HLATSHWAYO
JA:
This
is an appeal against the whole judgment of the Fiscal Appeal Court
handed down on 1 November 2016 under judgment number HH661/16 of case
number FA08/14, in terms of which the court handed down judgment in
favour of the respondent.
The
appellant seeks relief in the following terms:
WHEREFORE
Appellant
prays that the appeal be allowed with costs and that the order of the
court a
quo
be
set aside and substituted with the following:
"The
appeal be and is hereby allowed as prayed."
The
material facts of this matter are as follows.
The
appellant is a locally registered company that operates as an
exporter and seller of processed tobacco from Zimbabwe. On 1 April
2004 and 1 April 2011 respectively, the appellant entered into two
successive "Sales and Marketing Commission Agreements" with
two foreign companies domiciled in Bermuda and Switzerland
respectively. The appellant was identified in both documents as the
"Principal" whilst foreign companies were specifically
termed "agents" in the sale of the appellant's export
tobacco to foreign markets.
The
initial sales commission agreed upon by the appellant and the agents
was 8.5 per cent of the aggregate net export sales and Foreign
Currency Account (FCA) Zimbabwe sales value of each export. The sales
commission was subsequently reduced to 7.5 per cent in compliance
with the Zimbabwe Exchange Control Regulations.
In
2007, the respondent undertook an audit of the affairs of the
appellant. It was subsequently determined that the commission paid in
respect of the Sales and Marketing Commission Agreements for the year
2005 qualified as fees for services of a technical and administrative
nature, performed by an overseas agent, on behalf of the appellant.
In
light thereof, the respondent determined that the appellant was
liable for withholding non-resident tax as provided for in the
Seventeenth Schedule of the Income Tax Act [Chapter
23:06]
(the Act).
On
5 April 2007, the respondent issued an assessment of withholding tax
to the appellant, which assessment the appellant objected to.
On
10 August 2007, the respondent disallowed the objections lodged by
the appellant leading to an appeal being filed on 24 August 2007. The
appeal subsequently lapsed having been filed outside of the
prescribed time limits and the appellant continued to remit
non-resident tax fees to the respondent.
On
24 October 2013, the appellant indicated to the respondent that it
would cease any further remittals of non-resident tax fees pending a
resolution of its 2007 appeal.
The
parties conducted a meeting on 5 December 2013, in terms of which the
respondent produced a schedule of payable withholding tax fees from
the period of January 2009 to October 2013. In terms of the schedule,
the principle amount of the non-resident's withholding tax fees that
was due was US$4,252,647.57. An equivalent amount was imposed as a
penalty and a further US$795,988.62 was imposed as interest. The
penalty fee was later reduced, leaving the appellant with a revised
total liability of US$5,974,959.97.
The
appellant objected to the revised schedule of non-resident's
withholding tax by means of an objection letter dated 16 December
2013. The appellant disputed liability on the basis that commissions
constituted fees as contemplated in s30 as read with the Seventeenth
Schedule of the Act.
Eventually,
the appellant undertook to pay the outstanding principal amount by
way of four separate instalments spanning between 13 December 2013
and 20 January 2014.
As
a result of the undertaking, the respondent elected to further waive
the reduced penalty and interest through an e-mail sent on 19
December 2013.
The
appellant however managed to settle the entire principal amount by 20
December 2013.
On
13 December, a meeting was held between the appellant's tax advisors
and the respondent. It appeared that in the course of the meeting,
the parties agreed that the objections noted by the appellant had
been improperly made.
In
any event however, the appellant proceeded to file its notice of
appeal in the court a
quo
on
25 March 2014 and served the respondent with the same on the
following day. The appeal was premised on the failure of the
respondent to make a response to the appellant's objection letter
within the prescribed three month time frame.
At
the hearing, the respondent raised a preliminary objection to the
appeal on the basis that it did not issue any written decision of the
Commissioner to the appellant on 5 December 2013 or any other date.
Consequently, the objection of 10 December 2013 and subsequent notice
of appeal issued on 25 March was invalid and of no force or effect.
The
appellant contended, inter
alia,
that the appeal was validated in terms of paragraph (y) of the
Eleventh Schedule of the Act which prescribes the decisions of the
Commissioner that may be subjected to objection and appeal.
It
was established as common cause, that the appellant abandoned its
2007 appeal with the effect that the appellant accepted liability for
the non-resident tax on fees which it had failed to withhold and
remit to the respondent.
