JUDICIARY OF TANZANIA: MLIMANI HOLDING LIMITED SUFFERS DEFEAT OVER 346M/- TAX PAYMENTS

By FAUSTINE KAPAMA-Judiciary

THE Court of Appeal has dismissed with costs the appeal lodged by Mlimani Holding Limited, opposing payments of over 346m/- tax to the Tanzania Revenue Authority (TRA) on service fees rendered to a South African entity, MDS Architecture.

Justices Gerald Ndika, Lugano Mwandambo and Panterine Kente held that the service fees under which Mlimani Holding Limited, the appellant, paid to MDS Architecture did not constitute part of the business profits of the payee and thus liable to withholding tax in Tanzania.

“Consequently, as the appellant did not remit the withholding tax in accordance with section 83 (1) (b) of the (Income Tax) Act, the respondent (TRA) was entitled to issue the impugned withholding tax certificates as he did. In the event, we find no merit in this appeal and dismiss it with costs,” they ruled.

The issue for determination in the appeal in question involved a challenge on the interpretation of an agreement between two contracting states, that is, the Governments of the Republic of South Africa and the United Republic of Tanzania.

Such dispute is centered on Article 7 of the Agreement for Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (the DTA). When determining the appeal, the justices noted that the interpretation of the DTA was not new before the Court.

According to them, the interpretation featured as one of the interrelated issues for the Court's determination in the case involving Kilombero Sugar Company Limited against TRA where the appellant therein challenged the decision of a Tribunal which made a similar interpretation of the DTA.

“That case involved a dispute over the liability to remit withholding tax on service fees paid to a South African entity (that) had provided management services to her,” the justices observed.

Like in the instant appeal, they pointed out that Kilombero Company was caught up in a demand for withholding tax under which it failed to deduct from the service fees had paid to her Foreign Service provider.

In that case, the justices recalled, the Court endorsed the decision of the Tax Revenue Appeals Tribunal, which had held that the service fees were outside the scope of Article 7 (1) rather, Article 20 of the DTA.

Few months later, a similar issue involving a dispute on the liability to withholding tax by another South African entity which had rendered services to a Tanzanian entity, arose in Mantra (Tanzania) Limited. The Court reaffirmed its position in Kilombero and dismissed Mantra's argument for being untenable.

During hearing of the appeal, the counsel for Mlimani Holding Limited had argued with deep conviction that Kilombero was decided without the benefit of arguments based on OECD Model Tax Convention Commentaries, hence taking a narrow interpretation of the DTA.

It was against that argument that the advocate championed for a departure from Kilombero. In their judgment delivered recently, the justices had this to say, “With unfeigned respect, (the advocate’s) argument falls on the face of the very judgment he wants us to depart from……

“………Quite unfortunate to the appellant, the Court is bound by its decision in Kilombero reaffirmed in Mantra on similar factual setting except for the parties involved.”

In any case, the justices said, despite the advocate’s submission and invitation to depart from the position taken in the two cases, the Court was not properly moved to take that route if they were minded to agree with his argument.

They pointed out that the advocate conceded as much on the noncompliance with rule 106 (4) of the Court of Appeal Rules which requires the parties intend to invite the Court to depart from one of its own decisions to clearly stated in a separate paragraph of the submissions.

“That has not been done in the written submissions neither did (the advocate) intend to do so before the commencement of the hearing of the appeal. He did so in answer to the Court's question,” the justices said.

Be that as it may, they reminded the appellant that it is now settled that departing from a previous decision cannot be undertaken by an ordinary court rather, a full bench empanelled by five justices which may entail overruling the previous decision if the Court sees justification to depart.

The facts to the dispute show that between the year 2013 and 2016, the appellant made payments to a South African entity, MDS Architecture, a foreign consultant in the sum equivalent to 1,500,549,808/- as service fees for architectural services to its project in Tanzania.

In terms of section 83(1) (b) of the Income Tax Act, the appellant had an obligation to deduct 15 percent from the amount paid as withholding tax and remit it to the respondent. Sometimes in 2017, the respondent conducted a tax audit on the appellant's affairs.

Such audit revealed that the appellant had made the payments to the foreign consultant without deducting the 15 percent as required by the tax law.

Eventually, the respondent issued three withholding tax certificates demanding a total sum of 346,492,916/-for the period 2013 to 2016. The appellant took the matter to the Tax Revenue Appeals Board, which upheld the position of the Commissioner General of the TRA.