10 December 2018

Tanzania: Tltb Cleared of Tax Avoidance Claims

THE Court of Appeal has cleared the Tanzania Leaf Tobacco Company Limited (TLTB) of claims of tax avoidance in two loan arrangements of 15bn/- received from parent and sister companies.

This follows the decision of Justices Shaban Lila, Gerald Ndika and Mwanaisha Kwariko to quash and set aside the findings of the Tax Revenue Appeals Tribunal on the matter after allowing an appeal the TLTB had lodged.

They exercised their jurisdiction under section 4(2) of Appellate Jurisdiction Act to revise the Tribunal's decision that confirmed the Tax Revenue Appeals Board's judgment and decree on the findings that loan arrangements were a tax avoidance scheme and claimed exchange losses were not deductable.

In the circumstances, the justices directed the Tanzania Revenue Authority (TRA) Commissioner General to make computation of the appellant company's tax liability according to self-assessment lodged on September 29, 2006.

It was the appellant's case before the board that since 1996 it was able to continue operating on the strength of interest free loan facilities extended to it by its parent company incorporated in Switzerland known as Continental Tobacco S.A.

for the purpose of financing its longterm tobacco requirements. Besides, the appellant claimed it had also benefited from loans advanced to it by Toutiana S.A, a sister company also incorporated in Switzerland and owned by Continental Tobacco S.A. for seasonal, short-term capital requirements for the provision of input finance to its contracted grower of tobacco.

It was further claimed by the appellant that the loans received from the two Switzerland companies were in US dollars and given the exchange rate volatility against the US dollar there were years, when the appellant suffered exchange loses.

The appellant had claimed in the final income tax return to the TRA exchange losses it sustained as a result of the loans it took from the two affiliated companies.

The first was in exchange arising from the US dollar loans taken before 2006 in the sum of 8,135,596,093/-. Another exchange losses stemming from US dollar loans taken by the appellant company in 2006 amounting to 7,325,375,000/-.

The appellant engaged the TRA, as respondent in the appeal in negotiations to settle the matter to no avail. The TRA refused to allow the claimed exchange losses as deductable, a move that forced the appellant to appeal to the board.

Upon deliberations, the appeal was dismissed with the board holding that the loan arrangements were a tax avoidance scheme and the exchange losses were not deductable.

During deliberations, however, the board found that the additional final assessment by the TRA on the appellant's tax liability was time barred, as was provided outside the required three years of the filing of the selfassessment by the appellant.

Having been aggrieved by the board's decision, the appellant appealed to the Tribunal, which also upheld the findings of the board. It was at that point in time when the appellant company decided to appeal to the Court of Appeal against the decision.

When determining the appeal, the justices of the Court of Appeal ruled that having the board held that the additional final assessment time barred it was illogical for it to proceed to determinate other issues concerning the appeal.

"If the Tribunal had considered the validity and effect of the additional final assessment held by the board as time barred, it would not have confirmed the board's ultimate findings that the loan arrangements were a tax avoidance scheme and exchange losses were not deductable," they said.

In their view, the justices concluded, "this is an error that can only be corrected by way of revision as it was not specifically raised as a ground of appeal."

They, therefore, exercised their revisional powers conferred upon them under section 4(2) of the Act to quash and set aside the Tribunal's findings.

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