$5.7-b tax claim made on Cigarette Company
THE tax authorities have made a claim for $5.7 billion on the Cigarette Company of Jamaica, arguing that monies the firm advanced to its parent — Carreras Group — between 1997 and 2002 should have been treated as dividend, not loans, thus making it subject to taxation.
But the Cigarette Company, of which Carreras owns over 90 per cent, has filed an objection to the tax assessment, saying there is no “proper basis in law or fact” for treating the loans as taxable deductions.
It is by far the biggest tax claim that the Commissioner, Taxpayer Audit & Assessment Department has ever made on any company in Jamaica.
Under the tax laws, companies that are not listed on the Jamaica Stock Exchange are required to pay 33 per cent tax on dividend distributed to shareholders. Listed companies have, since the past few years, been exempt from this tax.
Though Carreras the parent company is listed, the Cigarette Company of Jamaica, its subsidiary, is not, and so its distributions would be subject to tax.
But the cigarette manufacturer argues that under Jamaica’s Income Tax Act, loans from a subsidiary to a parent “do not come within the definition of distributions”.
The principal amount that the tax department is claiming that it is owed is $2.17 billion, with penalty of $3.54 billion, taking the total to $5.71 billion.
The Cigarette Company said in a late evening press statement that its loans to its parent were a norm within conglomerates in corporate Jamaica. The move, therefore, by the tax authorities represents a major departure from standard practice.
“These assessments for the first time seek to treat loans from the Cigarette Company of Jamaica Limited… as being distributions to its parent company,” said the firm. “The making of loans from subsidiary to parent company is not unusual either in the UK or internationally without giving rise to adverse tax consequences. Therefore, the company does not understand why these assessments have been raised.”
The company stressed that it was its corporate culture to accurately disclose and publish all loans, and that the directors of all the group companies “have acknowledged the existence and validity of these loans”.
They said they would make no provisions — in the financial statements — against revenue for the claim, though acknowledging that the outcome of litigation — which they would pursue — was not predictable.
With stockholders equity of nearly $14 billion, and nine-month profit of $1.7 billion to December 2002, Carreras is one of the most profitable companies in Jamaica.
The directors pointed out however, that the Cigarette Company of Jamaica paid combined taxes of some $2.5 billion last year.