Tongasat wins $17m tax appeal against gov't [1]
Tuesday, March 27, 2018 - 17:50. Updated on Tuesday, March 27, 2018 - 18:28.
The Friendly Islands Satellite Communications Company Ltd. (Tongasat) has won an appeal against the Minister of Revenue and Customs and will not have to pay about $17 million pa’anga in consumption tax, in regards to the use of Tonga’s orbital slots.
The company's appeal was against a Supreme Court decision, which had reversed a decision by a Tax Tribunal of the Revenue Services and restored the Minister's amended assessment for them to pay the consumption tax (CT) of $17,931,141.27 pa’anga, on a notice issued in August 2015.
The Appeal Court in a decision delivered on March 26, allowed the appeal and restored the decision of the Tax Tribunal.
“The tribunal had found that the services the company supplied to the Government in obtaining contracts for the use of Tonga’s orbital slots were supplied from its place of business in Hong Kong and for this reason were not taxable."
The Appeal Court also held that the reporting of similar services supplied outside of Tonga and on services already supplied outside of Tonga, were ancillary and consequential and could not support the assessment.
“According the company’s appeal was allowed and the decision of the tribunal restored.”
Unreal
The Appeal Court also noted there was an air of unreality about the case because the Act (Consumption Tax Act 2003) intended the burden of the tax to fall on the recipient of the services, which in this case was the Government.
“It seemed that if the assessment had been upheld, the company could have recovered tax from the Government.”
Tax dispute
This appeal concerned the liability of Tongasat for consumption tax under the CT Act 2003 on the services it provided to the Government of Tonga, under two agreements.
The dispute arose on August 14, 2015 when the Ministry issued a notice of the CT amended assessment to be paid by Tongasat for the duration of July 1, 2006 to March 31, 2015 in the sum of $17 million.
The notice stated that the company was providing telecommunication services through the marketing of orbital slots and that the services were in Tonga, where its head office and central management are located.
Tongasat filed an objection and when it was disallowed it applied to the Tax Tribunal to review the Minister's decision.
After a lengthy hearing in February last year, the Tax Tribunal ruled for the company and said that its share of the gross receipts under the agency agreement had been supplied from outside Tonga and was not liable for CT under the Act.
The parties then went to the Supreme Court, where the judge reversed the Tax Tribunal’s decision and restored the CT imposed by the Minister, which was then overturned by the Appeal Court this week.
The appeal was allowed with costs, set aside the judgment of the Supreme Court and subsititute for the order made by the Tribunal, an order that the amended assessment CT dated August 14, 2015 in the amount of $17 million is reduced to nil, ordered the Appeal Court.