IN THE FISCAL APPEALS COURT . CASE No 'l 5 /17 HELD AT HARARE In the matter between: - I 1-, I c' ABB (PRIVATE) LIMITED Appellant And ZIMBABWE REVENUE AUTHORITY Respondent NOTICE OF APPEAL TAKE NOTICE THAT the Appellant hereby appeals to the Fiscal Appeal Court against the decision of the Respondent for which notice of the decision was given to the Appellant on the 27th of March 2017. FURTHER TAKE NOTICE THAT the Appellant hereby appeals against the whole of the decision of the Respondent of the 27th of March 2017 in so far as it pertains to Value Added Tax matters. AND FURTHER TAKE NOTICE THAT the Appellant?s address for service of any notices or documents is care of its undersigned legal practitioners being Chihambakwe Mutizwa Partners, No. 7 Lawson Avenue, Milton Park, Harare. GROUND OF APPEAL The grounds of appeal are that the Respondent erred in not allowing the Appellant?s objections on the following issues, in that: - a) The Appellant?s objection ought to have been allowed as there was no supply of goods or services between the Appellant and and ZPC for which an assessment for Value Added Tax could be raised; b) It failed to fully remit the penalty imposed upon the Appellant for the PAYE assessments when the Circumstances of the case showed that the penalty, if any was deserved, ought to have been remitted in full. ,m 1/7/ (EM lid WHEREFORE the Appellants pray thatthe appeal be allowed with costs, b) the decision of the Respondent's assessments are set aside as there is no Value Added Tax liability on the Appellant. Dated at HARARE on this 25th of April 2017. 1? z. PARTNERS Appellants? Legal Pr ctitioners 7 Lawson Avenue Milton Park HARARE To THE REGISTRAR Fiscal Appeals Court HARARE And to ZIMBABWE REVENUE AUTHORITY The Respondent 6th Floor, 28 Centre K. Nkrumah/lSt Avenue HARARE Mujuru?Acting Commissioner General) IN THE FISCAL APPEALS COURT CASE NO FA 13/17 HELD AT HARARE In the matter between: - ABB (PRIVATE) LIMITED gir?m Appellant And ZIMBABWE REVENUE AUTHORITY Respondent STATEMENT SETTING OUT CASE 1. INTRODUCTION 1.1 This appeal is brought in terms of 533 of the Value Added Tax Act (Chapter 23:12) (hereinafter referred to as the Act"). 1.2 The Zimbabwe Revenue Authority, (hereinafter referred to as conducted an audit of the tax affairs of the A88 Zimbabwe (Private) Limited (hereinafter referred to as Zim"). ABB Zim is a registered operator/vendor in terms of the VAT Act. 1.3 Pursuant to that audit, ZIMRA raised additional assessments for Value Added Tax (hereinafter referred to as The total VAT liability was 065 284.94. ZIMFRA also raised assessments for additional tax of 100% on all of these assessments. 1.4 ABB Zimbabwe objected to these assessments. ZIMRA rejected the objection in relation to the principal tax liability. It partly allowed the objection in relation to the additional tax, thereby reducing the penalty to 50%. 1.5 ABB Zimbabwe appeals against the unsuccessful portions of its objection. 2. FACTUAL CONSPECTUS 2.1 In 2011, A88 Zim entered into contracts with the Zimbabwe Electricity Transmission and Distribution Company (Private) Limited and the Zimbabwe Power Company (Private) Limited (hereinafter referred to, together as for the procurement of various pieces of equipment required by ZESA. 4 ,vv . . I 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 At the time of the entering into the contracts, ABB Zim was of the View that it had capacity to deliver in terms of the contracts. However, after entering into the contracts, it discovered that it did not have the capacity to deliver in terms of the contracts and it recommended to ZESA that ZESA procures the equipment directly from a company call ABB South Africa (Proprietary) Limited (hereinafter referred to as The contracts between ZESA and ABB Zim were subsequently abandoned and not proceeded with. ZESA procured the equipment directly from ABB SA in terms of new contracts with ABB SA. ABB Zim played a facilitation role in this transaction and it was paid facilitation fee for its role in this regard. The VAT on the import of the equipment was paid in a manner arranged by and between ABB SA and ZESA. ABB Zim was not involved in the payment of VAT on the transaction. Customs duty was waived on the transaction as it had national project status. The facilitation fee was declared in ABB Zim?s income tax and VAT returns. ZIMRA conducted a tax audit of ABB Zim. It made a determination that the equipment had been procured in terms of the contracts between ABB Zim and ZESA. It rejected the position that a new contract had been entered into between ABB SA and ZESA. ZIMRA treated the original contracts between ABB Zim and ZESA as the basis of supply and it charged output tax on those transactions. ZIMRA also accepted the output tax on the facilitation fees. It did not ?nd anything contradictory in treating the facilitation fees and the value of supply of the equipment contracts as Vatable from the same registered operator. ZIMRA raised additional assessments including penalties. ABB Zim objected to the additional assessments. The objection to the principal tax liability was rejected in its entirety. The penalty was reduced from 100% to 50%. The present appeal is against the additional assessments on principal tax liability and the remaining penalty. 