As a member of a Cabinet from 1997-2006 and 2011-2016 to the best of my recollection the facts on the Sandals Withholding Tax issues are as follows. It must be noted that tax disputes are usually handled initially by the Inland Revenue Department.
- I want to make it clear that there is a difference between corporation tax and withholding tax and Sandals like most other hotels are receiving incentives and do not pay any corporation or income tax. Withholding tax is a tax charged on payments made to non-residents and is paid by the non-resident as compared to corporation income tax that is paid on profits by the local company. This was not a tax on Sandals but on the non-resident insurance company to which the payment or allocation was made.
- The issue of the Withholding tax is based on assessments raised by the Inland Revenue Department based on Section 76 and Schedule 3 of the Income Tax Act. The period in question are the years 2001-2009.
- Withholding Tax is deducted from payments made to non-residents and companies at the rate of 25% and 15% to CARICOM residents.
- In 2013 Sandals received concessions and for 15 years but not for the withholding taxes for the period 2001-2009.
- In 2014 Mr. Richard Peterkin acting on behalf of Sandals objected to the withholding taxes raised by the Inland Revenue for the years 2001-2009 and asked Cabinet to approve the waiver of withholding taxes but the Cabinet did not consider the request. Further concessions were given to Sandals in November 2015 but not for the withholding taxes for 2001-2009. It must be noted that this dispute was a factor in the years 2006-2011 when the UWP were in government. The Last UWP government under Stephenson King could have considered the matter.
- Sandals did not agree to pay the withholding tax on insurance payments since they argued that the insurance cost relates to its global policy for all its three hotels in Saint Lucia. Sandals says that its objection is based on “professional advice” and the “OECS Supreme Court ruling”.
- The Inland Revenue Department does not agree with the interpretation of Sandals and insists that the withholding tax is due and should be paid. Since premiums due to non-resident companies is subject to withholding tax as per Section 76 Schedule 3 and such tax must be held for the Government of Saint Lucia.
- The Inland Revenue Department argues that the insurance costs are allocated between the companies and are reimbursable expenses.
- The Inland Revenue Department maintains that based on the Income Tax Act when an expense is charged even if there is no actual payment withholding tax must be deducted as per Section 76 Schedule 3 Section 1 (3).
- Relating to the OECS Supreme Court judgement the case referred to is “Bank of Nova Scotia V the Appeal Commissioners.” The Inland Revenue argues that the case is based on allocation between a head office and a branch. In the case of Sandals the hotels are separate companies and the Inland Revenue says that this case does not apply in the Sandals issue.
- Sandals contends that due to the high value of their hotels they have to “self-insure”. However, the Income Tax Act speaks to re-insurance only for insurance companies and not other businesses.
- It must be remembered that for the period 2001-2009 Sandals continued to enjoy income tax benefits and other incentives.
It is clear that there is a dispute between the Sandals Group of Companies and the Inland Revenue Department as to whether Sandals is liable to the government of Saint Lucia for $24 Million dollars.
The Cabinet of Ministers by Cabinet Conclusion 642 of 2017 agreed with the Sandals interpretation and not their agents the Inland Revenue Department.
The Cabinet of the Saint Lucia Labour Party of which I was a member chose not to take the action of waiving the taxes claimed but instead chose to allow Sandals to handle the matter with the Inland Revenue Department.
The law provides for a way forward in such disputes.
Sandals could appeal to the Tax Commissioners as permitted by law or Sandals could bring the matter to the High Court the Court of Appeal or even the Privy Council.
The Saint Lucia Labour Party chose not to intervene so as to allow for fairness on both sides.
The UWP should have followed the previous government and not intervene in such matters that relate directly to the Inland Revenue especially when the assessment has been raised and tax charged by the Inland Revenue Department. If that procedure had been followed the matter would not have become a political issue and the suspicion and negative publicity would not have been generated for Sandals.