Ractabel Trinidad Ltd v Board of Inland Revenue and Atlantic Lng 2/3 Company of Trinidad and Tobago Unlimited
| Jurisdiction | Trinidad & Tobago |
| Judge | Bereaux, J. |
| Judgment Date | 14 December 2005 |
| Neutral Citation | TT 2005 HC 110 |
| Docket Number | HCA #1449/2004 |
| Court | High Court (Trinidad and Tobago) |
| Date | 14 December 2005 |
High Court
Bereaux, J.
HCA #1449/2004
A. Fitzpatrick S.C and I Benjamin for applicant
N. Mohammed for respondent
M. Daly S.C. and V. Kokaram for interested party
Judicial review - Applicant seeking review of decision on Board of Inland Revenue that monies payable to applicant by interested party subject to withholding tax — Whether applicant having right to be heard — Whether payments representing capital or income — Income Tax Act, ss. 50, 51 — Law regarding withholding tax — Public policy dictating no right to be heard — Payments representing income falling under s. 51(f) of Act — Motion dismissed.
By these proceedings Tractabel Trinidad LNG S.A. (“the applicant”) has sought judicial review of a decision of the Board of Inland Revenue (“the BIR”) that certain moneys (“the Cabot Payments”) payable to the applicant by the Atlantic LNG 2/3 Company of Trinidad and Tobago Unlimited (“Atlantic 2/3”) were subject to withholding tax.
The applicant seeks certiorari to quash the decision of the BIR and a declaration that the Cabot Payments are not subject to withholding tax.
The question for determination is whether the Cabot Payments are properly subject to withholding tax under the provisions of section 50 of the Income Tax Act Chap. 75:01 (“the Act”). This requires consideration of two issues:
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(1) whether the payments are capital or income, and
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(2) if they are income, whether they constitute “other annual or periodic sums” (as that phrase is used in section 51(a) of the Act) such as to come within the definition of “payment” in section 51(b).
If the payments are capital no withholding tax is payable.
The applicant contends that the decision is ultra vires the BIR's powers under the Act because the BIR failed to consider whether the Cabot Payments were capital or income in nature and in doing so, failed to take into account certain relevant agreements; that no reasonable authority properly directed would have concluded that the payments fell within section 51(f) of the Act and that the applicant was denied a hearing in breach of the principles of natural justice.
I shall say from the outset that the decision of the BIR is correct although not for the reasons initially given by Mr. Ramdahin. In my judgment the Cabot Payments are income in nature and constitute other annual or periodic sums within the meaning of section 51(a) of the Act. The applicant had no right to be heard under section 51(a) of the Act and was not entitled to be heard by the BIR. Even if it did there has been no miscarriage of justice since the decision is ultimately correct in law.
The Cabot Payments are payable to the applicant under an agreement known as the Cabot Payment Agreement made between Atlantic LNG 2/3 and Cabot Trinidad LNG Limited, a company registered in the British Virgin Islands. The Cabot Payments are not unique since identical payments are made to the National Gas Company Trinidad & Tobago Limited (“NGC”) under an agreement (drafted in terms mostly identical to the Cabot Payment Agreement), known as the NGC Payment Agreement. The Cabot and NGC Payment Agreements are two of a number of agreements executed in 2000 among certain corporate investors involved in the liquefaction of national gas at Point Fortin. Those agreements were the result of a renegotiation of a previous agreement executed in 1995 (“the 1995 Shareholders Agreement”), which had brought about the construction of a single natural gas liquefaction plant at Point Fortin. Liquefied natural gas is referred to within the industry as “LNG” (as it is in this judgment). The plant was owned by Atlantic LNG Company of Trinidad and Tobago (Atlantic 1). Atlantic 1 was established by Amoco Trinidad (LNG) B.V. (“Amoco”), British Gas Trinidad LNG Limited (“British Gas”), Cabot Trinidad LNG Ltd (“Cabot”) and NGC pursuant to the 1995 Shareholders Agreement. With the exception of Atlantic 1, Atlantic 2/3 and NGC which are registered in Trinidad and Tobago, all the other companies are foreign registered. Atlantic 1 and Atlantic 2/3 are of unlimited liability.
Repsol NG, Port of Spain BV (“Repsol”) also foreign registered, later became a fifth shareholder.
The applicant is the successor to Cabot and is a Luxembourg registered corporation. I shall continue, where necessary, in the body of this judgment because it played a major role in the events which brought about this action.