3. THE LAW Was there a ABB Zim 3.1 3.2 3.3 3.4 3.5 The liability of a registered operator to VAT derives from two key provisions of the VAT Act. These provisions are, the definition of what of a ?supply" and the provision on liability to VAT. A ?supply" is de?ned follows: - ?supply" includes all forms of supply, irrespective of where the supply is effected, and any derivative of ?supply" shall be construed accordingly; This relationship between this de?nition and the provision on liability to VAT is established by the de?nition of ?output tax?. Output tax is also de?ned follows: - ?output tax?, in relation to any registered operator, means the tax charged under paragraph of subsection (1) of section six, in respect of the supply of goods and services by the registered operator; The liability for output tax is stipulated in 56(1) of the VAT Act. The relevant parts of the section provide, as follows: - 6 Value added tax 1) Subject to this Act, there shall be charged, levied and collected, for the bene?t of the Consolidated Revenue Fund a tax at such rate as may be ?xed by the Charging Act on the value of? the supply by any registered operator of goods or services supplied by him on or after the January, 2004, in the course 0r furtherance of any trade carried on by him: and the importation of any goods into Zimbabwe by any person on or after the January, 2004; The scheme established by the above quoted provisions of the VAT Act is as follows: - a) If a registered operator provides goods or a service, there is a supply as de?ned in 52 of the VAT Act. 3.6 3.7 3.8 3.9 b) There is a supply if the goods are actually provided to customer or client by the registered operator or if the service is actually provided to the customer or client. c) Subject to the VAT Act provisions on exempt supplies and zero rated supplies, for every supply the registered operator must charge output tax on the value of supply. d) If there was no supply there is no output tax to charge. e) If there was an intended supply which was not proceeded with, ie was aborted, there is no supply and therefore there is no output tax to charge. The above position of the law is forti?ed by the views of the Honourable Justice Kudya in MC HH 634/16, wherein the learned judge stated that: - ?In terms of 6 (1) as read with (2) of the Act the obligation to pay value added tax on the supply of services falls on the registered operatpr who supplied those services .. (My emphasis) The general requirements for liability for VAT were also laid out by the Honourable Justice Kudya in In (Pvt) Zimra 2014 (2) ZLR 580 (H) at 583H-584A. in that case the learned judge set out these requirements for liability: - There must be: the supply by any registered operator; of goods or services supplied by him on or after 1 January 2004 in the course or furtherance of any trade carried on by him. (emphasis is mine) See also the decision in the case of Mylo (Pvt) HH 717/16. The position of A38 Zim in this matter is simple. There was no supply of goods by it as a registered operator. It did not supply the equipment to ZESA. The contracts relied on by ZIMRA to raise the additional assessments, were not proceeded with. The contracts were aborted when their impracticality was realised. The intended supply from ABB Zim was aborted. There was just no supply by ABB Zim and therefore there was no output tax to charge. If there was no output tax to charge, there was no tax liability in terms of 56(1) of the VAT Act. 3.10 3.11 3.12 The goods were supplied by ABB SA and not ABB Zim. These are two different entities, incorporated in two different jurisdictions. ABB Zim has no liability to pay tax on this supply because it was not the registered operator which supplied the service. The simple requirement alluded to by the Honourable Kudya in MC was never met. ABB Zim prays that the additional assessment be set aside in its entirety for this reason, including