Africa-Press – Tanzania. THE move by Mantra (Tanzania) Limited, a mineral exploration company, to recover over 3bn/- paid as withholding tax to the Tanzania Revenue Authority (TRA) on services that were performed outside Tanzania by non-resident service providers, has hit a snag.
This followed the decision of the Court of Appeal to dismiss with costs the appeal under which the Company, the appellant, had lodged to fault the judgment of the Tax Appeals Tribunal (the Tribunal), which had confirmed the decision of the Tax Appeals Board (the Board) on the matter.
“Charging of withholdingtaxes was correct, there is consequently nothing to refund. In the circumstance therefore, the appeal is devoid of any substance and it is hereby dismissed with costs,” Justices Jacobs Mwambegele, Rehema Kerefu and Issa Maige ruled in favour of the TRA.
During hearing of the appeal, the counsel for the appellant had contended that the Tax Revenue Appeals Tribunal grossly erred in law by holding that the Board was correct in holding that payments for services rendered or performed abroad by nonresident suppliers had a source in Tanzania.
He submitted that the Tribunal grossly erred in law by holding that Article 7 of the Double Taxation Agreement (DTA) does not apply on the Appellant’s case and that the Tribunal erred in law by holding that the Appellant was not justified to claim refund of incorrectly paid withholding tax.
In their judgment, the justices of the appeals court noted that it was not the first time the matter was brought to the attention of the court for determination on the question of service rendered in consideration to section 69(i) (i) of the Income Tax Act.
Referring to a case of Tullow Tanzania BV, they recalled the court to have held: “The services of which the payments were made were consumed or utilized in the United Republic of Tanzania, for the purpose of earning income in Tanzania, then the payments made for such services had a source in Tanzania.”
The justices also found that the Tribunal was right in holding that the exemption under Article 7 of the DTA was not applicable to the appellant’s business transactions, thus the charging of withholding taxes was correct and there was consequently nothing to refund. Facts show that the appellant is a company duly existing under the laws of Tanzania. Its area of business operation is mineral exploration.
In carrying out its business, the appellant procured services from non-resident service providers mostly from South Africa. It is not in dispute that, under Article 7 of the Double Taxation Agreement (the DTA), profits of an enterprise in the contracting states are only taxable if the business is carried out in the respective contracting state through a permanent establishment.
On July 31, 2014, the appellant wrote to the respondent requesting for a refund of withholding taxes of 1,450,920 US dollars incorrectly paid in relation to services that were performed outside Tanzania by non- resident service providersfor the period between July, 2009 and December, 2012.
The appellant alleged that, the services in question were not liable for withholding taxes because they were not rendered in the United Republic of Tanzania and further that, the service providers being residents of the Republic of South Africa, were exempted under Article 7 of the DTA from paying taxes.
In his response, the respondent refused the request maintaining that the services in question were rendered in Tanzania and Article 7 of the DTA was irrelevant in as much as it was limited to business profits and not business transactions. The appellant was unhappy with that decision.
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