Moreover,
both parties accepted that the subsequent commissions paid by the
appellant during the period prior to August 2007 constituted fees for
services of a technical, administrative, managerial or consultative
nature.
Having
established the fact, it was determined that the appellant was not
precluded from objecting, as it did, to the respondent's assessment
of liability for its failure to remit non-residents tax fees for the
period January
2009
to October 2013.
In
view thereof, the court a
quo
determined that the appeal was properly before it.
On
the merits, it was determined that it was not a term of agreement
between the appellant and the foreign agents that they would deduct
commission before remitting the balance to the appellant's FCA.
However,
it was evident that the agents' invoiced customers, collected
payments and retained their commissions before remittance of the
balance to the appellant.
It
was the position of the court that the agents main function was to
establish and maintain foreign market customer relations and to
facilitate the sale of export tobacco on behalf of the appellant.
The
appellant argued that the commissions were not fees as defined in the
Seventeenth Schedule of the Act and as a result, it had no obligation
to withhold non-residents tax.
Additionally,
the appellant contended that the commissions were deducted by the
agents from its gross foreign currency account value incurred outside
of Zimbabwe therefore it could not withhold any non-residents tax nor
could it be obliged to remit the said tax to the respondent.
Conversely, the respondent adopted the position that the commissions
were fees as defined in the Seventeenth Schedule of the Act as read
with section 30 of the same. Resultantly, the respondent contended
that the appellant was liable, being the Principal, to withhold and
remit non-residents tax fees to it.
On
the question of whether or not the commissions constituted fees as
contemplated in the Seventeenth Schedule as read with section 30 of
the Act, the court a
quo
found
in favour of the respondent.
It
was determined that the agents provided services of a technical,
managerial, administrative or consultative nature to the appellant in
the sale of its export tobacco. The finding was made on a
consideration of the specific functions of the agents in facilitating
and concluding the sales and their relationship with the appellant
thereon. It was determined that the true essence of a sale involved
the technical, managerial, administrative and consultative
competencies of the agent.
In
light thereof, the court adopted the view that there were hardly any
activities undertaken by a tax-payer that could escape the wide ambit
of definition of "fees" as provided for in the Seventeenth
Schedule of the Act.
Resultantly,
it was determined that the commissions constituted fees as envisaged
in section 30 as read with para 1 of the Seventeenth Schedule of the
Act.
The
court a
quo
proceeded to consider whether or not the appellant was liable for
withholding and remittal of non-residents tax on fees arising from
the deduction of commissions retained outside of Zimbabwe.
It
was determined that the appellant was required by the Exchange
Control Authority to pay the fees from its local foreign currency
account having negotiated and executed the Sales and Marketing
Commission Agreements in accordance with Zimbabwean law.
Moreover,
the court a
quo
found that the appellant was considered as a "payer of fees"
as contemplated in the Seventeenth Schedule of the Act being the
principal of the agents.
In
light thereof, it was determined that the appellant was obligated, by
law, to withhold non-residents tax on fees and pay any amount so
withheld to the respondent.
In
light of the findings a
quo,
the appeal was subsequently dismissed.
Aggrieved
by the decision of the court a
quo,
the appellant has filed the present appeal. The grounds of appeal, as
amended by consent, are as follows:
1.
The court a
quo
erred
in not applying the amendment to the Seventeenth Schedule introduced
by the Finance Act (No.3), 11/2014 as "legislatively
interpreting" the concept of "fees" as defined in the
said Schedule.
2.
The court a
quo
erred
and misdirected itself at law in interpreting the commission paid by
the appellant to its agents respectively as falling within the
concept of "fees" as defined in the Seventeenth Schedule.
3.
The court a
quo
erred
and misdirected itself at law in declining to follow the precedent in
Sunfresh
Enterprises (Pvt) Ltd t/a Rulembi Safaris v Zimbabwe Revenue
Authority
2004 (1) ZLR 506 (H) in regards to the source of the funds from where
the commission was paid.
The
initial matter that presents itself for determination in this Court
is whether in terms of section 30 of the Act as read with the
Seventeenth Schedule of the Act; the appellant is liable to have
withheld non-residents tax on commissions paid to certain foreign
companies providing sales and marketing services to it for the sale
of its export tobacco in overseas markets.
The
argument of the appellant turns on the applicability of the amendment
introduced to para 1(1) of the Seventeenth Schedule of the Act in
terms of the Finance (No. 3) Act, 2014 which came into effect on 1
January 2015.
