Supreme Court allows Ministry’s appeal on Tongasat tax argument

Te ke maʻu ʻi lalo hano fakamatalaʻi faka-Tonga ʻo e talanoá ni

The Supreme Court has allowed an appeal by the Ministry of Revenue and Customs against a decision by the Tax Tribunal over a dispute with Tongasat.

On 14 August 2015 the Ministry issued Tongasat with a Consumption Tax assessment for the period July 2006 to March 2015 amounting to just under TP$18 million, not including  penalties for late  payment.

On 8 October 2015 Tongasat filed notices of objection to the taxation decision and the assessment. It argued that no services had been supplied within Tonga and that its services had been supplied through its office in Hong Kong.

The Tax Tribunal said: “Having studied the various documentation and agency  agreement obligations we have little doubt  that  most  of  the  work carried out by Tongasat  that  resulted  in  revenue  under the Agency agreement was performed overseas for the Government of Tonga though there may, at times, have  been some reporting and possibly meetings  to  update  the  Government that were held in Tonga,”

“Our finding is that the actual performance  of  the  agency  agreement  very  substantially, if not exclusively, took place outside Tonga  and thus the services were in reality  foreign services and not domestic services.”

Judge Scott, presiding, said in his report on the Supreme Court’s consideration of the appeal, that it appeared the Tribunal took  the  view  that since  the bulk of Tongasat’s business activity took place out of its overseas place of business, the services it provided through its Tongan place of business should be  disregarded.

Judge Scott said that in his view neither the existence of places of business outside Tonga not the proportion of business conducted overseas affected the question of whether tax should have been paid on services supplied inside Tonga.

“In my view there was nothing before the Tribunal to show that this was not the case  and accordingly the application should have been dismissed.”

Judge Scott said legal counsel for both sides  had argued that in view of the importance of the question of law raised and the very large sum of money at stake, a second appeal would be taken to the Court of Appeal.

“In my view the better course would be for that Court to remit the matter to the Tribunal if, following disposal of the appeal, there are still matters awaiting resolution,” Judge Scott said.

The Ministry’s appeal was allowed.

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