Roland N Hosein
Tax Appeal Board of Trinidad and Tobago, Trinidad
rolandhosein@yahoo.com

Introduction

Over the course of the last decade, there has been within the jurisdiction of Trinidad and Tobago (TT) a marked increase in tax disputes between TT resident subsidiary companies and the TT tax authorities in relation to the withholding tax implications that arise on the payment of dividends by a TT incorporated subsidiary to its parent company, which is usually resident in a state that is a member of the Caribbean Community (CARICOM) Double Taxation Relief (CARICOM) Order 1994 (the ‘CARICOM DTT’) and according to which the state of the payer is granted the exclusive right to tax such dividends at the rate of zero per cent.^[1]

The choice of jurisdiction by the holding company is also likely to be influenced by the rates of corporation tax and withholding tax applicable to its profits and distributions thereto and, as a consequence, it is not unusual for such holding companies to be incorporated in territories that provide the coalescence of benefits derived from the preferential allocation rights and rates applicable to dividend payments under the CARICOM DTT and the favourable tax environment inherent in certain CARICOM DTT member states. There is no uniformity in the taxation systems of CARICOM member states, as it relates to taxation rates and applicable allowances and exemptions and, therefore, the astute Caribbean tax planner will usually engage in a diligent comparative exercise to determine the choice of jurisdiction for the holding company.

Relevant rulings

In recent times, there have been two significant decisions emanating from the Tax Appeal Board of Trinidad and Tobago (TAB) in which the role and purpose of the holding company within the multinational group structure was critical in determining whether the interposition of such entity within the group structure was a tax avoidance mechanism and, therefore, should be disregarded in the taxation authority’s assessment related to the withholding tax applicable on the particular dividend remittance.

In Methanex Titan (Trinidad) Unlimited v The Board of Inland Revenue^[2], the TAB found^[3], inter alia, that the interposition of the Barbados holding company was designed primarily for tax planning purposes to take advantage of the conjoint effect of the entitlements afforded to it under both the domestic legislation and the CARICOM DTT, which resulted in the minimisation of the aggregate withholding taxes arising from the distribution of dividends from the TT operating subsidiary to the ultimate parent company resident in Canada within the multinational group. Integral to the TAB’s findings of fact were cogent evidence of a preconceived plan by the ultimate parent for the transmission of dividends along the corporate chain in equivalent amounts to what was actually remitted, as well as the existence of transitory periods in which the funds were transmitted along the corporate chain until reaching their final destination.

In contrast, in ADV Limited v The Board of Inland Revenue^[4] the TAB found, as a matter of fact, that the holding company was not performing a mere conduit role in the corporate structure of the multinational group to facilitate the minimisation of withholding tax on remittances of dividends from its Trinidad and Tobago investments to the ultimate parent company resident in Norway, as sufficient economic substance existed in the holding company, due to it serving as a vehicle through which the joint venture arrangements with an independent third party were conducted. The TAB, therefore, found that the interposition of the holding company within the group structure was not within the realm of an artificial or fictitious transaction for the TT taxation authorities to have disregarded the payments made from the TT subsidiary to the holding company resident in TT and to have deemed the payments as being made to the ultimate parent company resident in Norway.

Indeed, a tale of two holding companies!