Legal Digest – April 2016

Tax Court rules against Mining Giant

The Tax Revenue Appeals Tribunal dismissed an appeal by a mining company that had registered in Tanzania under certificate of compliance, which registration had been done to meet the requirements of the Capital and Securities Markets Authority to cross list in Tanzania.

The mining company was appealing a decision of the Tax Revenue Appeals Board where the company was challenging Tanzania Revenue Authority’s position that the mining company was a resident person for tax purposes and hence liable to pay withholding tax on dividends. The company was also challenging the issuance of a tax identification number and vat registration number claiming that these tax ids should not have been issued to it since it was not resident in Tanzania and hence did not come into the Tanzanian tax bracket.

In a judgment pronounced by Fauz, J, the Tribunal which also comprised of Mr Kalolo Bundala and Mr D. Mwaibula as members, was critical of the fact that the mining company, which was incorporated in the United Kingdom, had three loss making subsidiariesin Tanzania, yet the mining company was declaring dividends to its listed shareholders overseas.

The judgment reads “Hence, whilst all its subsidiaries which constitute its only income generating activities, are making losses and thus no dividends are paid to its shareholders, and have paid no corporate tax throughout the years of their existence, the appellant declared dividends in the UK on the income coming from its business in Tanzania amounting to USD 818,431,285. This money was paid to the appellant’s overseas shareholders as dividends.” “Indeed we share the Board’s surprise as to how could this be possible. It is inconceivable that the appellant could pay so much in dividends for four consecutive years, whilst its only assets are the three loss making entities incorporated in Tanzania that do not make any profit at all, and do not pay any dividends.” The Tribunal went on to state that proof on where these dividends came from was not forthcoming from the Appellant and therefore fell short of an adequate discharge of the relevant burden.

The mining company had defended its position in that the dividends were declared by it as a result of capital reduction and IPO proceeds. The Tribunal in rejecting this stated that “the conclusion that can be drawn from the above definitions is that the explanation offered as source of dividends ie distributable reserves and IPO proceeds is far from being plausible. In the circumstances, it is fair to conclude that the respondent’s argument that the transactions were simply a design created by the appellant aimed at tax evasion was justified. One also wonders as to how could part of IPO proceeds, a one off event, even if those proceeds were distributable as dividends (which in law they are not), could explain the payment of four years, back to back dividends to the appellant’s shareholders.”

Whilst the decision is welcome for TRA, the mining company issued a press statement that it would appeal and that it was not in any breach of tax laws in Tanzania.

Tanzania: State Officials to State Gifts They Get, in Compliance With the Law

The minister of State in the President’s Office (Public Service Management and Good Governance), Ms Angella Kairuki, has directed all ministries and government agencies to open registers which public officials will use to declare all gifts they receive as required by the law.

Opening a one day ethics seminar attended by Permanent Secretaries (PSs) and their deputies at State House last month, Ms Kairuki tasked the officials with establishing the registers and making follow-ups on the declarations.
According to section 12 (2) of the Public Leadership Code of Ethics Act, a public leader shall, where he receives a gift of the value exceeding Sh50,000 declare it and its value and submit the declaration of the gift to the accounting officer of the office concerned, who shall in writing direct as to the use or disposal of the gift.

The commissioner of Ethics Secretariat who organized the seminar Judge (rt) Salome Kaganda, told Ms Kairuki that, although the law was specific on the matter, her office had not come across any gift declaration made by any public leader associated with the Executive, Legislature or Judiciary.

She said the law was a preventive mechanism to bar public leaders from being involved in corruption or conflict of interest. “The law is clear, and the gifts of nominal value, including of customary hospitality and traditional or token gifts are excluded.

It is said that there are leaders who receive very expensive gifts such as sculptures clotted in gold, and they don’t make a declaration.

Ms Kairuki said the best way of dealing with the matter was through opening the registers. “I worked in the private sector as an ethics officer before joining politics, and we used to have gifts registers. It was an effective way of addressing corruption. From now onwards, every ministry and government agency must use the system.” The minister also used the occasion to congratulate the PSs and their deputies for declaring their assets and liabilities in time as the law requires.

“I don’t have to remind you of the pace of the Fifth Phase Government in ensuring that public service delivery is diligent. If you are found on the wrong side of the law, you won’t be spared,” she said.

