The Appeal Commissioners v The Bank of Nova Scotia (Grenada)

Withholding tax under section 50(1) requires a payment by one person to another. A transfer of funds within a single organisation, from a branch to its head office, is not naturally a payment between separate persons. The statutory definition of “person” does not treat a mere part of a company as a separate person without express words. The Board left open whether reimbursement of expenses falls within “fees”, “management charge” or “other payment”, and whether withholding tax is confined to income-related payments. Those issues were unnecessary to decide and had not been fully explored. Specific legislation is preferable if such internal expense allocations are to be brought within withholding tax.

The Grenadian branch of the respondent Canadian bank made payments to its head office in Canada as reimbursement of allocated expenses. The Comptroller assessed withholding tax under section 50(1) of the Income Tax Act (No. 36 of 1994). The Appeal Commissioners and the Chief Justice upheld the assessment. The Court of Appeal of the Eastern Caribbean Supreme Court allowed the Bank’s appeal. The Privy Council considered whether the branch and head office were separate “persons”, and whether the reimbursements fell within “fees”, “management charge” or “other payment” under section 50(1).

Lord Carnwath delivered the judgment of the Board.

1. Person-to-person requirement. The natural meaning of section 50(1) of the Income Tax Act (No. 36 of 1994) requires a payment by one person to another. A transfer of funds between accounts or parts of a single organisation is not naturally a payment by one person to another. The agreed description of the transfers as “payments” did not alter that conclusion.
2. Branch and head office. The branch and head office were parts of the same legal entity. The statutory definition of “person”, including a company and every other juridical person, did not support treating a mere part of a company as a separate person without express words. The Board considered the sense of the Antigua decision in British American Insurance Co Ltd v Commissioner of Inland Revenue (8 July 2002) to be the same despite differences in statutory wording. The first issue therefore failed.
3. Second issue left open. The Board regarded the scope and nature of withholding tax, and the application of section 50(1) to expense reimbursements, as more difficult questions. It noted that section 1 distinguished assessment of income from deduction of withholding tax from payments, that section 50 contained no reference to section 29, and that section 29(2) excluded amounts subject to withholding tax from assessable income. By analogy, Pook v Owen [1970] AC 244 provided some persuasive support for treating reimbursement of expenses as outside an income-based charge. The Board declined to decide the issue because it was unnecessary and had not been fully explored below.
4. Disposition. The Board advised Her Majesty that the appeal should be dismissed. The appellant was ordered to pay the costs of the appeal, subject to written representations within 28 days.

1. Privy Council: On 9 July 2013, dismissed the Commissioners’ appeal from the Court of Appeal of Grenada: [2013] UKPC 19.
2. Court of Appeal of the Eastern Caribbean Supreme Court: On 19 September 2011, allowed the Bank’s appeal against the assessment. Final leave to appeal to the Privy Council was granted on 13 June 2012.
3. Chief Justice: On 30 March 2011, upheld the assessment.
4. Appeal Commissioners: On 24 November 2009, upheld the assessment.