It
is accepted, as submitted by both parties, that there is a general
presumption against retrospectivity of legislation. The principle is
well articulated in the case of S
v Mzanywa
2006
(1) ZLR 179 (H) at 179D wherein it states:
"It
is a fundamental rule of law that no statute shall be construed to
have a retrospective operation unless such a construction appears
very clearly in terms of the act or arises by necessary and distinct
implication."
The
appellant contends however, that the amendment had retrospective
effect to the extent that it referred to the legislative
interpretation of the word "fees".
The
amendment to para 1(1) of the Seventeenth Schedule as introduced by
the Finance (No.3) Act, 2014 reads as follows:
“'export
services' means services rendered wholly or exclusively for the
purpose of seeking and exploiting opportunities for the export of
goods from Zimbabwe, sustaining or increasing the demand for such
exports and, without derogation from the generality of the foregoing,
includes any of the following services -
(a)
research into, or the obtaining of information relating to, markets
outside Zimbabwe;
(b)
research into the packaging or presentation of goods for sale outside
Zimbabwe;
(c)
advertising goods outside Zimbabwe or otherwise securing publicity
outside of Zimbabwe for goods;
(d)
soliciting business outside Zimbabwe;
(e)
investigating or preparing information designs, estimates or other
material for the purpose of submitting tenders for the sale or supply
of goods outside Zimbabwe;
(f)
bringing prospective buyers to Zimbabwe from outside Zimbabwe;
(g)
providing samples of goods to persons outside Zimbabwe;
(b)
in the definition of 'fees' by the insertion of the following
paragraph after paragraph (g) -
'(h)
export market services rendered by an agent of a company that exports
goods from Zimbabwe;'”
The
wording of the Seventeenth Schedule of the Act prior to the
aforementioned amendment read as follows:
"(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
appellant seeks to persuade the Court that the definition of fees was
not well defined in the Seventeenth Schedule, prior to the enactment
of the amendment.
As
a result, the appellant contends that the subsequent amendment
justifies a retrospective legislative interpretation of the term.
Whilst
not binding upon this Court, the South African case of Clan
Transport Co. (Pvt) Ltd & Ors v Road Services Board & Ors
1956
(4) SA 26 (SR) at 34 persuasively considers the principle of
legislative interpretation is wherein it states:
"I
find it difficult to appreciate the appropriateness of the invocation
of the later Act of 1956 as a means of construing Act/1953. In the
first place, if the wording of proviso (1) is
clear and unambiguous
in referring to all vehicles intended to be substituted, there is no
justification for the invocation. Apart from this, and apart from the
consideration that this legislative interpretation, if such it be, is
contained in a statute not in operation at the time the board was
called upon to construe the earlier statute, this later
statute is not either expressly or by implication interpreting the
earlier statute or attempting to clarify it.
It was, as its title says, an Act to amend Act 50/1953. It introduced
a number of entirely new alterations to various sections, alterations
to introduce new features of legislation."(Emphasis added)
In
the circumstances, the amending Act did not purport to interpret the
earlier definition of fees as contained in the Seventeenth Schedule,
neither can any such inference be drawn.
The
definition of "export market services" constitutes a
distinctly new concept altogether.
The
definition of fees prior to the amendment, specifically relates to
any amount incurred in respect of services
of a "technical, managerial, administrative or consultative
nature."
The
nature of the fees contemplated thereon are, in my view, clear and
unambiguous. The amending Act cannot therefore be applied
retrospectively on the basis of legislative interpretation.
The
argument proffered by the appellant thereon is devoid of merit.
Additionally,
the appellant has challenged the determination a
quo
that the commission it paid to its agents fell within the concept of
"fees" as defined in the Seventeenth Schedule of the Act as
read with section 30 of the Act.
Having
established the applicable provision of the Seventeenth Schedule, the
provisions of section 30 of the Act must be stated, it provides as
follows:
"30
Non-residents' tax on fees
There
shall be charged, levied and collected throughout Zimbabwe for the
benefit of the Consolidated Revenue
Fund
a non-residents' tax on fees in accordance with the provisions of
the Seventeenth Schedule at the rate of
tax
fixed from time to time in the charging Act."
The
matter of Z
Pvt) Ltd v Commissioner General, ZIMRA
2016
(1) ZLR 1 (FAC) at… considers the definition of fees in the
following terms:
"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."
The
term "amount" is defined in section 2 of the Act as:
“'amount',
for the purposes of the provisions of this Act relating to the
determination of the gross income, income or taxable income, as
defined in subsection (1) of section eight,
of a person, means —
(a)
money; or
(b)
any other property, corporeal or incorporeal, having an ascertainable
money value;"
Guided
by the foregoing considerations, it is my view that there is no magic
in the use of the word "fees". The term connotes any
payment made for services of a specific nature.
