Sandals Explains Tax Exemption

QUESTIONS are being raised about the $24.4 million in withholding taxes that the Cabinet of Ministers exempted Sandals Resorts International (SRI) from last month.

Cabinet granted the Sandals hotel chain 100 percent exemption from the payment of withholding tax for the period 2001 to 2009 on insurance costs allocated to the company’s three resorts on the island.

Now, the company is expressing its thankfulness to the government for bringing closure to the dispute, claiming that this was not money owed or outstanding.

“Yes, Sandals was given the exemption but the question is: Why was Sandals given the exemption? The question also is: Did Sandals owe St. Lucia money and did the Government of St. Lucia give it back to Sandals?” Finance Minister in the Department of Finance, Dr. Ubaldus Raymond, asked this week when questioned.

Dr. Raymond said government did not give back any money to Sandals and that the details of the matter, which the company and the Inland Revenue Department (IRD) had been in dispute over for eight years, would prove that government had to come up with a decision to exempt the taxes.

According to Dr. Raymond, Sandals did not owe the government and the decision taken by the Cabinet of Ministers to exempt the company from the taxes was done after the history behind the taxes was explained.

“There are lots of details I cannot discuss at this point in time but I believe government made the right decision in making the taxes exempted,” Dr. Raymond said.

However, the St. Lucia Labour Party (SLP) said the decision by the Cabinet of Ministers was extraordinary and highly unusual.

The party said Prime Minister Allen Chastanet must explain to the public why the decision was taken, whether the decision was taken on the recommendation of the Comptroller of Inland Revenue (IRD), the total revenue which has been lost and whether the same exemption will be applied to other hoteliers.

“The Saint Lucia Labour Party notes that Section 130 (1) [of the Income Tax Act, Cap. 15.02] allows Cabinet to exempt or remit the payment of taxes by anyone where it is satisfied that it is just and necessary. However, at a time when the Prime Minister has said that the country is not earning enough revenue to meet the cost of basic social services, when many schools have reopened in a dilapidated state, when parents cannot afford school books and uniform, when the hospitals can no longer provide basic health care and medicines, the Saint Lucia Labour Party calls on the Prime Minister to explain how exempting Sandals from paying millions of dollars in taxes is just and necessary,” said the party in a press release on Tuesday.

Meanwhile, Dr. Raymond said government was not giving Sandals a pass because if the company or any other entity owes government any money, government would have that entity remit its taxes.

“Based on what was presented to Cabinet, the Cabinet made its decision that the taxes calculated as owed to government were actually withholding taxes that were supposed to be exempted on behalf of Sandals,” Dr. Raymond said.

He said the Cabinet of Ministers was given all the evidence required in the matter and that the Ministers further looked at everything connected with the case, asking tough questions when necessary.

Dr. Raymond said government views taxes as serious business and that wherever government can get money, it will try to do so.

“Taxes are not something we take lightly. If you owe the government, the government will come after you for its taxes. The taxes do not belong to government; they belong to the people of St. Lucia,” Dr. Raymond said.

He added that government understands the role of tax revenue and the tax system, which is why “We are currently working on a simplified and more efficient tax regime that we will unfold in the not-so-distant future.”

He added: “I believe that when the facts are presented to the public, the public will understand truly that the Cabinet made the right decision. I do not want it to look like government gave Sandals a break; that is not the case. It’s very unfortunate that the public in general don’t ask for details; they just hear certain things and just move with it,” Dr. Raymond said.

Meanwhile, Sofia Henry, Comptroller of the Inland Revenue Department (IRD), just before press time yesterday said she could not comment on the matter because she has neither seen nor received the Cabinet Conclusion granting the tax waiver to Sandals.

“I really cannot comment about Sandals,” she said.

However, the hotel chain, in a statement yesterday, said it objected to the IRD’s assessments in accordance with its statutory rights under the Income Tax Act.

Sandals Resorts International also claimed that the assessments were not justified and should have been withdrawn. The company said its objections were based on professional advice and a legal ruling by the OECS Supreme Court that is relevant to withholding tax assessments in St. Lucia.

“The total amount claimed by Inland Revenue is $24.4 million, but this includes $15 million of penalties and interest, as the assessments date back to 2001. If SRI had accepted that there was a legal basis for these assessments, the companies would have been able to have 100% of the interest and penalties waived under the income tax amnesty in effect since October 2016. As SRI did not accept that there was a legal basis for these assessments, it was prepared to use its statutory rights to appeal to the Income Tax Commissioners or the Courts to have the assessments withdrawn,” noted the company in the release.

The resort chain noted that the insurance costs allocated to its three resort companies in St. Lucia represent their share of comprehensive insurance coverage for the Sandals Group of Hotels in the Caribbean. It said that due to the sheer magnitude of the risks insured, SRI is required to self-insure up to 20% of the coverage, with the balance covered by Lloyds.

Between 2001 and 2009, the costs allocated to the companies in St. Lucia amounted to $37.7 million and Inland Revenue sought to impose withholding tax of 25% on these costs. This tax would have increased the cost of SRI’s insurance in Saint Lucia by 25%, with no tax benefit locally, SRI said.

“The evidence was presented to and accepted by the previous administration, which had committed to working with us to have it resolved, and for which we have been waiting for several years. SRI’s ability to obtain good insurance coverage at an affordable cost ensures that its properties can recover quickly from hurricanes and storms such as they are about to experience in Antigua, Turks & Caicos and the Bahamas. This ensures continuity of operations for employees, visitors and the destination. SRI was therefore able to obtain an exemption from withholding tax on insurance premiums from 2009 under the Tourism Stimulus and Investment Act in 2014. Other companies were entitled to request similar incentives,” the Sandals statement reads.

The press release stated that the Sandals companies in St. Lucia are fully compliant with all taxes, statutory deductions and payments, have a robust corporate social responsibility programme, good employee benefits and voluntarily contribute payments of US$2.00 per person per night to the Tourism Investment Fund.

“The dispute with Inland Revenue over withholding taxes on insurance premiums is an old and exceptional matter that required resolution if SRI was to be able to finance new investments in Saint Lucia. We urge the Government to address the issue of withholding and other taxes on critical inputs to the tourism industry for all stakeholders, so that we can work together to grow the economy,” concluded the statement.