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.
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 the
Minerals Marketing Corporation of Zimbabwe (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 the Minerals Marketing Corporation of Zimbabwe (MMCZ).
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.
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 the
17th
Schedule of the Income Tax Act [Chapter
23:06].
WHOSE
AGENT WAS CENTACHROME?
While
the preamble to the agreement creates the impression that Centachrome
is the agent of the
Minerals Marketing Corporation of Zimbabwe (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;
(i)
The Swiss firm places orders with both 'principals';
(ii)
The investigations into chrome content are done by the appellant and
Centachrome with the
Minerals Marketing Corporation of Zimbabwe (MMCZ)
approving any agreement reached; and
(iii)
Finally, in terms of the Process Flow Chart, the payment confirmation
is sent directly to the appellant and only copied to the
Minerals Marketing Corporation of Zimbabwe (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?
The
next issue is whether money paid to Centachrome as commission
constituted “fees” in accordance with the 17th
Schedule of the Income Tax Act [Chapter
23:06].
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.
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, the appellant
was obliged to withhold non–resident tax on them.
The
respondent further pointed to clause 3.6 of the agreement entered
into by the appellant the
Minerals Marketing Corporation of Zimbabwe (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.
In
resolving this dispute, one can look no further than to the 17th
Schedule of the Income Tax Act [Chapter
23:06]
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 -…,.”…,.
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.
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 the 17th
Schedule of the Income Tax Act [Chapter
23:06]).
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
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
2004
(1) ZLR 506 (H).
In
that case, CHEDA J held, inter
alia,
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 paragraph 1(1) of the 17th
Schedule of the Income Tax Act [Chapter
23:06],
constitute payment of fees from within Zimbabwe even though the
originating cause was the safari operation in Zimbabwe.
In
my view, however, the facts in this case are distinguishable from
those in the Sunfresh
Enterprises (Pvt) Ltd t/a Bulembi Safaris v Zimra
2004
(1) ZLR 506 (H)
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
Enterprises (Pvt) Ltd t/a Bulembi Safaris v Zimra
2004
(1) ZLR 506 (H)
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….,.
For
these reasons, I dismissed the appeal with costs.