Having
stated thus, it becomes necessary to consider whether the fees
incurred by the appellant in favour of its agents was for services of
a technical, managerial, administrative or a consultative nature.
The
golden rule of interpretation has been well canvassed in the case of
Endeavour
Foundation and Anor v Commissioner of Taxes
1995 (1) ZLR 339 (S) at 356F-G in the following terms:
“The
general principle of interpretation is that the ordinary, plain,
literal meaning of the word or expression, that is, as popularly
understood, is to be adopted, unless that meaning is at variance with
the intention of the Legislature as shown by the context or such
other indicia as the court is justified in taking into account, or
creates an anomaly or otherwise produces an irrational result.”
It
is established that the findings of the court a
quo
in relation to the nature of services extended to the appellant
employed the Oxford
Advanced Learner's Dictionary
and
the
Shorter
Oxford English Dictionary
respectively to construe the meaning of the terms 'technical'
'managerial' 'administrative' and 'consultative.'
In
brief, the term 'technical' was defined as "connected with
the skills needed for a particular job"; "an adjective
relating to a particular subject, art or craft or its techniques"
and "of a person; skilled in or practically conversant with some
particular art or subject, belonging to or relating to an art or
arts, appropriate or peculiar to or characteristic of a particular
art, science profession or occupation; also pertaining to the
mechanical arts and applied sciences generally."
In
light of the above definition, the court a
quo
proceeded to determine that the function of the agents in providing
practical knowledge of the climatic and soil conditions, the style
and smoking characteristics of the export leaf necessary for the
determination of the appropriate blend required by the customers
constituted services of a technical nature.
The
finding was further supported by documentary evidence provided in the
form of a bill of lading, EUR 1 certificates, fumigation
certificates, detailed weight lists, container packing lists and
invoices attended to by the agents on behalf of the appellant.
The
court a
quo
went on to find that in any event, the appellant had failed to
establish on a balance of probabilities, that the agents did not
require knowledge of the type of export blending leaf required in the
manufacture of cigarettes in order to make a sale.
On
the evidence of record, there is no patent misdirection discernible
in the finding a
quo
that the agents had indeed provided services of a technical nature.
The
term 'managerial' was further determined to be synonymous with
the directing of activities whilst the term 'administrative' was
held to mean "relating to the running of a business,
organisation etc."
The
two concepts were determined as being interlinked to the extent that
they could be deemed as inseparable. It was found that the agents
were responsible for "price negotiations and other marketing
logistics" on behalf of the appellant and a range of other
services for its activities abroad.
Due
regard being had to the foregoing definitions, the finding that the
practical activities of the agents fell within the ambit of
"managerial and administrative services" is not outrageous
or defiant of logic to the extent that it would warrant the
interference of this Court.
Similarly,
the applied definition of 'consultative' was "pertaining to
consultation, deliberative, advisory, take counsel, deliberate,
confer, to plan, advise, have recourse to professional advice".
The court a
quo
considered the nature of the agreement between the parties and
considered that even the preamble of the agreements between them
specifically stated that the agents were recruited for their ability
to promote, supply, safeguard and maintain personnel and materials
required to make a sale.
In
view of the adopted definition, there is no absurdity in the finding
that the agents offered services of a consultative nature to the
appellant.
In
the absence of a patent misdirection on the part of the court a
quo,
I find that the second ground of appeal is without merit.
The
final matter for consideration need not detain the court much longer.
The
appellant contends that the court a
quo
ought to have been guided by the case of Sunfresh
Enterprises (Pvt) Ltd t/a Rulembi Safaris v Zimbabwe Revenue
Authority
2004
(1) ZLR 506 (H) in determining the proper interpretation of the term
"fees" with particular regard to the amending Act of the
Seventh Schedule of the Act.
In
light of the finding on the first ground of appeal, it stands to
reason that the premise of the third ground of appeal falls away.
DISPOSITION
Giving
due regard to the circumstances of the case, it is the position of
the court that determination a
quo
was
properly arrived at to the extent that it does not warrant an
interference by the court.
The
appeal lacks merit and is accordingly dismissed, with costs following
the cause.
GUVAVA
JA : I
agree
GOWORA
JA: I
agree
Gill,
Godlonton & Gerrans,
applicants' legal practitioners
Zimbabwe
Revenue Authority,
respondent
