Liberia: Israeli Company Hooked

-for US$2m unpaid taxes

Liberia's Tax Court in Monrovia has held an Israeli diamond trading company, West Africa Diamonds Inc. (WADI) liable of US$2,568,161.77 tax obligation to the government here, ordering the company to pay the money as its outstanding tax obligation.

Assigned Tax Court Judge Peter Gbeneweleh handed the ruling on 11 May after hearing a petition for judicial review filed by the Liberia Revenue Authority (LRA) against West Africa Diamonds.

The court said its records confirmed that the West Africa Diamonds, Limited (WADL) in Israel and the West Africa Diamonds, Inc. in Liberia entered into a Memorandum of Agreement wherein RahaminPolatuv signed for WADL as Chief Executive Officer (CEO) and Maximov Gabi signed for WADI as CEO, respectively.

The foremost purpose of the Memorandum of Agreement was for WADI to purchase diamonds in Liberia and export same to WADL as a customer and other foreign customers outside Liberia, the court said.

Further, the court noted that in July 2016, LRA auditors selected WADI for tax audit for the periods January 1, 2011 up to and including December 31, 2015.

The audit report showed that WADI purchased and exported diamonds valued the sum of US$27,950,312.00 as gross income, but the company only recognized the two percent commission as provided for under the Memorandum of Agreement, the court ruled.

"The Auditors discovered and prepared a Tax Assessment Bill against the Appellee [WADI] by the Auditors of the Appellant [LRA] which totaled the sum of US$2,568,161.77," Judge Gbeneweleh said.

The US$2,568,161.77 represent tax liability on rough diamonds shipped and sold outside Liberia; unpaid withholding tax on wages and salaries; unpaid withholding tax on rental or lease payment to its resident lessor; penalty for late filing or failure to file and accrued interest on unpaid taxes.

Judge Gbeneweleh stated in the ruling that the assessed tax bill was forwarded to WADI and the company appealed to the Objections and Protest Panel within the LRA for review.

In its appeal, Judge Gbeneweleh stated that WADI had contended that the auditors lacked any legal backing to set aside the Memorandum of Agreement between WADI and its financier; that the two percent commission gained from the purchase of the diamonds amounted to all of its income for the period under review since it operated solely as a commission agent; and that the [Ministry of Mines and Energy] value for rough diamonds could not be used as the basis of determining its income.

WADI additionally claimed that the auditors disallowed some of its expenses without any justification.

In their response to WADI's contentions, the auditors, among other things, urged the panel to ignore and set aside the memorandum of agreement because it was not clear whether the signatures appearing on it were those of Maximov Gabi and Rahaminpolatuv; and that the taxpayer did not provide documents [of] sales records for the diamonds shipped out of the country.

The auditors said they disallowed some of the expenses that WADI claimed to have made because it failed to provide outstanding documentation.

The panel at LRA held WADI liable to pay US$2,568,161.77 owed the Government of Liberia for the periods 2011 to 2015.

Subsequent to the panel's ruling, WADI took the matter up to the Board of Tax Appeals (BOTA), the board found that the Class "B" license issued WADI is a license to trade in diamonds and not to serve as a commission agent.

Further, the board ruled that the memorandum of agreement between WADI and WADL was an arrangement between related parties for the purpose of using only commission paid by one to the other as taxable income thereby avoiding any additional tax liabilities, particularly on sales revenues.

The board ruled that the tax liabilities against WADI were US$5,330.63 unpaid withholding on wages and salaries; US$4,748.59 for late payment and failure to pay the correct amount; and US$6,593.20 for interest.

However, following the board's ruling, the LRA prayed the Tax Court to reverse the board's ruling and order WADI to pay an amount of US$2,568,161.77 due the government here.

Meanwhile, the Tax Court on 11 May reversed the ruling of the BOTA, holding WADI liable for tax obligation to the Liberian Government to the tune of US$2,568,161.77.

Giving the history of the case, Judge Geneweleh recalled that West African Diamonds Inc. paid for and acquired a Class 'B" License from the Government of Liberia to trade in diamonds in and out of Liberia.

The Israeli company was initially owned by Maximov Gabi and Rahamin Polatuv with 50 percent share each, but the two were later left with 40 percent share each after Lassanah Kamokai, a Liberian, acquired a 20 percent share of the company.

The court said WADI only bought rough diamonds from local miners and brokers since it did not have its own diamonds creek in Liberia.

According to the court, WADI's major customers are West Africa Diamonds, Limited, Elia Diamonds and A.A. Rahminov, all in Israel. By Winston W. Parley

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