supplier;
(b) payment is made for the supply; or
(c) the goods are made available, or the services are rendered, as the
case may be, to the recipient,
whichever is the earlier.
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Section 36(1):
Subject to subsection (3A), a registered person making a commercial supply
exceeding the sum of twenty dollars on or after the appointed day shall, at
the time when the supply takes place, give the recipient a tax invoice, in
accordance with subsection (3), in respect of the supply or, if he is requested
by the recipient to do so, a tax invoice in accordance with subsection (2).
[103] It is clear from a plain and ordinary reading of section 3(1) that the person to whom the
service was supplied was BGTT. BCL (the parent of BCIL) did not have any pipelines
that required coating. What BCL had was a contractual obligation to coat pipes supplied
to BGTT by Allseas. The recipient of the service was clearly BGTT. The supplier of the
service was BCIL not BCL. The contractual arrangement between the parent and the
subsidiary was for the subsidiary to provide a service to a third party, in this case BGTT.
[104] It is not in dispute that the supplier BCIL was resident in Trinidad and Tobago, in
accordance with section 16(1), and so the supply of the service must be regarded as taking
place within Trinidad and Tobago. It is also not in dispute that the service provided was a
“commercial supply” in accordance with section 14(1). It follows that the supply of the
service will attract VAT at the standard rate of 15%.
[105] The appellant in this case relies on the exemption contained in Item 12 of Schedule 2,
which zero rates:
“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 in
Trinidad and Tobago at the time when the services are performed”.
[106] The appellant contends that the consideration which passed from the parent to the
subsidiary for the provision of the service was payable in United States currency to BCL, a
company which was not in this country at the time that the services were performed.
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[107] Clearly, what the exemption contemplates, is that the recipient of the services must be
outside of Trinidad and Tobago when the services are provided. In other words the clear
intention is that the exemption should attach to services that are provided to a recipient
outside Trinidad and Tobago. In this case the service was provided to BGTT within
Trinidad and Tobago. It follows that Item 12 of Schedule 2 does not apply to the services
provided in this case.
[108] The appellant further relies on sections 17(1) and 36 (1) of the Act which provide:
Section 17(1):
Except as otherwise provided in this section, a supply of goods or services
takes place, for the purposes of this Act, when—
(a) an invoice for the supply is given by the supplier;
(b) payment is made for the supply; or
(c) the goods are made available, or the services are rendered, as the
case may be, to the recipient,
whichever is the earlier.
Section 36(1):
Subject to subsection (3A), a registered person making a commercial
supply exceeding the sum of twenty dollars on or after the appointed day
shall, at the time when the supply takes place, give the recipient a tax
invoice, in accordance with subsection (3), in respect of the supply or, if
he is requested by the recipient to do so, a tax invoice in accordance with
subsection (2).
… … ...
[109] Section 17 (1) simply sets out the time at which the supply of goods or services is deemed
to have taken place. Section 31(1) requires the registered person to issue a tax invoice to
the “recipient” at the time of the supply of the services. The appellant argues that on the
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facts of this case, since the appellant has to issue an invoice to BCL for payment (and not
BGTT), in order to achieve constancy in the interpretation of “recipient”, BCL should be
considered to be the recipient of the service, for the purposes of section 3(1), Item 12 of
Schedule 2, and section 36(1). To do otherwise in the submission of the appellant, would
result in confusion in the operation of the Act.
[110] I do not agree with the submission. Obviously, what is contemplated by section 36(1) is
that in the vast majority of transactions, the “recipient” will be the person who actually
receives the service, and to whom a VAT invoice will be issued by the supplier. What
happened is this case, is that because of the subcontracts between Allseas and BCL, and
between BCL and BCIL, the recipient of the service is not the person who is contractually
obligated to pay BCIL for the service. It does not follow from this that somehow the
transaction becomes zero rated. The clear intention of the VAT Act is that goods or
services provided to a person within Trinidad and Tobago attract VAT at the standard rate
subject to specified exemptions. The mere fact that the recipient in this case is a third
party under a contractual arrangement between BCL and BCIL, does not take the
transaction outside of the clear provisions of the Act.
[111] Once liability to pay VAT at the standard rate is established, it is simply a question of
including it in the invoice. There is no confusion as to who is legally obliged to pay for
the services. The issue is simply, whether the invoice should reflect VAT at 15%, or at
zero percent. In any given transaction, the supplier is unlikely to be confused as to the
identity of the person to whom the invoice is to be directed.
[112] In addition, the interpretation suggested by the appellant leads to an absurd conclusion.
BCL was contracted by Allseas, to supply the service of coating pipes supplied by Allseas
to BGTT. Under its subcontract with BCIL the parent company subcontracted its
contractual obligation to supply the service to its subsidiary. To contend that BCL is the
supplier of the service to a third party under one subcontract, and somehow becomes the
recipient of the service, under another simply does not reflect the commercial reality of the
transaction.
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[113] For these reasons, I find that the clear intention of the act was that the service provided in
this case by a local supplier to a recipient within Trinidad Tobago, would attract VAT at
the standard rate. I further find that the provisions of section 36(1) of the Act are not
inconsistent with that intention. Accordingly I find no merit in this appeal.
R. Narine
Justice of Appeal