Belize International Services Ltd v The Attorney General and the Commissioner of Tax

• Jurisdiction: Belize
• Judge: Griffith J.
• Judgment Date: 03 October 2014
• Court: Supreme Court (Belize)
• Docket Number: 425 of 2013
• Date: 03 October 2014

Supreme Court

Griffith, J.

425 of 2013

Belize International Services Ltd

and

The Attorney General and the Commissioner of Tax

Appearances:

Mr. Eamon Courtenay S.C. of Courtenay Coye LLP with Ms.

Priscilla Banner, Counsels for the claimant.

Mr. Nigel Hawke, Acting Solicitor General, Counsel for the defendants.

Statute - Interpretation — Sections 6, 107, 130(1) of the International Business Companies Act — Whether the assessment of an International Business Company by the Commissioner of Income Tax was lawful — What are the legal consequences of an IBC found to be carrying on business contrary to the provisions of the IBC Act.

Revenue law - Whether a finding of an IBC operating in contravention of the IBC Act becomes a company subject to the Income and Business Tax Act.

Griffith J.

1 This is a claim by Belize International Services Ltd (‘BISL’) against the Government of Belize (‘GOB’), represented by the Attorney General (‘AG’) and Commissioner of Income Tax (‘CIT’), for a number of declaratory and consequential orders challenging the validity of an assessment of income and business tax made in excess of $30 million against the company by the CIT in May, 2013. The claim also challenges the constitutionality of certain provisions of the Income and Business Tax Act, Cap. 55 of the Laws of Belize (‘the IBT Act’), relating to enforcement and appeals of assessments made under the said Act. The claim was instituted by Fixed Date Claim form filed on 8th August, 2013 which was subsequently amended by an amended claim filed on 23rd September, 2013. The claim was supported by several affidavits filed on behalf of the claimant, in response to which a number of affidavits were filed on behalf of GOB.

2 In light of the circumstances surrounding and given the extent of the tax assessments levied by the CIT against the claimant, the latter filed an urgent application for an injunction to restrain the CIT from taking any action to enforce the assessments until determination of the trial instituted in respect of the assessments. The determination of the application for an injunction was obviated by an undertaking given by the CIT, not to enforce the assessments pending the determination of the trial on the constitutionality of the challenged provisions of the IBT Act and the validity of the assessments against the claimant. The substance of the claim is as follows:–

FACTUAL BACKGROUND.

3 BISL is and was at all material times, a registered international business company under the International Business Companies Act, Cap. 270 of the Laws of Belize (‘the IBC Act’). In June, 1993 agreement was made between the claimant BISL and GOB for the claimant to develop and manage the International Business Companies Registry and International Merchant Marine Registry of Belize (“the Registries”). The agreement was to have life for 10 years and thereafter was capable of renewal for a further 10 years at the exercise of an option to renew granted to BISL.

4 The agreement contained certain key provisions, most notably:–

• (i) Clause 8, which provided for a shared distribution of revenue arising from the operations of the Registries. The distribution of revenue was for 40% of the income in any given year to defray operational expenses of the Registries and the remaining 60%, itself be distributed at a 6:4 ratio in favor of GOB.

• (ii) Clause 12, which conferred tax exempt status on income derived from the Company (BISL) and on the emoluments of personnel employed by the Company abroad.

• (iii) Clause 15, which provided BISL with an option to renew the contract for a further 10 years upon the same terms and conditions of the agreement. No pre conditions were attached to the exercise of this option.

5 The agreement came to an end. There is a variance of the parties' positions as to whether that end was occasioned by expiration of the contract (GOB's position) or whether by repudiation on the part of GOB - the contract having been renewed consequent upon the exercise of the option to renew as provided under clause 15 and thereafter even further extended by agreement of the parties.

6 For the purposes of this factual background, that variance of positions need not be resolved but what can be said, is that the events giving rise to renewal began with a letter from the claimant sent to GOB in May, 2003 advising of the claimant's exercise of its option under clause 15 of the Agreement, thereby extending the life of the Agreement to June, 2013. This position was countered by GOB in the form of a short extension for 2 months during which period there was to be discussion on the way forward. No evidence is presented as to what if anything emerged as the way forward in the immediate aftermath at that time and the matter next arose in January, 2005. Within the early quarter of 2005 a payment of US$1.5 million was made to GOB by the claimant and the claimant asserts that in consideration of that payment, the life of the Agreement was then extended to June, 2020.