the penalty. Additional tax or Penalg of 50% 4.1 4.2 4.3 If the court is to ?nd that the additional assessment is valid, ABB Zim challenges its liability for additional tax on the grounds stipulated below. ZIMRA is authorised impose an additional tax. The provision reads as follows: - 66 Additional tax in case of evasion (1) Where any registered operator or any person under the control or acting on behalf of the registered operator fails to perform any duty imposed upon him by this Act or does or omits to do anything, with intent? to evade the payment of any amount of tax payable by him; or to cause a refund to him by the Commissioner in terms of subsection (1) of section forty-four of any amount of tax, such amount being referred to hereunder as the excess, which is in excess of the amount properly refundable to him under the said section, read with subsection (6) of section ?fteen, before applying subsection (6) of section forty-four; such registered operator shall be chargeable with additional tax not exceeding an amount equal to the amount of tax referred to in paragraph or the excess referred to in paragraph as the case may be. (emphasis is mine) This provision allows ZIMRA to impose an additional tax/penalty in the event that it makes a ?nding that: a) There was a wrongful act or an omission by the registered operator; b) The act or omission was done with intent to i) Evade tax; ii) Obtain a tax refund to which the operator is not entitled. 4.4 4.5 4.6 4.7 4.8 4.9 4.10 It has to be emphasised that the power of ZIMRA to assess an operator for additional tax is limited to cases where there is an intention to evade tax or obtain a refund which the taxpayer is not entitled to. In the present matter, ABB Zim is not covered by the provision on tax refunds. It would therefore have to fall under the provision on evading tax. In the present matter, ZIMRA was not entitled to charge additional tax. This was because ZIMRA effectively made a ?nding that there was no intention to evade tax. This is con?rmed in letter (of 27 March 2017) in response to ABB Zim?s objection at paragraph 3.2: ?Please be advised that the penalty was reduced to 50% after considering that your client did not know that thy were supposed to account for income as per the contract signed since the payment was made to South Africa. There was no fraud unearthed during the audit and the client was also cooperative in terms of disclosing and submitting the requested information. Intention to evade tax is the fraud that concerns ZIMRA. ZIMRA acknowledges that there was no fraud and effectively therefore, there was no intention to evade tax. For ZIMRA to impose a penalty there must be an intention to evade tax. This is the jurisdictional fact required to trigger powers to impose a penalty. The necessary jurisdictional fact being absent, ZIMRA had no basis to impose additional tax. The penalty should therefore be set aside. Assuming that the facts necessary to enable ZIMRA to charge a penalty are present, which is denied, the penalty ought to have been remitted in full or at least reduced to a percentage below This is clearly justi?ed by the facts of this matter. In the case of P11 HH 213/17, the court con?rmed that a tax payer with a low moral blameworthiness should not be ?ned excessively. A penalty of less than 10% was found appropriate on the facts of that case. By comparison to the present case, a lesser penalty was appropriate. ABB Zim therefore prays for the full remission of the additional tax/penalty. WHEREFORE the Appellant prays that the appeal be allowed with costs and the decision of the Respondent in raising additional assessments for VAT is set aside as there is no VAT liability on the Appellant. Dated at HARARE on this 24th of May 2017. T0 And to - UTIZWA PARTNERS Appellants? Legal Practitioners 7 Lawson Avenue Milton Park HARARE nc) THE REGISTRAR Fiscal Appeals Court HARARE ZIMBABWE REVENUE AUTHORITY The Respondent 6th Floor, 28 Centre K. Nkrumah/ 1St Avenue HARARE (Mr Mujuru?Acting Commissioner General) IN THE SPECIAL COURT FOR INCOME TAX APPEALS CASE NO \7 HELD AT HARARE - In the matter between: - ABB (PRIVATE) Appellant And it, . ZIMBABWE REVENUE Respondent w? NOTICE OF APPEAL TAKE NOTICE THAT the Appellant hereby appeals to the Special Court of Income Tax Appeals against the decision of the Respondent for which notice Of the decision was given to the Appellant on the 27th of March 2017. FURTHER TAKE NOTICE THAT the Appellant hereby appeals against the whole of the decision of the Respondent Of the 27th of March 2017. AND FURTHER TAKE NOTICE THAT the Appellant's address