The first recital to the 1995 Shareholders Agreement states that Atlantic 1 was established:
“for the purpose of evaluating the economic and technical feasibility of building a natural gas liquefaction plant and related facilities and infrastructure and subject to such evaluation, to design, construct, own and operate the plant and pipelines, to purchase gas, to transport gas, to market LNG and associated products, to transport LNG and associated products, including owning or chartering ships and to carry on such other activities as are necessary to achieve the foregoing…”
The project ultimately progressed from feasibility, evaluation to the construction and then start up of the plant.
From the outset, as is apparent from the 1995 Shareholders Agreement, all the shareholder companies foresaw the likelihood of expansion through the construction of additional plants, (referred to as “expansion” in that agreement) which would utilize the equipment and technology of the initial plant. Each additional plant is constructed to utilize the technology of the previous plant. The plants are referred to as “trains “. The first plant is called train 1 and subsequent trains being numbered chronologically as start up is achieved and the facility expanded. Atlantic I was formed to own and operate train 1. Expansion was governed by section 3.11 of the 1995 Shareholder Agreement. It was an elaborate procedure.
The re-negotiation of the 1995 Shareholders Agreement was the result of a dispute primarily between Cabot and Amoco over the manner and direction of expansion of the initial train and culminated in the formation in 2000, of Atlantic LNG 2/3 and the execution of several new agreements among them the Cabot and NGC Payment Agreements. Atlantic 2/3 was formed to manage the two additional expansions (train 2 & 3), while Atlantic 1 continued to manage (but not own) train 1. Cabot and NGC ultimately opted not to participate in the expansion but effectively remained shareholders in Atlantic 1. The new agreements provided the legal regime by which the expansion would be facilitated.
While a determination that the Cabot Payments are capital is important to the applicant, a decision that it is income is important to Atlantic 2/3 because, as owner of trains 2 & 3 and as payor under the Cabot Payment Agreement, Atlantic 2/3 will be entitled to a more than sizeable tax deduction of the payments as deductible operating expenses.
The fact that the payments are made to Cabot (which is in effect a shareholder in Atlantic 1) and not to Atlantic 1 is a curious aspect of this case and an important component in the applicant's argument that the Cabot payments are capital.
The relevant provisions of the Act are section 50(1) and section 51.
“50.(1) There shall be levied and paid income tax, in this Act referred to as withholding tax, at the rate set out in Part II of the Third Schedule–
(a) on any distribution made to any person not resident in Trinidad and Tobago and to every non-resident company;
(b) on any payment made to any person not resident in Trinidad and Tobago or to any person on behalf of such non-resident person, and to every non-resident company (where such person or company is not engaged in trade or business in Trinidad and Tobago), so however that in the case of a payment arising outside Trinidad and Tobago to such a person or company withholding tax shall not be payable.”
51. In sections 49 to 56 –
“payment” means a payment without any deductions whatsoever, other than a distribution, not being a payment to which section 99 applies with respect to —
(a) interest, discounts, annuities or other annual or periodic sums;
(b) rentals;
(c) royalties;
(d) management charges or charges for the provision of personal services and technical and managerial skills;
(e) premiums (other than premiums paid to insurance companies and contributions to pension funds and schemes), commissions, fees and licences;
(f) such other payment as may from time to time be prescribed.”
It is not to be forgotten that the application before me is one of judicial review and the legal principles applicable to that doctrine are to be given pride of place. One issue with which I have had to grapple is whether I should remit the matter to the BIR to resolve the very issues which now engage me. I have chosen not to do so (on the urgings of counsel) for reasons I shall develop.
The decision to classify the Cabot Payments as subject to withholding tax was made by Mr. Nayak Ramdahin, Assistant Commissioner of Inland Revenue. It is set out in his letter of 27th February, 2004 to Price Waterhouse Coopers Limited in which he advised that compensation “by Atlantic LNG 2/3 to Tractabel is classified as a payment in accordance with section 51(f) of the Income Tax Act, Chap. 75:01 and not as royalties/rentals, and “as a consequence, this payment is subject to withholding tax at a rate of 20%”.
To have classified the Cabot Payments as being a payment “in accordance with section 51(f) “was palpably wrong because section 51(f) is a general provision which allows the Executive to provide for other types of payments which may attract withholding tax but is not itself a provision within which a...
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