By Dennise Williams, Staff ReporterWITH the introduction of the General Consumption Tax (GCT) in 1991, many companies in Jamaica scrambled to adjust to the new tax regime.
Some were successful and some were not. Two firms that found themselves sinking in the quicksand of penalties and fees were Premium Investments Limited (Premium) and Town and Country Resorts Limited (Town and Country). Now, companies running into problems with the taxman are an everyday occurrence; it just so happens that the Opposition Leader of the Jamaica Labour Party (JLP), the Honourable Edward Seaga, controls these firms.
Thirteen years later, a J$12.3 million tax liability claim originally lodged by the tax authorities has ballooned to a staggering $155.23 million bill. And if that was not enough, Town and Country owes, including the $155.23 million tax bill, $443.43 million in debt to a variety of individuals as outlined in a statement of affairs filed by his lawyers. These debts grabbed headlines and placed Mr. Seaga's ability to continue as leader of the JLP into question. He successfully remained in power with a vote of confidence by his party.
However, the question remains as to what created this financial nightmare that has haunted Mr. Seaga for 13 years. For answers, one has to look to the Judgment of the Lords of the Judicial Committee of Privy Council delivered on July 30, 2003.
PRIVY COUNCIL'S RULING
"Premium was the registered proprietor of a leasehold interest in a tourist complex known as the Enchanted Garden at Carinosa Gardens, Ocho Rios, St. Ann. The complex included numerous units of accommodation, hotel and restaurant facilities and gardens. Premium was the head lessee of most of this property and Town and Country was sub lessee. Both companies were registered taxpayers for GCT purposes but in practice Town and Country was treated as running the tourist business. Between 1991 and 1993 it was Town and Country which made GCT returns and paid the tax."
The Privy Council continues, "In 1993 Premium entered into a written management agreement with a Delaware company called DHC Ocho Rios Hospitality Corporation (DHC). Town and Country was not a formal party to the management agreement but it was stated to have consented to it. Mr. Seaga deposed that in December 1993, DHC began running the resort in accordance with the management agreement and used an account at the Bank of Nova Scotia, New York for the purposes of business. DHC made monthly returns of GCT in the name of Town and Country."
Four years later, things began to fall apart. As explained by the Privy Council, "In 1997, the payment of GCT in respect of the resort was falling into arrears. There were discussions between officers of the GCT department and representatives and advisers of Town and Country. For about two years, these discussions proceeded and Town and Country made some payments of GCT, on the basis that it acknowledged its obligations and was trying to solve its cash-flow problems. There was no suggestion that Town and Country was not liable for the tax."
Within two years time, things became even more contentious.
March 18, 1999
Frederick March, an employee of DHC, was appointed as responsible officer in respect of Town and Country for the purposed of section 52 of the Tax Collection Act.
April 16, 1999
The Collector f Taxes laid information against Town and Country in the Resident Magistrate's Court in St. Ann for the amount of J$12.3 million.
On or about August 3, 1999
Town and Country's advisers raised the suggestion that the company was not liable for GCT at all.
September 27, 1999
Premium and Town and Country issued an originating summons, which eventually led to the Privy Council appeal.
Again, another two years passed where interest, fines and penalties were continuously assessed. By 2001, not only had the Court of Appeal in Jamaica unanimously dismissed the appeal of Premium and Town and Country, but also the GCT liability had skyrocketed to about $59.6 million consisting of penalties of approximately $27.3 million added in 1999 and an additional $20 million added in 2001. By 2003 when the case was placed in front of the United Kingdom-based Privy Council, the GCT liability soared to $120 million.
What the Privy Council found in 2003 was essentially this.
"In the present case, the manager was, paradoxically, a Delaware company with an address in New York, whereas the owner and its subsidiary were Jamaican companies whose chairman is a well known public figure in Jamaica. From the documents before the Board it appears that DHC presented a very low profile. Town and Country was the registered taxpayer for the whole of the relevant period (December 1993 until August 1998) in respect of the taxable activity and it (or its holding company) is or was the owner of the resorts business and its assets. DHC was the owner of the separate business of running the resorts as an agent, remunerated partly by a fixed fee and partly by reference to profits. But assuming that DHC was the operator, their Lordships are of the clear opinion that that does not exclude the liability of Town and Country as registered taxpayer in respect of the taxable activity carried on at The Enchanted Garden."
In response to these financial and legal woes, on August 12, 2003, Mr. Seaga announced that he would put Premium into voluntary liquidation in order to clear the outstanding debts. A valuation done six years ago revealed that Enchanted Gardens was worth about J$944 million. In a release dated August 12, 2003, Mr. Seaga stated, "I took this unusual decision of placing Premium Investments, a financially solvent company, into liquidation because it is the surest way to protect the interests of the creditors and allow for the future development of the Enchanted Garden as a prime resort." By the first month of 2004, it was revealed that the GCT bill stood at $155.23 million.