is care Of its undersigned legal practitioners being Chihambakwe Mutizwa Partners, No. 7 Lawson Avenue, Milton Park, Harare. GROUNDS OF APPEAL The grounds of appeal are that the Respondent erred in not allowing the Appellant?s objection on the following matters, that: - 1) The amount for the goods imported by and ZPC was received by the Appellant and was therefore taxable in its hands when such amounts were received by a separate entity which is incorporated and resident in South Africa, that is ABB South Africa (Pty) Ltd. 2) It imposed a penalty Of 50% on the Appellant for the alleged default in disclosing the amount for the goods imported by and ZPC on its tax returns whereas a penalty if any was deserved, ought to have been remitted in full. 3) It raised estimated assessments for PAYE when this was not justi?ed in respect to periods for which returns and adequate supporting documents had been furnished to it by the Appellants. 7' . A 4'22 4) It failed to fully remit the penalty imposed upon the Appellant for the PAYE assessments when the circumstances of the case showed that the penalty, if any was deserved, ought to have been remitted in full. PRAYER WHEREFORE the Appellants pray that: a) the appeal be allowed with costs; and b) all the additional assessments raised against the Appellant are set aside. Dated at HARARE on this 19th of March 2017. Appellants' Legal Practitioners 7 Lawson Avenue Milton Park HARARE To THE REGISTRAR Special Court for Income Tax Appeals HARARE And to ZIMBABWE REVENUE AUTHORITY The Respondent 6th Floor, 28 Centre K. Nkrumah/l5t Avenue Mujuru-Acting Commissioner General) IN THE SPECIAL COURT FOR INCOME TAX APPEALS CASE NO ITC 09/17 HELD AT HARARE In the matter between: - ABB (PRIVATE) LIMITED Appellant And ZIMBABWE REVENUE AUTHORITY Respondent CASE . 1 13/ f, I 1? I INTRODUCTION 3-1111 .- 1.1 This appeal is brought in terms of 565 of the Income Tax A Chapter/2306) (hereinafter referred to as the 1.2 The Zimbabwe Revenue Authority, (hereinafter referred to as conducted an audit of the tax affairs of the ABB Zimbabwe (Private) Limi ed (hereinafter referred to as Zim"). ABB Zim is a registered operator/vendor in terms of the VAT Act. 1.3 Pursuant to that audit, ZIMRA raised additional assessments for income tax. The total income tax liability was 410 755.39. ZIMRA also raised assessments for additional tax of 50% on all of these assessments. 1.4 ABB Zim objected to these assessments. ZIMRA rejected the objection. 1.5 ABB Zim appeals against the unsuccessful portions of its objection. FACTUAL CONSPECTUS 2.1 In 2011, ABB Zim entered into contracts with the Zimbabwe Electricity Transmission and Distribution Company (Private) Limited and the Zimbabwe Power Company (Private) Limited (hereinafter referred to, together as for the procurement of various pieces of equipment required by ZESA. 2.2 At the time of the entering into the contracts, ABB Zim was of the view that it had capacity to deliver in terms of the contracts. However, after entering into the contracts, it discovered that it did not have the capacity to deliver in terms 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 of the contracts and it recommended to ZESA that ZESA procures the equipment directly from a company called ABB South Africa (Proprietary) Limited (hereinafter referred to as The contracts between ZESA and ABB Zim were subsequently abandoned and not proceeded with. ZESA procured the equipment directly from ABB SA in terms of new contracts with ABB SA. ABB Zim played a facilitation role in this transaction and it was paid facilitation fee for its role in this regard. The Value Added Tax on the import of the equipment was paid in a manner arranged by and between ABB SA and ZESA. ABB Zim was not involved in the payment of Value Added Tax on the transaction. Customs duty was waived on the transaction as it had national project status. The facilitation fee was declared in ABB Zim?s income tax and Value Added Tax returns. ZIMRA conducted a tax audit of ABB Zim. It made a determination that the equipment had been procured in terms of the contracts between ABB Zim and ZESA. It rejected the position that a new contract had been entered into between ABB SA and ZESA. ZIMRA treated the original contracts between ABB Zim and ZESA as the basis for a ?nding that the total sums for these contracts had been received by or accrued to ABB Zim. ZIMRA therefore included the total sums from these contracts in the gross income of ABB Zim. ZIMRA also accepted the calculation of income tax on the facilitation fees. It did not ?nd anything contradictory in treating the