Methanex Trinidad (Titan) Unlimited v The Board of Inland Revenue (Trinidad and Tobago)

For a statutory power to disregard an artificial or fictitious transaction, the transaction must be assessed in its legal and commercial context. A dividend paid by a subsidiary to its immediate holding company is not fictitious merely because the ultimate parent requested it and was intended to receive the proceeds through further lawful dividends. It is not artificial where the corporate chain supplies the only lawful route and the arrangements are commercial commonplaces, even if payments are rapid, exact and centrally managed.

Under article 4(1) of a double-taxation treaty, a company is liable to tax by reason of residence where domestic law exposes it to tax on worldwide income. A preferential rate does not defeat residence. Article 11 does not require complete dominion and control over dividends paid to a resident.

Methanex Trinidad was assessed to withholding tax on four dividends paid in 2007 to its immediate Barbados holding company. The dividends were rapidly passed through the corporate chain to a Cayman Islands company and ultimately to the Canadian parent. The Tax Appeal Board dismissed the appeal, and the Court of Appeal affirmed that decision.

The Privy Council considered whether the dividends were artificial or fictitious under section 67 of the Income Tax Act, whether that provision could override the CARICOM double-taxation treaty, and whether the Barbados company was a treaty resident liable to tax in Barbados. The Board also considered whether dividends had to be received with complete dominion and control to qualify for treaty relief.

Appeal allowed on the section 67 issue. The Board did not decide whether section 67 was inconsistent with article 11 of the Treaty. It upheld the Court of Appeal’s conclusion on the Treaty residence issue.

1. Fictitious transactions. The conclusions that the dividends were fictitious or artificial were evaluative judgments which could be corrected as errors of law where the primary findings did not support them. The description of a sham in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802 was relevant. A payment by A to B is not fictitious merely because B is expected to pay it to C. Companies must ordinarily declare and pay dividends to their immediate holding companies, even where the ultimate parent is intended to receive the benefit through further dividends.
2. Artificial transactions. Applying the guidance in Seramco Ltd Superannuation Fund Trustees v Income Tax Commissioners [1977] AC 287 and Commissioner of Taxpayer Audit and Assessment v Cigarette Company of Jamaica Ltd [2012] UKPC 9, the question was whether the arrangements had abnormal features, compared with normal transactions of the same type, which appeared to form part of a plan. The corporate structure, the ultimate parent’s request, the exact amounts, rapid transfers and central treasury control did not satisfy that test. Dividends up a corporate chain were commercial commonplaces and the only lawful means of transferring distributable profits.
3. Bank-account control. Control of the subsidiary accounts by employees of the Canadian parent did not establish that the parent beneficially owned the funds. In the absence of contrary evidence, those employees were acting as agents for the subsidiaries. The evidence that subsidiary funds were used to meet subsidiary liabilities and make investments supported that conclusion.
4. Treaty residence. The Treaty was interpreted under articles 31 and 32 of the Vienna Convention on the Law of Treaties, by reference to ordinary meaning, context, object and purpose. Methanex Barbados was incorporated and carried on business in Barbados, and the licensing regime required it to be resident there. Its liability under the International Business Companies Act extended to all profits and gains, including worldwide income. A reduced rate did not mean that it lacked full tax liability. Crown Forest Industries Ltd v Canada [1995] 2 SCR 802 and Canada v Alta Energy Luxembourg SARL 2021 SCC 49 supported that conclusion.
5. Dividends paid to a resident. The reasoning in Aiken Industries Inc v Commissioner of Internal Revenues (1971) 56 TC 925 could not be transposed to this case. Article 11 used different wording, the facts were materially different, and the United States tax-law analysis in Aiken Industries did not apply. The dividends were paid to and received by Methanex Barbados, which made a profit essential to the legality of its onward dividends.

The Board therefore allowed the appeal overall.

• Tax Appeal Board dismissed Methanex Trinidad’s appeal against the withholding-tax assessment on 21 January 2019.
• Court of Appeal of the Republic of Trinidad and Tobago affirmed the Tax Appeal Board by order dated 16 November 2021.
• Privy Council [2025] UKPC 20 allowed the appeal on the section 67 issue, upheld the decision below on treaty residence, and declined to consider the treaty-incompatibility issue.