Digicel Jamaica Ltd v Commissioner of Taxpayer Appeals

• Jurisdiction: Jamaica
• Judge: Morrison JA,Dukharan JA,Mcintosh JA,Morrison, JA
• Judgment Date: 24 October 2014
• Neutral Citation: JM 2014 CA 103,[2014] JMCA Civ 36
• Docket Number: SUPREME COURT CIVIL APPEAL NO 2/2012
• Court: Court of Appeal (Jamaica)
• Date: 24 October 2014

Between

Digicel Jamaica Limited

Appellant

and

The Commissioner of Taxpayer Appeals

Respondent

[2014] JMCA Civ 36

Before:

The Hon Mr Justice Morrison JA

The Hon Mr Justice Dukharan JA

The Hon Mrs Justice Mcintosh JA

SUPREME COURT CIVIL APPEAL NO 2/2012

JAMAICA IN THE COURT OF APPEAL

REVENUE LAW - Taxation - Insurance proceeds - Whether insurance proceeds received by Digicel for loss of income during hurricane were caught by the General Consumption Tax Act, s. 18(4)

Dr Lloyd Barnett , Mrs M. Georgia Gibson-Henlin and Marc Jones instructed by Henlin Gibson Henlin for the appellant

Mrs Cecelia Chapman-Daley and Miss Sophia Preston for the respondent

Morrison JA

Introduction

1 The appellant (‘Digicel’) is a company incorporated under the Companies Act and a registered taxpayer for the purposes of the General Consumption Act (‘the Act’). The respondent (‘the Commissioner’) is the public official, appointed pursuant to section 11B of the Revenue Administration Act, with responsibility for the general administration of the Taxpayer Appeals Department. At the material time, the person who held the position of commissioner was Mr Winston Lawson.

2 Digicel is in the business of supplying mobile telephone and allied services in Jamaica, under licence from the Government of Jamaica. The company also carries on business in several other Caribbean jurisdictions, and elsewhere.

3 In 2004, Digicel maintained an “Equipment All Risk (Material Damage & Business Interruption) Insurance” policy (‘the policy’) with West Indies Alliance Insurance Company Ltd (‘the insurer’). In the aftermath of the passage of Hurricane Ivan (‘the hurricane’) in September of that year, Digicel suffered serious damage to its equipment and facilities. This in turn caused an interruption of its business. The resultant claim by Digicel under the policy was settled by the insurer for (i) US$578,533.00 (or J$13,216,000.00) in respect of damage to “equipment and related costs”; and (ii) US$6,967,831.00 (or J$416,000,000.00) in respect of “business interruption”. These sums were brought to book in Digicel's profit and loss statement for the relevant financial year and income tax was paid on them at the applicable rate of 33 1/3%.

4 In 2008, the Commissioner of Taxpayer Audit and Assessment (‘CTAA’) carried out an “integrated audit” on Digicel's operations. With regard to general consumption tax (‘GCT’), the period covered by the audit was December 2003 to December 2005. As a result of the audit, Digicel was on 23 July 2008 assessed to additional general consumption tax of $85,843,200.00, being 20% of the total settlement of $429,216,000.00. The CTAA took the view that the insurance proceeds received by Digicel for loss of income during the hurricane were caught by section 18(4) of the General Consumption Tax Act (‘the GCT Act’), which provides that:

“(4) Where a registered taxpayer receives an amount by way of reimbursement, recovery or otherwise in respect of goods or services acquired by him for the purpose of making taxable supplies, he shall be deemed to have made a taxable supply and the amount aforesaid shall be deemed to be the consideration for that supply.”

5 The result of the application of section 18(4) to Digicel's insurance settlement was, the CTAA explained, that —

“…the amount received for loss of business due to the breakdown of the Network during the hurricane would represent a taxable supply. If the network had not failed during the hurricane, customers would still be using the network and income would be earned and therefore General Consumption Tax would be payable.”

6 In February 2009, in response to an objection from Digicel, the CTAA reduced the assessment (by $9,655,087.00) to $76,188,113.17. Digicel's appeal to the Commissioner (pursuant to section 41 of the GCT Act) resulted in a further reduction (by virtue of the Commissioner's decision dated 27 November 2009) in the assessment to $59,077,084.97 (as a result of a reduction in the GCT rate, conceded by the CTAA, from 20% to 16.5%). By his judgment given in the Revenue Court on 9 December 2011, R Anderson J dismissed Digicel's appeal against the substance of the Commissioner's decision, but allowed the appeal in respect of the GCT rate, holding that the applicable rate of tax at the material time was 15%.