facilitation fees and the total sums in terms of the equipment contracts between ABB Zim and ZESA as both taxable in ABB Zim?s hands. ZIMRA raised additional assessments including penalties. ABB Zim objected to the additional assessments. The objection to the principal tax liability was rejected in its entirety. The present appeal is against the additional assessments on principal tax liability and the penalty. THE LAW Was any amount received by or accrued to ABB Zim 3.1 3.2 3.3 Income tax liability stems from the gross income of a taxpayer. The gross income of a tax payer is determined in terms of 58(1) of the ITA. The provisions of 58(1) of the ITA on gross income stipulate that: - ?gross income" means the total amount received by or accrued to or in favour of a person or deemed to have been received by or to have accrued to or in favour of a person in any year of assessment from a source within or deemed to be within Zimbabwe excluding any amount (not being an amount included in ?gross income" by virtue of any of the following paragraphs of this de?nition) so received or accrued which is proved by the taxpayer to be of a capital nature The interpretation of this de?nition has been the subject of innumerable case law. Of relevance to this matter, is the case of Commissioner of Taxes 1981 (4) SA 167 (ZA) at page 169 wherein it was held that: - The obvious starting point in the enquiry is the ordinary meaning of the words "to receive". The first and principal meaning given in the Shorter Oxford Dictionary is: "To take into one's hand, or into one's possession (something heid out or offered by another); to take delivery of (a thing) from another either for oneself or for a third party." Subject to a quali?cation in regard to taking delivery for a third party, I can see no justi?cation for giving the word any different meaning in 8. The Act is concerned as it says to provide for the taxation of incomes, and in the ordinary way that means what is earned or gained from another. The very context of 8 (1) itself indicates that it is concerned with what comes to the taxpayer from another. The particular cases dealt with in paras to are all of that nature. They cover among other things amounts received by way of annuity, for services rendered, on withdrawal from a pension fund, as alimony, and as premiums for the right to use property. They do not cover, with the possible special exception of unsold stock, anything which has not been provided by someone else. I can see no warrant on the face of the statute for construing the word "received" in 8 in any but its ordinary meaning An ordinary grammatical meaning of the words ?receive? and ?accrued to" means that there should be an actual receipt or an actual accrual. If the taxpayer sets upon a path to receive an amount and does not eventually receive the amount, there will be no receipt to speak of. 3.4 3.5 In the present matter, ABB Zim and ZESA abandoned the contracts that they had entered into. They agreed not to proceed with these contracts. As a result, an intention to eventually receive an amount was never realised. There was never an accrual to talk about. As there was no receipt or accrual, the amount in terms of the abandoned contracts should never have been included in the gross income of A88 Zim. All additional assessments based on these amounts should be set aside along with the penalties imposed. Additional tax or Penalty of 59% 4.1 4.2 If the court does not ?nd for ABB Zim on the basis of the above submissions, the court is urged to follow the submissions as presented below on the penalty. ZIMRA is permitted to impose a penalty in terms of 546 of the ITA. The relevant aspects of the section provide that: - 46 Additional tax in event of default or omission (1) A taxpayer shall be required to pay, in addition to the tax chargeable in respect of his taxable income if he makes default in rendering a return in respect of any year of assessment an amount of tax equal to the tax chargeable in respect of his taxable income for that year of assessment; or (ii) an amount equal to the maximum fine prescribed in subsection (1) of section eighty?one for the offence of failing to submit a return; whichever is the greater; [Paragraph amended by Act 29 of 1998] if he omits from his return any amount which ought to have been included therein, an amount of tax equal to the difference between the tax as calculated in respect of the taxable income returned by him and the tax properly chargeable in respect of his taxable income as finally determined after including the amount omitted; if he makes any incorrect