Africa-Press – Tanzania. THE move by Kilombero Sugar Company Limited to resist paying over 469m/- as tax to the Commissioner General with the Tanzania Revenue Authority (TRA) as costs of professional services rendered by a South African entity, has failed.
This followed the decision of the Court of Appeal to dismiss with costs the appeal lodged by the appellant company against the decision of the Tax Revenue Appeals Tribunal and that of Tax Revenue Appeal Board, which had ruled in favour of TRA, the respondent.
“We find nowhere to fault the findings of the Tribunal in upholding the decision of the Board, for it is based on the correct interpretation of our tax legislation as well as the Double Taxation Agreement. This appeal is arid of merit.
It stands dismissed with costs to the respondent,” they ruled. During hearing of the appeal, the counsel for the parties were at one that service fee paid to a nonresident person with a source in the United Republic of Tanzania is subject to withholding tax in terms of section 83 (1) (b) of the Income Tax Act (ITA), 2004.
The issue on which the counsel for the parties had locked horns was whether costs incurred by Illovo Project Services Limited, a South African service provider (Illovo) and reimbursed by the appellant are part of service fee and thus subject to withholding tax.
In determining the issue, the justices of the appeals court shared the reasoning and conclusion of the Tribunal, as the costs under discussion are air tickets, air charter, hotel accommodation, which were incurred by Illovo when rendering services to, and were reimbursed by, the appellant.
“We agree with the respondent’s counsel that these fall within the scope and purview of payments reasonably attributable to the services rendered in terms of the definition of the term “service fee” under section 3 of the ITA, 2004,” they said.
The justices were alive to the fact that in terms of the Operational and Technical Services Agreement between the appellant and Illovo, the service fee and costs were separated and the appellant’s counsel complained for the respondent’s act of lumping them together for withholding tax calculations.
“We agree with finding of Tribunal that the separation was only for the convenience of the parties; the appellant and Illovo.
In our considered view, the separation was not meant to dissuade the respondent from making it exclusive from withholding tax under section 83 (1) (b) of the ITA, 2004,” they said.
The justices found that the costs incurred by Illovo and reimbursed by the appellant would be taxable in Tanzania as per Article 21 of the Double Taxation Agreement.
To put differently, it was their views that, as per the Double Taxation Agreement, service fees by a South African entity for provision of professional services to a Tanzanian entity, do not form part of business profits as provided for under Article 7 of Double Taxation Agreement which is not taxable in Tanzania.
The justices pointed out, however, that the costs for the services offered fall under Article 21 of the Double Taxation Agreement and thus subject to withholding tax in terms of section 83 (1) (b) of the ITA, 2004.
The appeal arose from the decision of the Tribunal rendered on February 1, 2016. In that appeal, the Tribunal upheld the decision of the Board requiring the appellant to pay the respondent 469,739,933- comprised in two withholding tax certificates for the years of income 2004/5 – 2007/8 and 2009/10.
