PHILIPSBURG--The former owner of American University of the Caribbean (AUC) at Cupecoy won its case against the Tax Inspectorate of St. Maarten before the Tax Court in Philipsburg on Thursday.

 

The court ruled the appeal admissible and destroyed the decision to impose an additional profit tax assessment of 61.4 million guilders, plus 9.2 million in fines.

 

The additional assessment was issued on April 27, 2012, on 2011 profit tax of the company that is part of a group owned by a Cayman Islands-based holding. The timely-submitted objection was rejected by the Inspectorate, so an appeal case was filed on March 7, 2013, and handled on November 27, 2014.

 

AUC, represented by Gert Bergman of BZSE, had a management contract with the holding for a “cost-plus” compensation. The Inspectorate looked into this and came to the conclusion that a large part of the profit should go to the company, based on which it issued profit and turnover tax assessments over 2003-2007.

 

AUC approached then-Ministers Theo Heyliger, Franklin Meyers and Hiro Shigemoto on February 3, 2011, to indicate being open to an amicable settlement for those years, plus the following period up to and including 2010, in light of a future agreement with an international educational training institution.

 

As admission to an economic zone, as stipulated by law in 2000, had been requested in 2008, clarity was sought on this status with a maximum two-per-cent profit tax and exemption from the turnover tax.

 

The agreement with the training institution could take the form of transfer of shares or of the assets and activities. In the former case no taxes would be owed because the shares were to be held by a foreign company, while in the latter case the fiscal burden would be limited to the campus, whereby the economic zone status ensured a maximum assessment of two per cent.

 

It was suggested to settle the outstanding claim all at once, allow the company free zone status and assess it accordingly in two cash amounts for transfer and profit tax.

 

“Tax Agreement 1” was signed with the Inspectorate on July 26, 2011. In exchange for cash payment, all the earlier-mentioned claims for profit and turnover tax for 2003-2007 were settled.

 

They signed “Tax Agreement 2” on July 29, 2011. This entailed that most of the company’s local assets, including real estate, would be sold to a company established in the United States. However, the Inspectorate issued an after-assessment on April 27, 2012, for profit tax over 2011 and in a July 6, 2012, letter declared “Tax Agreement 2” null and void, referring to a ruling of The High Court on The Hague on December 9, 2005.

 

The Inspectorate argued in November 2014 that it had regarded misuse of circumstances, but the three-judge panel found that was rather late in the day and could not be considered. They also found that the two agreements could not be seen separately from each other as the Inspectorate had pleaded.

 

The court declared “Tax Agreement 2” valid, recognising that the company had created much uncertainty about AUC’s continuation of its important position in the local economy and that factor no doubt had weighed in government’s decision to facilitate a relatively advantageous settlement. That the Inspectorate had not been aware of the possibility to tax a goodwill payment was called unlikely.

 

Because the agreement was ruled valid, no additional profit tax can be assessed and the Inspectorate must pay 400 guilders to help compensate the plaintiff’s legal cost.

 

The Daily Herald

 

 

The American University of the Caribbean (AUC) was represented in this case by attorney Gert Bergman of BZSE Attorneys & Tax Lawyers Sint Maarten.

 

 

Beschikking Raad van Beroep voor Belastingzaken wb 2011/61290 d.d. 11 juni 2015 

 

 

 

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