statement in any return rendered by him which results or would, if accepted, result in the calculation of the tax at an amount which is less than the tax properly chargeable, an amount of tax equal to the difference between the tax as calculated in accordance with the return made by him and the tax properly chargeable if the incorrect statement had not been made; 4.3 4.4 4.5 (6) If the Commissioner considers that the default in rendering the return was not due to any intent either to defraud the revenue or to postpone the payment by the taxpayer of the tax as chargeable, or that any such omission, incorrect statement or failure to disclose facts was not due to any intent to evade tax on the part of the taxpayer, he may remit such part or all of the said additional amount for which provision is made under this section as he may think fit. In terms of the section ZIMRA is permitted to impose a penalty against a taxpayer merely for an incorrect return which results in inaccurate tax liability. Initially ZIMRA had imposed a penalty of 100%. However, the penalty was eventually reduced to 50%. ZIMRA has however not given suf?cient consideration to the provisions of 546(6) of the ITA. ZIMRA made a ?nding in the present matter that there was no intention to evade tax. This placed ABB Zim within the ambit of 546(6) of the ITA. In light of these facts, ZIMRA was entitled to remit the full penalty. This possibility was never fully considered by ZIMRA. ZIMRA was merely determined to have a penalty notwithstanding the absence of an intent to evade tax. ZIMRA did not properly exercise its discretion on the issue of a penalty. The Court becomes at large to reconsider the penalty. In the case of PL Mines (Pvt) HH 466/15 the Honourable Kudya held that: - While in South Africa the Commissioner or on appeal the Special Court is required to investigate the existence of extenuating circumstances, in Zimbabwe once the intention to evade tax is found, in the words of Squires in ITC 1334 above, there would be no remission. My reading of ITC 1725 is that I am in an appeal of this nature, which is a full and unrestricted rehearing, not bound by the ?ndings of the Commissioner. Rather, I am obliged to enquire and make a ?nding on whether the appellant intended to evade tax. An appeal to this Court is a full re-hearing in which this Court exercises the same wide discretion vested in the Commissioner. This court does not exercise a restricted interference only where there is a signi?cant discrepancy between its own decision and that of the Commissioner. See also ITC No. 11 038 para 45 where it was held that: ?it has long been accepted that, in an appeal against the additional charge imposed under 76 (1), the legislature intended that there should be a rehearing of the whole matter by the tax Court and that the tax Court can substitute its own decision for that that of the commissioner: i.e. the Tax Court on appeal to it is called upon to exercise its own original discretion? see Rand Ropes (Pty) CIR 1944A 142 at 150; CIR vDa Costa 1985 (3) SA 768 (A) at 774G-J, Meyerowftz on Income Tax 2002,2003 para 32.40." 4.6 4.7 The discretion is as wide ?as he may think fit" with the surrounding belt of restriction being precedent and particular facts of the matter. All relevant considerations include even those at the time of hearing the appeal. The Court is urged to abide by the common cause position of the parties that there was never an intention to evade tax. It also urged to note that an application of the triad of SV Zinn 1969 (2) SA 537 (A) will show that this is an appropriate case for a full remittal of the penalty. The taxpayer ?offender? is an exemplary taxpayer involved in moving national status projects such as those involving ZESA forward. The offense was not egregious and there was a difference of opinion between the taxpayer and the tax authority. The interests of society naturally require that the business of an honest payer such as the taxpayer should be allowed to survive and not be broken by tax penalties. A full remittal of the penalty would therefore be the most appropriate decision on the penalty. WHEREFORE the Appellants pray that the appeal be allowed with costs and all the additional assessments raised against the Appellant are set aside. Dated at HARARE on this 26th of May 2017. To And to CHIHAMBAKW UTIZWA PARTNERS Appellants? Legal Practitioners 7 Lawson Avenue Milton Park HARARE THE REGISTRAR Special Court for Income Tax Appeals HARARE ZIMBABWE REVENUE AUTHORITY The Respondent 6th Floor, 28 Centre K. Nkrumah/lSt Avenue HARARE Mujuru-Acting Commissioner General)