7 In May, 2013 GOB wrote to the claimant referring to the extension of the Agreement until June, 2013 and invited further discussion on the way forward. The claimant responded by asserting the exchange which occurred in 2005 resulting in the extension of the life of the Agreement to June, 2020. This position was categorically rejected by GOB who at that time acknowledged the exercise of the option to renew in May, 2003 and correspondingly, the extension to and impending expiry of, the Agreement in June, 2013. This is an uncomplicated condensation of the relevant facts surrounding the varying positions between the parties as it pertained to the life of the Agreement.

8 GOB, then on 31st May, 2013 issued a series of assessments of income and business tax against the claimant, effective from the date of commencement of the Agreement to 31st May, 2013. This assessment was made pursuant to the provisions of the IBT Act – in particular section 110 – in the total amount of $30,036,382.36 inclusive of penalties on the taxes assessed. GOB's assessments were premised on the assertion that contrary to the prohibition against carrying on business in Belize, as provided in section 5(1) of the IBC Act, the claimant had in fact so engaged from its inception and had therefore taken itself outside the provisions of the IBC Act and as such attracted the assessment. In particular, GOB rested its contention of the claimant carrying on business on the assertions that it regularly conducted business with registered agents (paragraph 7, third affidavit of Kent Clare) and that it employed persons and was registered under the PAYE system (paragraph 10, third affidavit of Kent Clare).

9 The claimant responded by letter dated 7th June, 2013 disputing the validity of the assessments pursuant to section 42 of the IBT Act. The claimants also re-asserted both the extension of the Agreement until June, 2020 and existence of the tax exemption provided by the Agreement. Thereafter, maintaining that the Agreement had come to an end, GOB assumed control of the management of the two Registries – the IBCR and IMMARBE with effect from 11th June, 2013. In August, 2013, as detailed in paragraph 1 above, the claimant instituted the claim now before the Court. The respective positions of the parties are expressed below.

THE CASE FOR THE CLAIMANT:–

10 The claimant's case resists the assessments on two fronts. Firstly, that the assessments were unlawful as the claimant was entitled to tax exempt status not only under clause 12 of the Agreement but also pursuant to section 130(1)(a) of the IBC Act which conferred tax exempt status upon any company registered under the IBC Act. (‘The tax exempt argument’). Secondly, that sections 53(2), 53(3) and 110(5) of the IBT Act violated the provisions of sections 6 and 17 of the Constitution and also were in contravention of the doctrine of separation of powers. For ease of reference, clause 12 of the Agreement and the mentioned sections of the respective legislation are extracted below.

• (i) Agreement, Clause 12:–

“Fiscal Exemptions

Any income derived by the Company in accordance with this Agreement contract shall be exempt from Government taxes fees and other assessments. Likewise the emoluments of the personnel employed by the Company abroad shall be exempt from Government taxes and other charges.”

• (ii) IBC Act, section 130(1)

“PART XII

Exemption from Tax

130 (1) Notwithstanding any provision of the Income and Business Tax Act, but subject to the provisions of this section:–

• (a) all income of a company incorporated under this Act;

• (b) all dividends or other distributions paid by the company to persons who are not resident in Belize;

• (c) all interest, rent, royalties, compensations and other amounts paid by the company to persons who are not persons resident in Belize; and

• (d) capital gains realised with respect to any shares, debt obligations or other securities of a company incorporated under this Act by persons who are not persons resident in Belize, are exempt from all provisions of the Income and Business Tax Act”

(iii) IBT Act, sections 53 and 110(5)

“Collection and Repayment of Tax

53 (1) The Commissioner shall from time to time deliver to the Chief Collector certified extracts from the assessment records containing the names and addresses of the persons assessed together with the amount of tax payable by each person.

(2) A NOTICE OF A REVIEW OR AN OBJECTION OR AN APPEAL AGAINST THE ASSESSMENT MADE BY THE COMMISSIONER SHALL NOT RESULT IN THE SUSPENSION OF SUCH ASSESSMENT, AND THE ENTIRE TAX DUE AS DETERMINED BY THE COMMISSIONER SHALL BE PAYABLE BEFORE ANY SUCH REVIEW, OBJECTION OR APPEAL IS ENTERTAINED.

(3) THE CHIEF COLLECTOR SHALL IN EVERY CASE ENFORCE PAYMENT OF THE TAX AS ASSESSED BY THE COMMISSIONER IRRESPECTIVE OF ANY PENDING REVIEW, OBJECTION OR APPEAL.

(4) Where any review, objection...