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.