Complete discharge of withholding tax liability on interest payments over US$6 million

OSH has successfully obtained for a client a complete discharge of withholding tax liability on interest payments over US$6 million. The interest payments arose from an intercompany, cross-border loan made between entities which were part of a multinational shipyard operator group. The dispute revolved around the question of when a withholding tax liability may be said to arise under the Income Tax Act. The Comptroller had initially taken the conventional, administrative position as set out in the relevant e-Tax Guide. On a proper interpretation of the relevant statutory provisions in the Income Tax Act, however, we opined that while the Comptroller’s administrative position would certainly be effective in ensuring that taxpayers do not fall afoul of their withholding tax obligations, it did not in all circumstances accurately reflect the true legal position. On the strength of our legal opinion provided to the Comptroller for his consideration, he reversed his initial position and discharged the client’s withholding tax liability in whole.

This matter demonstrates the fundamental importance, in approaching what may initially seem to be an intractable disagreement with the Comptroller, of adhering faithfully to the actual statutory provisions which govern the issue. While the administrative guidance given and adopted by the Comptroller would normally be accurate in the majority of cases, it is a truism that disputes between taxpayers and the Comptroller by their very nature usually occur at the fringes. In such cases, it could be well worthwhile to seek a legal opinion which focuses on and applies the relevant statutory provisions.