Fiji Tax Tribunal

As part of the Closing Submissions, Mr S has provided an Affidavit sworn on 18 January 2016, in which he sets out the split between the costs of transport and labour within the invoices that have been issued to the two overseas entities. It is noted that 55% of the security costs are deemed to be transportation costs, with the remainder being allocated as labour costs.

Witness Evidence Called by the Respondent

The Respondent called its VAT Auditor, Ms Ranjeeta Prasad, to explain the events that gave rise to the amended assessments being issued by the Authority. According to Ms Prasad the Respondent initially requested a copy of the relevant contract documents governing the services, but was not provided with one from the Applicant. The witness said, that following a random audit that was undertaken, discrepancies of the Taxpayer were identified and rectified. Ms Prasad indicated that a penalty was imposed against the Taxpayer, in part due to the lack of co-operation that was provided in assisting the Respondent reconcile the issues. A further witness, Mr Upnesh Prasad, was called to give evidence on behalf of the Respondent in his capacity as an Auditor of the Audit and Compliance Section. Mr Prasad provided an elaboration of the rationale behind the Respondent's Objection Decision[7] and wanted to correct the fact that there was a request for review made in 2010 and not an audit of the Taxpayer.[8] The witness stated that as part of that review, the Authority had sought clarification regarding the actual sales that were identified as being 'zero rated'.

The Tribunal heard from Mr Prasad that in 2010, it was deemed that the sales did not justify that classification, based on a service spread revealing:-

40% movement of gold from a local mine;
50% foreign exchange and bank transport to Nadi Airport; and
10% inter country movements.

The witness was shown the agreements between the Taxpayer and the overseas entities.[9] He stated that the Respondent had concluded that Paragraph 10 to the Second Schedule, pertained to 'transport services' for the international carriage of passengers and goods and this was different from the Taxpayer's activities involving security services to facilitate the transport of gold and cash.

Application of the Relevant Law

The Respondent's Submissions rely as its starting point on the definition of 'place of supply' as provided for within Section 16 of the Decree. The Tribunal accepts that for the purposes of Section 16(4), the 'supply of services', other than the security services provided on international flights, is deemed to be in Fiji, as the Applicant Taxpayer belongs in Fiji. The Applicant as the supplier of these services would be deemed to belong to Fiji for the purposes of Section 17(2)(a) of the Decree.

The Exemptions Provided at Paragraph 10 of the Second Schedule

The starting point for the analysis must be Paragraph 10 of the Second Schedule that states:

The supply of transport services relating to the international carriage of passengers and goods –

• (a) from a place outside Fiji to another place outside Fiji; or
• (b) from a place in Fiji to a place outside Fiji; or
• (c) from a place outside Fiji to a place in Fiji; or
• (d) from a place in Fiji to another place in Fiji to the extent that the transport is by aircraft and constitutes ―international carriage for the purposes of the Civil Aviation Act.

There are a couple of critical considerations that emerge. Firstly, does the Applicant Taxpayer supply 'security services' or 'transport services? Secondly, where are these services provided from and to? And thirdly, do these services relate to the international carriage of goods?

Exhibit R4 is an extract from the Respondent's data base, showing that the Taxpayer is registered for the provision of security services. The Tribunal is satisfied that these services are provided and heavily reliant on transportation. Yet the first criteria to be established requires that services are to be related to the international carriage of goods. There is certainly evidence before the Tribunal that the transport activities moving gold and money from within the country requires a large transport cost component,[10] yet these actual services supplied within Fiji, do not have any international carriage component to them. It is clearly true that in a broader sense that they do. But that seems to be a service that is not provided by the Taxpayer. Presumably one of the few international airline services is involved in the international carriage. The intra-national carriage is in my view a different question.

They are certainly not transport services provided by the Taxpayer from one place outside of Fiji to another.[11] They are not transport services provided from within a place in Fiji to a place outside Fiji, as they seem to be services that terminate at Nadi airport.[12] Nor are they transport services that are provided by the Taxpayer from a place outside of Fiji to within Fiji.[13] Finally, the Taxpayer is not alleging that it is providing transport services by aircraft, that would meet the meaning of the expression set out within Paragraph 10(d). The Tribunal is of the view that Paragraph 10 is of no assistance to the Taxpayer's application for review.

The Exemptions Provided at Paragraph 14(e) of the Second Schedule

Within the closing submissions of the Applicant, it is also advanced that the exemption found in Paragraph 14(e) of the Second Schedule should apply in the case where there is:-

The supply of ... services to a person who belongs in a country, other than Fiji (for the) provision of staff.

The Taxpayer has provided at Annexure IS-3 of Mr S's Affidavit, a table that sets out the invoices where staff were required to travel overseas to either collect or transport cash. The total amount identified within the Annexure under this head, is $2055.60. In relation to Paragraph 14(e), the Respondent concedes that some of the services provided by the Applicant, involving staff travel outside of Fiji, are amenable to the rating of value added taxation at zero. As the Tribunal understands the evidence, allowance has been made for this exemption. The Tribunal recognises that indicatively, if it has not done so already, that the amounts in IS-3, would be an appropriate amount to be claimed under this head.

