Appeal Court orders BIR to refund US$481,724 in overpaid taxes
The Court of Appeal has ordered the Board of Inland Revenue (BIR) to refund US$481,724.21 in overpaid taxes to two foreign companies after ruling that the tax authority was unjustly enriched.
In a written judgment delivered by Justice of Appeal Ricky Rahim, the court overturned a 2023 decision by Justice Lambert-Peterson, who had previously refused to grant an order of mandamus to compel the refund.
The appellants, HMV Ingenieros LTDA and HMV Engineering Corporation, argued successfully that the BIR unlawfully retained funds that were not subject to tax under the Income Tax Act.
The dispute arose from a contract between the companies and the Trinidad and Tobago Electricity Commission (T&TEC). Between 2013 and 2016, T&TEC deducted and remitted withholding tax to the BIR on payments made to the companies.
However, the appellants maintained that US$348,373.84 of the payments were for the supply of goods, while the remaining amount related to services performed entirely outside of Trinidad and Tobago.
Under Section 50 of the Income Tax Act, such payments do not attract withholding tax. Although the BIR acknowledged receiving the funds and admitted that payments for goods were not taxable, it refused to issue a refund.
The BIR argued that the companies had failed to provide sufficient evidence proving that the services were performed offshore.
At the High Court level, Justice Lambert-Peterson found that the BIR had failed to make a determination on the refund request within a reasonable time. However, she declined to order the refund or declare unjust enrichment, stating that the appellants had not properly pleaded the legal basis for such a claim.
The Court of Appeal disagreed, describing the trial judge’s decision as “plainly wrong.”
Justice Rahim stated that the appellants had clearly argued that the payments were made under a mistake of law or fact.
“The judge’s finding that the appellants’ case was not properly pleaded or that they had not established the basis for the claim in unjust enrichment was an error,” Rahim said.
The court ruled that once the BIR admitted it held funds it had no legal authority to collect, the principle of unjust enrichment applied.
The judgment also clarified that the BIR cannot retain money simply because a taxpayer failed to meet additional procedural requirements, especially when the facts show the tax was never due.
The Court of Appeal granted a declaration that the BIR was unjustly enriched and issued an order of mandamus compelling the refund of the full US$481,724.21.
However, the court dismissed a separate claim by the appellants alleging the “expropriation” of their property.
The panel, which included Justices of Appeal Nolan Bereaux and James Aboud, concluded that there was sufficient evidence before the lower court to determine the amount to be refunded.
Justice Rahim stated that the High Court had enough evidence to make that determination and that the failure to issue the writ of mandamus was an error.
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