Fiscal
Appeal
1.
HLATSHWAYO
J:
On
23 January 2015 after hearing counsel and having gone through papers
filed of record, and the parties having failed to settle the matter
on the basis of recent precedent I gave an order dismissing the
appeal with costs and indicated that reasons thereof will follow in
due course. I now proceed to set them down below.
2.
The facts of this matter are common cause. By correspondence dated 13
March 2007 the respondent made a ruling that the appellant was
obliged to withhold and remit non–resident tax on fees paid to an
entity known as Centachrome, an agent based in Switzerland.
Centachrome was appointed “sub-agent” in an agreement entered
into by and between the appellant (“producer”), the Minerals
Marketing Corporation of Zimbabwe (MMCZ) (“marketing agent”) and
Centachrome. Centachrome was supposed to facilitate the selling of
ferrochrome produced by the appellant, but sold through MMCZ in terms
of the Minerals Marketing Corporation of Zimbabwe Act [Chapter 21:04]
which requires that all minerals mined in Zimbabwe are marketed by
and through MMCZ.
3.
On 11 May 2007, the appellant wrote to the respondent objecting to
the ruling. By letter dated 15 November 2007 the respondent
disallowed the objection but reduced the penalty to 60% from the
initial 100% it had stipulated.
4.
Aggrieved by the decision of the respondent, the appellant noted an
appeal to this Court challenging the decision of the respondent on
grounds that may be summarised as follows:
(a)
The appointment of Centachrome had the effect of making it an agent
of MMCZ and not an agent of the appellant.
(b)
The appellant was not obliged to pay withholding non–resident tax
since the money paid to Centachrome was commission and commission is
not fees as defined in terms of the 17th Schedule of the Income Tax
Act [Chapter 23:06].
(c)
The money paid to Centachrome was not derived from a source within
Zimbabwe as stipulated by 17th Schedule of the Income Tax Act
[Chapter 23:06].
WHOSE
AGENT WAS CENTACHROME?
5.
While the preamble to the agreement creates the impression that
Centachrome is the agent of the MMCZ, the rest of the agreement and
the facts on the ground clearly show that the appellant was the real
principal for Centachrome.
The
MMCZ only appears as principal to fulfil the requirements of the law
on the sale of minerals, and nothing more.
The
appellant is ultimately responsible for the payment of Centachrome's
commission from the proceeds of its chrome; the Swiss firm places
orders with both 'principals'; the investigations into chrome
content are done by the appellant and Centachrome with MMCZ approving
any agreement reached and finally, in terms of the Process Flow
Chart, the payment confirmation is sent directly to the appellant and
only copied to MMCZ. Both in its heads of argument and in the
presentation in court of its case, the appellant did not place much
store on this argument, and rightly so, in my view. It is simply not
sustainable.
FEES
OR COMMISSION?
6.
The next issue is whether money paid to Centachrome as commission
constituted “fees” in accordance with the 17th Schedule of the
Income Tax Act.
7.
The appellant contended that it did not pay any fees or monies to
Centachrome. Rather, it argued that Centachrome would deduct all
charges and commissions from monies earned from the sale of
ferrochrome on behalf of the appellant and remit the balance to the
appellant.
8.
On the other hand the respondent averred that the money paid by the
appellant to Centachrome was indeed commission for the services
rendered and even if the court agreed with the appellant that
Centachrome had deducted the monies itself, such amounts constituted
fees in terms of the 17th Schedule of the Income Tax Act and in the
premises appellant was obliged to withhold non–resident tax on
them.
9.
The respondent further pointed to clause 3.6 of the agreement entered
into by the appellant, MMCZ and Centachrome which provides that:
“3.6
The selling Agent/Producer will pay the Sub Agent a commission of
2.0% (two percent) on gross invoice value sale.”
This,
the respondent argued, meant that appellant was charged with the
obligation of payment of commission.
10.
In resolving this dispute one can look no further than to the 17th
Schedule of the Income Tax Act, which defines “fees”
as follows:
“1.
(1) In this Schedule, subject to subparagraph (2) —
'fees'
means any
amount
from a source within Zimbabwe payable in respect of any services of a
technical, managerial, administrative or consultative nature, but
does not include any such amount payable in respect of —…”
(emphasis added).
11.
The respondent submitted that the words “any
amount”
above give a broad definition to the term fees and contended that
money paid as commission could be regarded as 'any amount' for
the purposes of section 1(1) of the 17th Schedule.
In
my view, the respondent was correct in its interpretation of the
words “any
amount”
to include commission.
From
the above definition, it is clear that the legislature intended
“fees”
to cover any sum of money, by whatever name called, paid for services
rendered of a technical, managerial, administrative or consultative
nature save for those that are expressly excluded.
12.
As far as the method
of payment is concerned, fees are deemed to have been paid to the
payee if they “are
credited to his account or so dealt with that the conditions under
which he is entitled to them are fulfilled whichever occurs first”
(section 1(2)(c) of 17th Schedule).
Thus,
the fees in question can be held to have been directly paid to
Centachrome or, at the very least, deemed to have been so paid by the
appellant.
SOURCE
OF COMMISSION
13
The appellant disputes that the source of the commission is from
within Zimbabwe and seeks to rely for that proposition on the
decision in Sunfresh
Enterprises (Pvt) Ltd t/a Bulembi Safaris v Zimra
04-HB-078;
2004 (1) ZLR 506 (H).
In
that case, Cheda J held inter
alia
at para 15 that, payment of a commission by a foreign client to a
foreign marketing agent of a local safari operator outside the
country did not under para 1(1) of the 17th Schedule of the Income
Tax Act constitute payment of fees from within Zimbabwe even though
the originating cause was the safari operation in Zimbabwe.
14.
In my view, however, the facts in this case are distinguishable from
those in the Sunfresh
decision.
In
casu,
the appellant clearly qualifies as the “payer”
i.e. “any
person who or partnership which pays or is responsible for the
payment of fees…”
and is ordinarily resident in Zimbabwe; whereas in Sunfresh
the payment of fees or commission was ostensibly done by foreign
clients to a foreign marketing agent.
I
am also of the respectful view that even in Sunfresh,
had the court addressed itself to why the fees or commission were
paid it could well have concluded that it was for the services
rendered by the foreign agent to the local safari operator and
accordingly resolved the matter.
PENALTIES
15.
In so far as penalties are concerned, the appellant submitted that it
acted in good faith and on the basis of legal advice, without the
intention of evading any liability to tax and that accordingly the
respondent ought to have waived the penalties altogether and not
merely reduced them by 40%.
However,
the respondent maintained it had taken into account those mitigating
factors in arriving at the partial reduction of the penalty and that
its decision was in line with previous cases of a similar nature.
Unfortunately,
I was not referred to any authorities to justify interference with a
discretion exercised by the respondent.
As
for the costs, the general rule is that they follow the outcome and I
was not moved to depart from it.
For
these reasons, I dismissed the appeal with costs.
Gill
Godlonton and Gerrans, appellant's legal practitioners
Zimbabwe
Revenue Authority, respondent's legal practitioners
