For­mer CL Fi­nan­cial ex­ec­u­tive An­dre Mon­teil has lost his fi­nal ap­peal be­fore the Privy Coun­cil over a dis­put­ed in­come tax as­sess­ment ex­ceed­ing $20 mil­lion.

The de­ci­sion, de­liv­ered yes­ter­day by Lord Hodge, ends a le­gal bat­tle stem­ming from the fil­ing of Mon­teil’s 2007/2008 in­come tax re­turn and car­ries sig­nif­i­cant im­pli­ca­tions for em­ploy­ees and em­ploy­ers alike re­gard­ing their tax oblig­a­tions.

Yes­ter­day, an ad­vis­er to Mon­teil said the for­mer CL ex­ec­u­tive would be ap­proach­ing the Board of In­land Rev­enue (BIR) to dis­cuss a re­pay­ment plan for his out­stand­ing tax­es.

The dis­pute emerged af­ter the BIR au­dit­ed Mon­teil’s de­clared in­come, which he had list­ed sole­ly as his em­ploy­ment salary. The BIR lat­er au­dit­ed the re­turns and un­cov­ered dis­crep­an­cies, re­veal­ing that his ac­tu­al emol­u­ment in­come far ex­ceed­ed the de­clared amount.

On Oc­to­ber 1, 2012, the BIR is­sued an as­sess­ment for ad­di­tion­al in­come tax li­a­bil­i­ties, hold­ing Mon­teil re­spon­si­ble for the short­fall. Mon­teil’s le­gal ar­gu­ment cen­tred on the Pay-As-You-Earn (PAYE) sys­tem, which, un­der Sec­tion 99 of the In­come Tax Act (ITA), ob­lig­ates em­ploy­ers to deduct and re­mit tax­es on be­half of em­ploy­ees.

He ar­gued that this frame­work placed full re­spon­si­bil­i­ty on his em­ploy­er to re­mit the owed amount, ab­solv­ing him of any fur­ther li­a­bil­i­ty. How­ev­er, this in­ter­pre­ta­tion failed to hold up in court.

The Tax Ap­peal Board dis­missed Mon­teil’s claim, rul­ing that PAYE is sim­ply a mech­a­nism for tax col­lec­tion and does not ab­solve em­ploy­ees of their ul­ti­mate li­a­bil­i­ty for un­paid tax­es.

Both the Court of Ap­peal and the Privy Coun­cil up­held this po­si­tion. The Privy Coun­cil out­lined sev­er­al key points in its de­ci­sion:

1. Em­ploy­ees Ul­ti­mate­ly Re­spon­si­ble for Tax­es: While PAYE en­sures that tax­es de­duct­ed by em­ploy­ers are cred­it­ed to em­ploy­ees, the ul­ti­mate oblig­a­tion to pay tax­es lies with the in­di­vid­ual, as stat­ed in Sec­tion 5 of the ITA.

2. BIR’s Au­thor­i­ty to Re­cov­er Un­paid Tax­es: Sec­tions 83 and 89 of the ITA em­pow­er the BIR to is­sue ad­di­tion­al as­sess­ments for un­paid tax­es, re­gard­less of PAYE com­pli­ance.

3. PAYE Not Ex­clu­sive: The rul­ing clar­i­fied that PAYE is not the on­ly mech­a­nism for tax re­cov­ery. Even if an em­ploy­er fails to re­mit tax­es, em­ploy­ees re­main li­able for any short­fall.

4. Em­ploy­er Penal­ties Do Not Shield Em­ploy­ees: Al­though em­ploy­ers may face penal­ties for fail­ing to re­mit tax­es un­der Sec­tion 99(4), this does not elim­i­nate em­ploy­ees’ ac­count­abil­i­ty for their tax li­a­bil­i­ties.

Con­tact­ed for com­ment, an ad­vis­er to Mon­teil told Guardian Me­dia that the em­ploy­ment con­tract of the for­mer CLI­CO and CL Fi­nan­cial ex­ec­u­tive stip­u­lat­ed that his com­pen­sa­tion pack­age should be net of tax­es.

The ad­vis­er said the tax­a­tion paid by the com­pa­ny on Mon­teil’s pack­age was deemed to be a ‘ben­e­fit in kind’ for which the ex­ec­u­tive was re­quired to pay tax.

The ad­vis­er de­scribed this in­ter­pre­ta­tion as a tax on tax. Ac­cord­ing to the ad­vis­er, the Privy Coun­cil judg­ment could im­pact every em­ploy­ee who is re­ceiv­ing a ben­e­fit in kind in T&T. Ben­e­fits in kind could in­clude a com­pa­ny car or ac­com­mo­da­tion paid for by a com­pa­ny.

Econ­o­mist: Rul­ing sends a strong mes­sage to em­ploy­ers about com­pli­ance

Econ­o­mist Dr Vaalmik­ki Ar­joon yes­ter­day em­pha­sised the broad­er im­pli­ca­tions of the rul­ing, not­ing that it sends a strong mes­sage to em­ploy­ers about com­pli­ance.

“This rul­ing serves as a cru­cial re­minder to em­ploy­ers about the im­por­tance of prop­er pay­roll com­pli­ance and tax com­pli­ance. Em­ploy­ers must dili­gent­ly ad­here to PAYE oblig­a­tions be­cause fail­ure to ac­cu­rate­ly deduct and re­mit tax­es can lead to le­gal reper­cus­sions, rep­u­ta­tion­al dam­age, and sig­nif­i­cant le­gal costs,” Dr Ar­joon said.

Dr Ar­joon al­so un­der­scored the im­por­tance of proac­tive mea­sures. “Em­ploy­ers should con­sid­er in­vest­ing in train­ing for HR and pay­roll staff to en­sure they are cur­rent with tax laws. They need to im­ple­ment and up­grade pay­roll sys­tems to en­sure ac­cu­ra­cy in tax de­duc­tions, which can help pre­vent er­rors and re­duce dis­putes.”

While em­ploy­ers are ob­lig­at­ed to re­mit tax­es, em­ploy­ees are not off the hook, Dr Ar­joon added.