Civil Reference No. 7 of 2004
The respondent, Aggreko International Projects Ltd, operates in Tanzania as a branch of a UK-registered company, supplying emergency/temporary power mainly to TANESCO, while its administrative functions are run from a head office in Dubai. Between 2011 and 2012, the Dubai head office rendered various services on the respondent's behalf, and the respondent paid management fees for these services. Following a 2013-2014 audit of the respondent's tax affairs for 2011-2012, the appellant (Commissioner General, TRA) determined that these head office costs constituted management fees attributable to the respondent's Tanzanian operations and were subject to withholding tax. TRA issued a withholding tax certificate demanding Tshs. 2,220,852,775/- (comprising principal tax and interest). The respondent objected, but TRA confirmed the assessment. The respondent's appeal to the Tax Revenue Appeals Board was dismissed, with the Board holding that payments to non-residents for services performed outside Tanzania nonetheless have a Tanzanian source and are subject to withholding tax. On further appeal, the Tax Revenue Appeals Tribunal reversed the Board, relying on this Court's earlier decision in Commissioner General (TRA) v Pan African Energy, holding that section 69(i)(i) of the Income Tax Act, 2004 does not impose withholding tax obligations where services are rendered outside Tanzania, even if paid for by a Tanzania-based company. TRA appealed to the Court of Appeal against the Tribunal's decision.
Whether the Tribunal erred in law in holding that payments made by the respondent to non-resident service providers for services performed outside Tanzania have no source in Tanzania and are therefore not subject to withholding tax under section 69(i)(i) of the Income Tax Act, 2004 (read with sections 6(1)(b) and 83(1)(b)); consequentially, whether the respondent was liable to pay interest on the assessed tax; and whether the Tribunal erred by disregarding the position later established in Tullow Tanzania BV v Commissioner General.
The appellant (TRA) argued that sections 83(1)(b), 6(1)(b) and 69(i)(i) of the ITA, 2004, read together, impose withholding tax obligations on a resident payer where the service fee paid to a non-resident has a source in Tanzania. TRA contended that a purposive construction of section 69(i)(i) should govern, under which "services rendered" in Tanzania means services supplied, delivered, or consumed in Tanzania, regardless of where the service provider physically performed the work. Since the management services were consumed by the respondent's Tanzanian operations, TRA argued the payments had a Tanzanian source and withholding tax and consequent interest were properly due. TRA also urged the Court to follow its later decisions in Tullow Tanzania BV and Shell Deep Water TZ BP, and to treat Pan African Energy as distinguishable because it was heavily influenced by Indian tax law provisions materially different from Tanzania's ITA. The respondent argued for strict, plain-meaning construction of tax statutes, contending that section 69(i)(i) requires that the service itself be physically rendered within Tanzania for a Tanzanian source to arise, and that services performed by the Dubai head office fell outside this requirement. The respondent maintained that Pan African Energy was correctly decided and should be followed, that Tullow Tanzania BV was wrongly decided (having imported inapposite definitions and principles, and improperly distinguished Pan African Energy without properly construing the statute), and that only where the Government itself is the payer does section 69(i)(ii) extend liability irrespective of place of performance. The respondent also initially argued the Tribunal could not have been aware of Tullow Tanzania BV when it decided the case, though the Court found this incorrect since the Tribunal's judgment referenced that decision.
The Court of Appeal allowed the appeal on all three grounds. It held that sections 6(1)(b), 69(i)(i) and 83(1)(b) of the ITA, 2004, read together, establish two conditions for withholding tax to apply to payments to non-residents: (1) the service for which payment is made must be rendered in the United Republic of Tanzania, and (2) the payment must have a source in the United Republic of Tanzania. Adopting a purposive approach and following its earlier decisions in Tullow Tanzania BV and Shell Deep Water TZ BP, the Court held that the word "rendered" in section 69(i)(i) is synonymous with "supplied" or "delivered," meaning a non-resident who provides services to a resident has, in effect, delivered/supplied services within Tanzania; further, since the recipient/payer resides in Tanzania, the source of payment is Tanzania. Applying this to the facts, since the management services from the Dubai head office were utilized and consumed by the respondent's Tanzanian operations, the payments were sourced in Tanzania, triggering the respondent's obligation to withhold tax. The Court found the Tribunal's reliance on Pan African Energy misplaced, holding that decision distinguishable because it was substantially influenced by Indian tax law provisions materially different from Tanzania's ITA. The Court declined to revisit the correctness of Tullow Tanzania BV itself, noting that reviewing its own precedent was not its task in this appeal and that statutory remedies existed for seeking review. Consequently, the Tribunal erred in its construction of the relevant provisions, the first and third grounds of appeal succeeded, and as a consequence the second ground (regarding interest) also succeeded since interest follows from liability for the principal tax. The appeal was allowed with costs.
The judgment reinforces and applies the Court of Appeal's earlier rulings in Tullow Tanzania BV and Shell Deep Water TZ BP, entrenching a purposive interpretation of section 69(i)(i) of the ITA, 2004 under which "services rendered" in Tanzania encompasses services supplied to, delivered to, or consumed by a Tanzania-resident payer, even where the non-resident service provider performs the work entirely offshore. It effectively confirms that Pan African Energy—previously the leading authority for a narrower, place-of-performance-based construction—should be treated as distinguishable and of limited continuing authority because its reasoning was substantially shaped by Indian tax law concepts not mirrored in Tanzania's statutory scheme. The decision clarifies that, for withholding tax purposes, the critical inquiry is where the service is consumed/utilized and where the payer resides (the "source of payment"), rather than the physical location where the non-resident performs the service. It also illustrates the Court's approach to statutory construction of tax laws, endorsing use of a purposive approach over strict literal construction where necessary to avoid absurdity, while cataloguing established canons of tax statute interpretation (strict construction, reading the statute as a whole, contextual reading, and departure from literal meaning to avoid absurd results). Finally, the Court clarified that a lower tribunal cannot be faulted, nor can a party seek reconsideration of the correctness of the Court's own binding precedent, within the scope of a subsequent ordinary appeal — such challenges belong properly to the Court's review jurisdiction.
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