The Caribbean Court of Justice (CCJ) yesterday ruled against Guyana Stores Limited’s (GSL) constitutional challenge to the 2% minimum corporation tax applied by the Guyana’s Revenue Authority (GRA) under the Fiscal Enactments (Amendment) Act.
As part of its decision made available yesterday, the court told GSL that it should’ve utilized the specialized procedure provided under the Income Tax Act to challenge the GRA rather than bring claims for constitutional relief in matters where not only was an alternative remedy available but that remedy was the natural and statutorily provided recourse. To bring the case in these circumstances was according to the CCJ “an abuse of process.”
Commission General of the GRA, Godfrey Statia told Stabroek News last evening that the court’s decision is a really “good win” for the authority as many taxpayers attempt to avoid the specialized procedure under the Act in order to delay and evade the payment of tax.
GSL received a demand dated May 2012 from the then Commissioner General, Khurshid Sattaur for the sum of $3,811,346,397 in unpaid taxes and chose to institute proceedings in the courts of Guyana.
Having lost at both the High Court and Appellate Court, GSL appealed the matter at the level of the CCJ which has now dismissed GSL’s appeal and ordered to the company pay costs to the three Respondents; the Attorney General, the Revenue Authority and the Commissioner General (CG).
According to a summary of the CCJ decision, GSL had argued that GRA failed to assess the taxes payable by the Company in accordance with the provisions of the Income Tax Act in particular, because no notice of assessment had been sent to the Company prior to the demand. The Company also argued that the requirement to pay a 2% minimum corporation tax pursuant to section 10A of the Corporation Tax Act, which was introduced by the Fiscal Enactments (Amendment) Act No. 16 of 1994 and 3 of 1996, was unconstitutional.
Specific arguments presented were that being forced to pay the demanded taxes in circumstances where there was no proper assessment would amount to the compulsory acquisition of GSL property in breach of Article 142(2)(a)(i) of the Constitution and that the Corporation Tax Act and its 2% minimum corporation tax, was not truly a tax but a forced loan and as such amounted to a compulsory acquisition of property.
Additional arguments were that the imposition of the tax where no corporation tax is payable for ‘loss years’ was made in “bad faith, unreasonable, arbitrary, capricious, whimsical, unconstitutional, null and void and in contravention of Articles 39, 40 and 142 of the Constitution”; that it was only where corporation tax was payable that the 2% minimum tax may be imposed, and in a ‘loss year’ no tax is payable so the 2% minimum tax may not be imposed; that the proper interpretation of the Corporation Tax Act excluded the imposition of any taxes in years where the company is unprofitable; and that the 2% minimum tax was disproportionate, unconstitutional, null and void, insofar as it violates the constitutional requirement of proportionality.
The CCJ disagreed with these submissions and found that there had been no violation of the Company’s constitutional right to protection from deprivation of property.
It further held that the 2% minimum corporation tax was not a loan because the State does not repay the taxpayer nor does the taxpayer have any right to repayment or redemption instead under section 10A the taxpayer gets a credit, if and when the stated conditions are met, and may then apply that credit in reduction of its tax liability but the taxpayer is never entitled to repayment.
In addition the Court found that the provisions of the Corporation Tax Act were clear and unambiguous so that Parliament must have considered the implication of taxing turnover as distinct from taxing profit, and felt satisfied there was no need to exclude loss years or safeguard the taxpaying company’s capital.
Also rejected was the argument that the 2% tax was disproportionate as the Company failed to raise facts or circumstances that would support the claim.
GSL’s contention that the 2% minimum tax was to be collected only in a year of profit was ruled to be a “straight question of statutory interpretation” which should have been addressed through the measures provided in the act rather than be adjudicated as a constitutional law issue.
“If the Revenue Authority had been wrongfully interpreting and applying the section, this alleged misapplication should have been challenged by following the statutory procedure, not by constitutional action. The Income Tax Act provided a specialized procedure for challenging its application and as such it was an abuse of process for litigants to bring claims for constitutional relief in matters where not only was an alternative remedy available but that remedy was the natural and, in particular cases such as the present, the statutorily provided recourse,” the CCJ noted.
Further, the court concluded that even if the Company was persuaded it had grounds for a constitutional challenge to the taxing statute, the recourse provided by law for challenging a liability to tax was not overreached or neutralized by bringing the constitutional challenge.
The second legal argument made was that GSL was not liable to pay the sum requested since no assessment was served on the company and GRA had been incorrectly and unlawfully applying the provision for the payment of the 2% turnover tax.
In considering this issue, the Court firstly held that there was no statutory form of notice prescribed for conveying an assessment to a taxpayer. Additionally after reviewing the correspondence between the Company and GRA, the Court concluded that there was no sudden and unannounced imposition of and demand for taxes from GRA and, it appeared, that there was no arbitrary assessment.
It was noted that the documents produced in evidence included letters, statements of assessment and a demand notice by which the Revenue Authority duly informed the Company of the amount in which it had been assessed.
“The Company had been filing tax returns and had previously accepted the liability to pay the 2% minimum tax and the Company was notified of the tax assessed for each year. It was, therefore, perfectly open to the Company to notify the Commissioner of its objection, as the Act provides,” the court maintained.
Further the CCJ argued that it was evident that the Company would have known the procedure for challenging an assessment since a firm of accountants, who must know this procedure were acting on its behalf in its dealings with GRA.
In addition, the Commissioner had a few months before the demand notice written to the Company informing it of its right to object and the procedure for doing so and nothing stopped the Company from bringing two sets of proceedings, one in the High Court challenging an alleged constitutional violation and another before the Commissioner and the Appeal Tribunal.
In light of these consideration the CCJ held that the demand remains the same and noted that it had not been directed to anything which gave it jurisdiction to review and hear an appeal against a tax assessment.
It was also decided that there was no basis for the CCJ to intervene to protect the company from the consequences of its decision to not follow the statutory provision for disputing a tax liability by referring its challenge to the liability for tax to go through the review and appeal process under the Act.
The Court, concluded instead that it must be left to the Company and GRA as well as the State in its greater capacity, to resolve the dispute as to the liability to tax if, indeed, beyond the Company’s challenge to the constitutionality of the 2% minimum tax, there was really a dispute.
The Revenue Authority was represented by Attorneys at law, Ronald Burch-Smith, Keoma Griffith and Mark Waldron while the Attorney General was represented by Kim Kyte-Thomas, Oneka Archer-Caulder and Judy Stuart-Adonis
Stephen Fraser appeared on behalf of GSL.