Tanzania: TRA Defeats Swedish Firm in 2.12b N/ - Tax Case

THE Atlas Copco Tanzania Limited, which is part of Atlas Copco Group, a conglomerate of multinational companies headquartered in Sweden, has lost its bid to oppose payments of tax amounting to 2.12bn/- to the Tanzania Revenue Authority (TRA).

This followed the decision by the Court of Appeal panel led by Chief Justice Ibrahim Juma and Justice Gerald Ndika and Mary Levira to reject with costs an appeal under which Atlas Copco Company, the appellant, had lodged against findings of the Tax Revenue Appeals Board and that of the Tax Revenue Appeals Tribunal.

They upheld one ground of objection presented by the TRA, the respondent, with effect that the appeal in question was based upon matters of fact in contravention of section 25 (2) of the Tax Revenue Appeals Act (TRAA), which enacts the right of appeal to the Court only on points of law.

"We hold that the Memorandum of Appeal raises no question of law contrary to section 25 (2) of the TRAA, rendering the appeal incompetent.

In consequence, we strike out the appeal with costs," the justices declared.

They pointed out that the restriction of appeals from the Tribunal to the Appeals Court to questions of law only was intended to achieve an overarching objective of timely resolution of tax disputes.

"Proper utilisation of limited judicial resources for resolution of only deserving appeals will lead to gains in efficiency and effectiveness in tax litigation.

We can only hope that litigants will ensure that only appeals raising questions of law will find their way to the Court," the justices said.

The appellant had advanced four grounds of memorandum of appeal to challenge the impugned Tribunal's decision.

In the first memorandum of appeal, the appellant faults the Tribunal for holding that he could not invoke the group's transfer pricing policy retrospectively to reduce his tax liability.

In their decision, the justices pointed out that such ground raises no question of law provision, nor does it present any element involving misapprehension of the evidence such as failure to consider the evidence or considering extraneous matters not supported by the evidence on record.

Similarly, they noted, the complaint in the second ground that the Tribunal erred in law when it held that the appellant earned the reversed income raises no interpretational or application of law issue, nor does it posit that the finding that the "reversed income" was earned was based on no evidence.

"We would reiterate that the Tribunal upheld the Board's finding based on the fact that there was no proof of the alleged reversal of earned commission income," the justices said.

According to them, the same fate befalls all the three limbs of the third ground of appeal The first limb faulted the Tribunal's finding that there was no evidence showing that the reversed amounts specifically relate to the commission income previously earned and booked in the appellant's ledgers for the year of income under review.

While the second limb attacked a factual inference that the commission reversal was not a genuine adjustment executed with a view to rectifying an accounting error, whereas the last limb faults the Tribunal for holding that the disputed VAT and interest amounts were properly imposed.

"We are firmly of the view that the disposition of the case in favour of the respondent was predicated on findings which, apart from being amply supported by the evidence on record, were eminently reasonable, logical and consistent," the justices said.

The appellant is part of Atlas Copco Group, a conglomerate of multinational companies headquartered in Sweden.

Apart from supplying generators in Tanzania on its own, the appellant sold generators as an agent of its sister companies which had no presence in the country.

For the latter type of sales, known as indent sales, the appellant earned commission. Being oblivious that the commission income attracted Value Added Tax ("VAT"), the appellant did not file any VAT returns on indent sales until its external auditors informed it of the requirement.

By then, the appellant had posted in its sales ledgers commission income of 134,413,682,281/- for the years of income 2007 and 2008.

The appellant then accounted for VAT on the commission for the years 2007 and 2008 amounting to 5,692,574,000/-, which was paid through the VAT returns filed in 2009.

Such an amount was much smaller than 134,413,682,281/- originally booked in the sales ledgers for the two accounting years.

The appellant had reduced the amount on ground that there was overstatement of the commission by 7,721,108,281/-, which was then corrected through an accounting reversal.

The respondent did not agree with the appellant's grounds of objection, disputing the alleged overstatement and reversal.

In the end, it issued a notice of additional assessment for 2,118,115,834/- representing the outstanding VAT plus interest.

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