New MoU to address black market deals

TANZANIA has signed a Memorandum of Understanding (MoU) with the United Nations (UN) for establishment of a framework of cooperation and collaboration on Container Control Programmes (CCP) in the fight against trafficking in illicit drugs, transnational organised crimes and other forms of black market activities.

The move comes just a few months after Prime Minister Kassim Majaliwa discovered more than 2,000 fraudulently cleared shipping containers at the Dar es Salaam Port without undergoing proper procedures.

The country has witnessed a significant increase of illicit drug trafficking, transnational organised crime and other forms of black market activities. It is said that financial constraints, bureaucracy and the legal process are among the challenges that hinders tracking of containers, because the process consumes a lot of time for authorisation to take place.

EALA set to pass Omnibus law on integration

The East African Legislative Assembly has proposed enactment of an omnibus law to harmonize national laws appertaining to the Community and to institute an administration law for the Common Market Protocol.

The Assembly is of the view such a move shall cure, existing challenges of harmonisation of Partner State laws appertaining to the Community. At the same time, the Assembly wants the Council of Ministers to direct the Sectoral Council on Legal and Judicial Affairs to hold regular meetings and to prioritize harmonization of laws for EAC in order facilitate integration within the set time frames.

In order to meaningfully facilitate co-operation in legal and judicial affairs as provided for under Article 126 of the Treaty, EALA has urged EAC Council of Ministers to expedite implementation of the entire Article which obliges Partner States to harmonize legal training and certification; encourage standardization of judgments of courts within the Community as well as in establishing common syllabus for the training of lawyers.

Recently EALA approved the Report of the Committee on Legal Rules and Privileges on the oversight activity on the harmonisation of national laws in the EAC context. The Report presented to the House by Hon Dora Byamukama on behalf of the Chair of the Committee, Hon Peter Mathuki, follows an oversight activity carried out by the Committee in February 22- 26, 2016.

Chapter 24 of the Treaty provides for co-operation in Legal and Judicial Affairs. Specifically, Article 126 (2) (b) of the Treaty provides that “Partner States shall through their appropriate national institutions take all necessary steps to harmonize all their national laws appertaining to the Community”. Hon Martin Ngoga stated.

DPP wins appeal against high court bail granting decision

The Director of Public Prosecutions (DPP) has won his appeal against the decision of the High Court, granting bail to a Chineseon charges of leading organized crimes and unlawful dealing in trophies valued at over TZS 267m.

Justices Salum Massati, Augustine Mwarija and Stella Mugasha ruled, “We quash and set aside the decision of the High Court and order that the respondent be remanded in custody.”

They allowed two grounds of appeal lodged by the DPP against the decision of the High Court dated 9 November, 2015.

In the grounds of appeal, the DPP had stated that the High Court judge erred in law that the certificate of the DPP filed to oppose bail to the accused persons was presented prematurely.

The DPP had argued that the High Court judge erred in law in holding that section 36(2) of the Economic and Organized Crime Control Act allows the Court to exercise discretion whether or not to grant bail and then thereby proceeding to grant bail to the accused despite the DPP’s certificate.

The justices noted that it is the position of the law that in an economic crime case, matters of bail are governed by section 29 and 236 of the Act. While section 29 empowers the Courts to entertain bail application, section 36 provides for the manner in which such power should be exercised.

Section 36(2) reads, “Notwithstanding anything in this section contained no person shall be admitted to bail pending trial if the Director of Public Prosecutions certifies that it is likely that the safety or interest of the Republic would thereby be prejudiced.”

The justices also referred to sub-section 7 of section 36 of the Act, which states that for the purpose of this section, the word Court includes every Court which has jurisdiction to hear a petition for and grant bail to a person under charges triable or being tried under this Act.

By operation of the said sub-section, the conditions under section 36 (2) of the Act applies to every court which has jurisdiction to entertain and grant bail in an economic crime case.

“This means that the DPP is empowered to file a certificate in any court which has jurisdiction to hear and determine an application for bail, be it the subordinate Court, the High Court or the Economic Crime Court,” they ruled.

The accused appeared before the Kisutu Resident Magistrate’s Court in Dar es Salaam on 28 September, 2015, charged with conspiracy, leading organized crimes and unlawful dealing in trophies valued at over TZS 267M.

The prosecutor alleges that on 5 July 2015 at Julius Nyerere International Airport area in Temeke District, in the city, jointly and together, all accused persons conspired together with other persons not in Court to unlawful dealing in trophies.