The Exemptions Provided at Paragraph 15(1) of the Second Schedule

Finally, the Taxpayer argues that the exemption that is found at Paragraph 15 of the Second Schedule is also available

Specifically, Paragraph 15(1) provides:

The supply to a person in that persons' taxable activity capacity (and not in that person's private capacity) who in that capacity belongs in a country other than Fiji of services comprising of –

• (a) the handling or storage of goods at or their transportation to or from a place at which they are to be exported or have been imported or the handling or storage of such goods in connection with such transport;

The primary theme that is relied on here, is that these transportation services involve the provision of services to and from an international departure point and are supplied to a person who belongs in a country other than Fiji. The Respondent argues that for the reasons provided within Auckland Regional Authority v Commissioner of Inland Revenue[14] the Applicant is not involved in the handling or storage of goods in connection with their international transportation. The submission relies on the language of an amendment to the New Zealand Goods and Services Tax Act 1985 that has the effect of classifying the handling or storage of goods in the process of international transportation, as "ancillary" and not direct transport services. In many respects while informative, that case, does not assist. The specific exemption that is found in Paragraph 15(1)(b) is to cater for such ancillary services, where they support international transportation.[15] This appears to have been a deliberate amendment to the scheme.[16]

Conclusions of the Tribunal

The Tribunal is of the view that Paragraph 10 of the Second Schedule is irrelevant to this analysis. These are not the services that the Taxpayer provides. Paragraph 13 would apply in the case of services provided outside of Fiji, such as the provision of security guards on international flights to escort cash or gold shipments. Paragraph 14(e) has a comparable role to perform in that regard. The primary and more likely way in which an exemption could take place, would be with a better analysis of Paragraph 15, that requires the deconstruction of sub-paragraph (1)(a). What it speaks of when we untangle the language, is that zero rating is capable of being claimed where there is:-

The handling or storage of goods at a place to which they are to be exported or have been imported; or
The handling or storage of goods to or from a place at which they are to be exported or have been imported; or

The handling or storage of such goods in connection with such transport.[17]

It is noted that the definition of "goods' at Section 2 of the Decree does not include money,[18] though it would include the commodity which is gold. To that end, the Tribunal is inclined to the view that based on the evidence, the handling or storage of gold to or from a place which it is to be exported or imported would be caught by this Paragraph. And while it is noted that no argument exists for any application of Paragraph 15(1)(b) that deals with ancillary transport services, including landing berthing and stevedoring, there is some further potential that services that are deployed for the "making of the arrangements for the supply of any of the services" are capable of being 'zero rated'. While the Taxpayer has not identified any distinct claim for the making of these arrangements, that too may be an issue to be further considered in the context of Paragraph 15(1)(c).

The Tribunal is also of the view that there is a need to further review the invoices that have been submitted by the Taxpayer. Any invoices that relate to the handling or storage of gold to or from an international departure point, or for the making of those arrangements,[19] would be capable of being caught by the meaning provided within the second limb of Paragraph 15(1)(a) and Paragraph 15(1)(c) of the Second Schedule. In all other respects, the Taxpayer's application for review would fail. The consequence of this, is that the tax assessments are now referred to the Chief Executive Officer to be re-assessed, having regard to the findings of the Tribunal. As neither side have been without error in approach, it is the conclusion of the Tribunal that each side should bear their own costs in this matter.

Decision

The Tribunal orders:-

That the matter be remitted to the Chief Executive Officer to be re-assessed having regard to the findings of the Tribunal.

Each party is to bear their own costs.

Mr Andrew J See
Resident Magistrate

^[1] See Objection to Assessment dated 28 October 2014.
^[2] The staff security services that were identified and charged in the Invoices that formed part of the Affidavit of Mr S at Annexure IS-3, being a case in point.
^[3] See Submissions filed on 20 July 2015.
^[4] See Exhibits A1 and A2 that show the invoices for the relevant period.
^[5] See Outline of Submissions at [12] and [13].

[6] See for example, Taxpayers S and G v Fiji Revenue and Customs Authority [2012] FJTT 20; A Distributing Company v Fiji Revenue and Customs Authority [2012] FJTT 15; A Suva Supermarket v Fiji Revenue and Customs Authority [2013] FJTT 2; A Freight Services Company v Fiji Revenue and Customs Authority [2015] FJTT 1; Company A v Fiji Revenue and Customs Authority [2015] FJTT 4.

^[7] See Exhibit R1 at Tab 9.
^[8] See Exhibit A3 at Tab 2.
^[9] See Exhibit A 3 Tabs 9 and 10.
^[10] As attested to within the Affidavit of the Mr S, sworn on 18 January 2016.
^[11] Thereby not meeting the requirement that is Paragraph 10(a).
^[12] Therefore not qualifying to be caught within Paragraph 10(b).
^[13] Paragraph 10(c).
^[14] (1994) 16 NZTC
^[15] Note the way in which these services are deemed to be included by virtue of Paragraph 15(2).
^[16] See Act No 28 of 1999, effective 1 January 2000.
^[17] The underlying emphasis is that of the Tribunal.
^[18] See also the definition of money at Section 2.
^[19] It is likely that there will be no invoices that arise for the importation of gold into Fiji.