- Chibuku Products Ltd to pay K60 million
The Malawi Revenue Authority (MRA) has won a case against Chibuku Products Limited (CPL) after the latter failed to deduct non-resident tax on management fees paid to its United Kingdom based parent company, SABMiller Plc, dating back to 2005.
The details of the case indicate that in a letter dated September 30 2009, MRA wrote CPL that following an audit MRA carried out at company on September 7 2009, it was discovered that for the tax period between April 2005 and August 2009, CPL had not deducted and remitted non-resident tax on management fees amounting to K351 million paid to SABMiller Plc contrary to Section 76A of the Malawi Taxation Act as read together with the Double Taxation Agreement between Malawi and the United Kingdom. The management fees were paid to SABMiller Plc purportedly for the benefit of SABMiller Management BV of the Netherlands, another subsidiary of SABMiller Plc. At the material time, there was also a Double Taxation Agreement between Malawi and the Netherlands which was terminated on January 1 2014.
According to the judgement CPL appealed against the assessment on the grounds that MRA erred in finding that the recipient of the management fees paid by the taxpayer was a UK holding company, MRA’s decision that the applicable instrument to be used was the Malawi and UK Double Taxation Agreement was arbitrary and contrary to law, MRA misapplied the residence requirements of the Malawi/Netherlands Double Taxation Agreement, MRA erred by deliberately opting to apply the Malawi/UK Double Taxation Agreement in order to circumvent the definition of “industrial or commercial profits” contained in the Malawi/Netherlands Double Taxation Agreement, which according to them, was the proper instrument to apply in the transaction between Chibuku Products Ltd and SABMiller Management BV as well as in imposing a penalty of 42 percent.
Sitting in Blantyre on February 3 2015, special arbitrator in the case, chief resident magistrate Thomson Ligowe, in his judgement cited Section 76A of the Malawi Taxation Act and concluded that the management fees CPL paid to SABMiller Management BV through SABMiller Plc were subject to non-resident tax at 15 percent either on the basis of the Malawi/UK treaty or the Malawi/Netherlands treaty since management fees were not exempted from tax in both instruments.
In addition to a penalty of K30 000, Chibuku Products Limited had to pay about K60 million in actual tax and interest for the whole period the tax remained unpaid. n