“ ‘Every man is entitled if he can to order his affairs so as that the tax … is less than it otherwise would be,’ tells us little or nothing as to what methods of ordering one’s affairs will be recognised by the courts as effective to lessen the tax that would attach to them … ” said Lord Tomlin, in the UK House of Lords case, IRC v. Duke of Westminster [1936] AC 1.
In Jamaica, INCOME TAX IS PAYABLE ON YOUR WORLDWIDE INCOME. It therefore is not enough to simply look at what income is being earned in Jamaica but consideration must also be given to income earned outside of Jamaica. How and where that income is earned therefore becomes an important question. Jamaica has double taxation treaties with several countries which allow for tax reliefs which extend to residents of those countries. The extent of the relief will vary depending upon which country is involved. It is important to note however that to be entitled to these reliefs, you must be deemed to be resident for tax purposes in the particular jurisdiction.
Let us look for example at The Double Taxation Relief (Taxes on Income) (Caribbean Community) Order (the “Caricom Double Tax Treaty”). The Caricom Double Tax Treaty determines whether a person will be deemed to be a “resident of a Member State” if that person is liable to tax in that Member State by reason of that person’s domicile, residence, place of management “or any other criterion of a similar nature.”
Using this criterion, the Caricom Double Tax Treaty uses a sort of progression chart for an individual by looking at:
- Where he has his permanent home, and if he has permanent homes in more than one Caricom country, then the Member State with which his personal and economic relations are closest (known as his “centre of vital interests”);
- If his centre of vital interests cannot be determined or he has no permanent home available to him in any Member State, he is deemed to be a resident of the Member State in which he has a habitual abode;
- If he has a habitual abode in more than one Member State or in none of them, he is deemed to be a resident of the Member State of which he is a national;
- If he is a national of more than one Member State or of none of them, the competent authorities will determine the question of his residency by agreement.
In the case of a company, the company will be deemed to be a resident of the Member State where its place of effective management is situated. It is important to note that residency of the company is, therefore, not determined simply based on its place of incorporation. Generally speaking, to determine where a company’s place of effective management is located, you will look at where the key management and commercial decisions necessary for conducting its business activities are in substance made and given. This means essentially, that you must look at and consider all the relevant facts and circumstances and try to ascertain where, as a question of fact, its key decisions are in substance made and given (and not simply where they take effect): where, for example, do the board of directors make decisions, where are its business operations actually conducted, where are its top level management located, where is it incorporated, where are its books and records kept. No one of these factors, however, is definitive on its own.
Beware, however, as “treaty-shopping” is considered a harmful tax practice and may trigger anti-avoidance provisions under Jamaica’s income tax laws. Treaty-shopping arises where a person seeks to access the benefits of a tax treaty without actually meeting the resident requirement. Jamaica’s anti-avoidance provisions essentially provide that if the transaction actually results, or will result, in a tax advantage, unless you can show that there was a bona fide commercial purpose for the way in which the transaction was structured and that the object of the transaction was not to avoid tax, then you could be required to pay taxes in Jamaica equivalent to the tax advantage.
So order your affairs in the most tax efficient manner possible but proceed with caution.
Hilary Reid is a Partner at Myers, Fletcher & Gordon. Hilary may be contacted at Hilary.Reid@mfg.com.jm or through the firm’s website www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.
