IN THE COURT OF APPEAL BETWEEN BAUHUIS COATING INTERNATIONAL LIMITED AND THE BOARD OF INLAND REVENUE

Transcription

1 REPUBLIC OF TRINIDAD AND TOBAGO Civil Appeal No. 187 of 2011 IN THE COURT OF APPEAL 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 12 th, 2014 Page 1 of 44

2 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. Page 2 of 44

3 [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 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 The tax periods under appeal are , , and 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 It reported no output value added tax. It reported its input value added tax as follows: Period $1,168, Period $1,107, Period $1,791, Period $96, 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. Page 3 of 44

4 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 to 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 $385, Period $5, (refundable) Period $745, (refundable) Period $ 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, [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 Page 4 of 44

5 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 Page 5 of 44

6 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 Page 6 of 44

7 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: 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, Page 7 of 44

8 BGTT. As such although the contract for these services was between two nonresident 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 [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). Page 8 of 44

9 [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 Page 9 of 44

10 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. Page 10 of 44

11 [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 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, Page 11 of 44

12 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 ): Page 12 of 44

13 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: 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 Page 13 of 44

14 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 Page 14 of 44

15 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 Page 15 of 44

16 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 (2 nd 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. Page 16 of 44

17 [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 17 of 44

18 [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 Act 1. The decision under review is that of the Tax Appeal Board (the Appeal Board) dated July 21 st 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 , , and 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 18 of 44

19 [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 16 th, BCIL was duly registered under the laws of Trinidad and Tobago 4 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 19 of 44

20 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 VAT 6 as follows: a. Period $1, b. Period $1,107, c. Period $1,791, d. Period $ 96, [55] BCIL reported no output VAT 7 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 Act 8 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 15 th 2002, the BIR made adjustments to BCIL s tax returns which resulted in VAT liabilities as follow: a. Period $385, b. Period $ 5, (refundable) c. Period $745, (refundable) 5 See section 14(1) of the VAT Act Chap VAT which is deductible. 7 VAT which is payable. 8 See section 8 of the VAT Act Chap Page 20 of 44

21 d. Period $212, [57] BCIL appealed each assessment and by order dated June 30 th 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 21 of 44

22 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 22 of 44

23 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 23 of 44

24 (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 24 of 44

25 [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 27 th However, due to technical difficulties the written judgment was delivered July 21 st, 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 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 25 of 44

26 important fact as it relates to the Value Added Tax Act in order to derive financial benefits under the said VAT Act 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 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 12 th 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 See pg 34 of the case stated by the Tax Appeal Board. Page 26 of 44