DEREK ACHONG

Se­nior Re­porter

derek.achong@guardian.co.tt

Methanol pro­duc­er, Methanex, has emerged vic­to­ri­ous in its pro­tract­ed le­gal bat­tle over be­ing ac­cused of evad­ing over TT$28 mil­lion in tax­es on div­i­dends it paid for 2007. 

De­liv­er­ing a judg­ment yes­ter­day, five Law Lords of the Unit­ed King­dom-based Privy Coun­cil up­held Methanex Trinidad (Ti­tan) Un­lim­it­ed’s fi­nal ap­peal against the Board of In­land Rev­enue (BIR). 

Lord David Richards, who wrote the judg­ment, said that the lo­cal Tax Ap­peal Board (TAB) and the Court of Ap­peal were wrong to have dis­missed Methanex’s claim and as­so­ci­at­ed ap­peal in 2019 and 2021, re­spec­tive­ly. 

The law­suit re­lat­ed to four div­i­dend pay­ments, to­talling US$85.4 mil­lion, paid by it for in­come tax year 2007. 

Methanex paid the div­i­dends to its im­me­di­ate hold­ing com­pa­ny, which is in­cor­po­rat­ed in Bar­ba­dos. 

The Bar­ba­dos hold­ing com­pa­ny in turn paid div­i­dends to a hold­ing com­pa­ny based in the Cay­man Is­lands, which then paid div­i­dends to the Cana­da-based Methanex Cor­po­ra­tion, which is the largest methanol pro­duc­er and sup­pli­er. 

The BIR al­leged that the trans­fers were “ar­ti­fi­cial and fic­ti­tious” as they were in­tend­ed to make pay­ments to the ul­ti­mate hold­ing com­pa­ny in Cana­da while avoid­ing with­hold­ing tax in T&T. 

By virtue of a dou­ble tax­a­tion treaty made in 1995 among Cari­com mem­ber states, div­i­dends paid by a com­pa­ny res­i­dent in T&T to com­pa­nies or per­sons res­i­dent in Bar­ba­dos are not sub­ject to with­hold­ing tax.

It claimed that Methanex would have had to pay a five per cent tax on the div­i­dends, es­ti­mat­ed at TT$28,382,495.79, if the pay­ments were paid di­rect­ly to its ul­ti­mate Cana­di­an par­ent com­pa­ny. 

In ini­tial­ly de­cid­ing the case, the TAB and ap­pel­late judges Al­lan Men­don­ca, Pe­ter Ra­jku­mar, and Vasheist Kokaram con­sid­ered that Methanex Cana­da had re­quest­ed the div­i­dends al­though it was not the di­rect par­ent com­pa­ny of Methanex Trinidad.

They al­so not­ed that the div­i­dends paid by the hold­ing com­pa­nies in Bar­ba­dos and the Cay­man Is­lands were the ex­act amounts ini­tial­ly paid by Methanex Trinidad. They al­so not­ed that the pay­ments made by the hold­ing com­pa­nies were done us­ing Cana­di­an bank ac­counts that were con­trolled by Methanex Cana­da. 

In de­cid­ing the case, Lord Richards ruled that the ev­i­dence be­fore the TAB and the Ap­peal Court was in­ca­pable of sup­port­ing the con­clu­sion that the div­i­dends were fic­ti­tious. 

“When Methanex Cana­da’s trea­sury de­part­ment gave in­struc­tions for pay­ments from the bank ac­counts of its sub­sidiaries, they must in the ab­sence of ev­i­dence to the con­trary be tak­en to have been do­ing so as agents on be­half of the sub­sidiary,” he said. 

“It can­not be in­ferred from their sta­tus as em­ploy­ees of the par­ent com­pa­ny that the funds cred­it­ed to the sub­sidiaries’ bank ac­counts were ben­e­fi­cial­ly owned by Methanex Cana­da,” he added. 

Lord Richards al­so ruled that the div­i­dends could not be char­ac­terised as ar­ti­fi­cial as such were typ­i­cal for multi­na­tion­al con­glom­er­ates. 

“Far from be­ing ab­nor­mal, the pay­ments of div­i­dends up a cor­po­rate chain at the re­quest of the ul­ti­mate hold­ing com­pa­ny is a com­mer­cial com­mon­place in na­tion­al and in­ter­na­tion­al groups, not least be­cause it is the on­ly law­ful means by which dis­trib­utable prof­its can be brought up from sub­sidiaries,” he said. 

How­ev­er, Lord Richards found that the Court of Ap­peal cor­rect­ly in­ter­pret­ed the Cari­com treaty when it found that the Bar­ba­dos hold­ing com­pa­ny was li­able to pay tax­es in that coun­try. 

He al­so re­ject­ed claims from the BIR that the treaty was on­ly to ben­e­fit na­tion­als of mem­ber states and not na­tion­als of third-par­ty states, who set up hold­ing com­pa­nies to ob­tain pref­er­en­tial tax treat­ment. 

“There is no hint in the terms of the treaty or in its pre­am­ble that any such re­stric­tion was in­tend­ed by the mem­ber states, still less is there any in­di­ca­tion as to the de­tails of any such re­stric­tion, such as the ex­tent of any per­mit­ted for­eign own­er­ship, whether con­trol would be equat­ed with own­er­ship, how pref­er­ence shares and share­hold­er loans would be treat­ed and so on,” Lord Richards said. 

Methanex Trinidad was rep­re­sent­ed by Al­nasir Maghji, Ed­ward Rowe, Jonathan Walk­er, and Miguel Vasquez.

The BIR was rep­re­sent­ed by Dr Claude Den­bow, SC, Dhar­men­dra Pun­wasee and Jerome Ra­j­coomar.