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Malawi tax collector loses TP case against Eastern Produce

Malawi tax collector loses case against Eastern Produce

For a copy of the judgment:

The High Court in Blantyre has ruled in favour of the multi-national Eastern Produce Limited in a K1.6 billion transfer pricing case with Malawi Revenue Authority (MRA). Eastern Produce has agricultural and horticultural operations in Kenya, Malawi and South Africa and is part of Camellia Plc Group Company.
The tax collector conducted a tax audit on the multi national company from October 13 to 31, 2014 and among others assessed that in 2009 the company had tax arrears of K97, 394, 224.

“Following the audit, the respondent, issued notices of amended assessments for income tax dated 3 November 2015, as follows; for year of assessment ended June 2010, an additional tax charge of K109, 388,463. For year of assessment ended June 2011, an additional tax charge of K120, 801, 195. For year of assessment ended June 2012, an additional tax charge of K163, 385, 788,” reads part of the judgement pronounced in court on July 27, 2018 at the principal registry, revenue division of the High Court.

The audit also found out that there was an additional tax charge of K286, 639, 738 for the year of assessment ending June 2013. It is said that the results of the audit were communicated to the applicant through letters; the first letter dated December 10, 2014 and the last letter dated April 21, 2016 Eastern Produce Limited and MRA had also been meeting of which the last meeting took place in November 2015.

However, Eastern Produce Limited complained to the High Court and applied for judicial review in 2016 of the decision by MRA in respect of the transfer pricing case where MRA made adjustments. Transfer prices are used when individual entities of a larger multi-entity firm are treated and measured as separately run entities. It is also stated by the applicant that the responded also demanded payment of Non Resident Tax in respect of dividends paid by the applicant to its UK based shareholder, John Ingham and Sons Limited.
“It is said that the applicant has made payments in relation to corporate taxes not in dispute of K697, 000, 000. The total additional corporate tax on demand is K777, 609, 408 which is being disputed and the Non Resident Tax on demand is estimated to be K300, 000, 000,” reads the judgement in part.

Eastern Produce Limited through its lawyers, Maziko Sauti-Phiri of Anchor Mooring Partners Legal Consultants and Attorneys and Henry Ngutwa of Odeide Tax Lawyers challenged MRA’s illegality and irrationality whilst it performed a public function.

“The decision and proceeding by MRA to use OECD (Organisation for Economic Cooperation and Development) guidelines whilst performing transfer pricing analysis and as a basis for effecting amendments to tax assessments was illegal. An order similar to an interim injunction
staying the implementation or assessment pending the determination of the substantive judicial review,” read some of the reliefs Eastern Produce Limited sought from the court.

However, Judge Joseph Chigona agreed with the applicants by declaring that OECD guidelines are not law in Malawi and that section 127a and taxation (Transfer Pricing) regulations, were the applicable law. “That the application of OECD guidelines at the expense of the Taxation (Transfer Pricing) regulations is illegal and Ultravires the respondent’s powers under the Taxation Act,

“I order therefore the applicant within the next 14 days, to submit to the respondent all the necessary documentation pursuant to section 7 of the regulations, 2009 for the respondent to under a comprehensive analysis of the transfer pricing issues and arrive at an appropriate transfer price method. The respondent to communicate its decision after 21 days of its receipt of such documentation. Thereafter, the respondent to communicate the correct tax payable by the applicant,” reads the judgment in part.

In reaction to the judgement one of the lawyers representing Eastern Produce Limited Sauti-Phiri simply said ‘the High Court has delivered a landmark decision on transfer pricing’.

MRA was being represented by Chris Likomwa who could not comment on the matter.

MRA Head of Corporate Affairs Stevie Kapoloma, Steve Kapoloma, said the authority will soon make a decision.

“We will make an informed decision after we sit down with our legal director,” he said.