By Andrew Green, Staff reporter
CARRERAS SUBSIDIARY, Cigarette Company of Jamaica, is making no provision for a $5.7 billion tax assessment.
The Taxpayer Audit & Assessment Department (TAAD) recently assessed the Cigarette Company for $2.2 billion in income taxes and $3.5 billion in penalties. Carreras states that the Cigarette Company made loans to it between 1997 and 2002, which the TAAD is claiming to be distributions.
A distribution is the payment of a dividend or a capital gain.
"Loans from a subsidiary to a Jamaican resident parent do not come within the definition of distributions given in the Jamaican Income Tax Act," The Carreras Group stated in a release issued last Sunday. "The making of loans is a regular practice in groups of companies (listed and unlisted) resident in Jamaica."
Carreras said loans from a subsidiary to a parent company is not unusual either in the United Kingdom or internationally without giving rise to adverse tax consequences.
"If you don't believe there is a liability, then why make a provision," said chartered accountant John Jackson. He said, "I don't believe there is any liability."
The terms of a distribution are very clear and would only apply to individuals. He said it excludes corporations unless the corporation is situated outside of Jamaica.
OBJECTION
"An objection to the assessments has been filed," Carreras chief executive officer William Telling and group finance director Marlene Sutherland said in a statement accompanying the Carreras audited results for the year ended March 31, 2003.
"Counsel for the company has devised that although the results of litigation are not predictable," the statement said, "it is his opinion that there is no proper basis in law or fact for the assessments, which should therefore be discharged."
The joint statement said, "the directors are unanimously of the same view. No provision for this amount has been made in the financial statements."
Mr. Jackson said he was advised that discussions have been going on between the Minister of Finance and Planning and Carreras. He said, "I am not sure the matter is going to go to court."
If it goes to the courts and Carreras initially loses, it is likely to be taken ultimately to the Privy Council, the analyst said. At some point during this lengthy process, Carreras would probably make a provision for the payment of the tax.
The issue is of concern to the entire business community because, "it doesn't only apply to Carreras," he said, "it also applies to a number of other entities in the country."