7 This is therefore an appeal from R Anderson J's judgment. Digicel has maintained throughout, from the time of the CTAA's audit through to the hearing in the court below, that the insurer's settlement of its business interruption claim is not exigible to GCT within the meaning of section 18(4), given the nature of business interruption insurance and the actual terms of the policy. The single issue which arises on the appeal is therefore whether the learned judge was correct in upholding the determination of the CTAA and the Commissioner that the settlement amount did in fact fall within the terms of section 18(4).

What the Act says

8 Section 3(1) of the Act provides for the imposition of GCT as at 22 October 1991 –

“(a) on the supply in Jamaica of goods and services by a registered taxpayer in the course or furtherance of a taxable activity carried on by that taxpayer; and

(b) on the importation into Jamaica of goods and services,

by reference to the value of those goods and services.”

9 (Section 9, which provides for the imposition of “a tax to be known as special consumption tax on the manufacture in or importation into Jamaica of prescribed goods”, is not relevant to the present enquiry.)

10 Section 2 defines ‘consideration’, ‘input tax’, ‘output tax’, ‘taxable activity’, ‘taxable period’ and ‘taxable supply’ in the following terms:

‘“consideration ’ in relation to the supply of goods and services to any person, includes any payment made or any act or forbearance in respect of, in response to, or for the inducement of, the supply of any goods or services, whether by that person or by any other person;

‘input tax’ in relation to a registered taxpayer means —

(a) tax charged under section 3 (1) on the supply of goods and services made to that taxpayer or on the importation into Jamaica of goods and services by that taxpayer being goods and services required wholly or mainly for the purpose of making taxable supplies; or

(b) tax charged under section 9 on the manufacture of prescribed goods or on the importation into Jamaica of such goods being prescribed goods acquired wholly or mainly for the purpose of manufacturing taxable supplies;

“output tax” means –

(a) tax paid by a registered taxpayer on the manufacture by him of prescribed goods; or

(b) tax charged by a registered taxpayer on a supply by him of a taxable supply;

‘taxable activity’ means any activity, being an activity carried on in the form of a business, trade, profession, vocation, association or club, which is carried on continuously or regularly by any person whether or not for a pecuniary profit, and involves or is intended to involve, in whole or in part, the supply of goods and services (including services imported into Jamaica) to any other person for a consideration;

‘taxable period’ in relation to a registered taxpayer means the period prescribed as the period in respect of which a return of tax is to be made;

‘taxable supply’ means any supply of goods and services on which tax is imposed pursuant to this Act;

......

(My emphasis)

11 Part IV of the Act, of which the all-important section 18(4) is a part, makes “Provisions Relating to Making of Taxable Supply”. Section 18(1) provides that “supply”, includes (a) the sale, transfer or other disposition of goods by a registered taxpayer; (b) the exercise of a power of sale by a person other than a registered taxpayer in satisfaction of a debt owed by a registered taxpayer; and (c) the provision of services. However, there is no supply where an asset of a taxable activity (‘a specified asset’) is used as collateral for a loan; transferred to a trustee pursuant to his appointment as trustee; or transferred as a gift valued less than $100.00, a sample, or as an unconditional gift to an approved charity.

12 Section 18(2) provides for a situation in which a registered taxpayer, in the course or furtherance of any taxable activity, “uses for himself or for any other business carried on by him any goods which form part of the stock of his taxable activity”. In those circumstances, once tax would have been payable on those goods if they were supplied to any other person, “the use of such goods shall be deemed to be a taxable supply”.

13 Section 18(3) provides for a situation in which a specified asset is (a) used as collateral for a loan and on the borrower's default is forfeited to the lender, or (b) transferred to a trustee, who distributes the assets of the estate of which the specified asset forms part or the assets of a company of which it forms part. In either case, “the forfeiture or distribution, as the case may be, shall be deemed to be a supply”.

14 The effect of section 18(4) is that, once a registered taxpayer receives an amount, “by way of reimbursement, recovery or otherwise, in respect of goods or services acquired by him for the purpose of making taxable supplies”, he is deemed to have made a taxable supply and the amount of the reimbursement or recovery is deemed to be the consideration for that supply. Output tax will therefore be chargeable on that amount accordingly.

15 Section 18(6) is also a deeming provision of sorts, by providing that, for the purposes of the Act, “anything which is not a supply of goods but is done for a consideration is a supply of services”.

16 Section 20 makes provision for the calculation and payment over to the revenue of the tax payable by a registered taxpayer in accordance with the regulations made under the Act. Section 20(2) provides that the tax payable by a registered...