By VICTOR LAL
One of the most important institutions which directly impinges on the daily lives of the Fiji Islanders that has escaped a major shake up or scrutiny since the coup is FIRCA, the Fiji Islands Revenue and Customs Authority.
Instead, it is under the jurisdiction of an interim Cabinet minister who lied to parliament and who had sought to dodge paying legitimate tax on his secret millions. Moreover, he is yet to provide a comprehensive and conclusive explanation to the public, especially to the Indo-Fijians, about the mystery surrounding his $2million in a private Sydney bank account in Australia, and what he has done with his fistful of dollars.
The interim minister is Mahendra Chaudhry, the leader of the Fiji Labour Party, a former Prime Minister of Fiji, and currently finance minister. As I revealed, over $700,000 of that money was clandestinely channelled into his account by the Indian Consulate-General in Sydney, with or without the knowledge of the Indian government, by one mysterious Indian Santa Claus – by the name of Harbhajan Lal of Haryana in India.
Just imagine if the leader of the Australian Labor Party and a former Prime Minister of Australia had been hiding $2million in our own banks here, and a part of that money had been secretly transferred through the New Zealand High Commission in Fiji? We would have, mostly likely, accused the Australian labor leader of money laundering, and would have instituted a criminal investigation into his millions.
In February 2008, I had written a two page letter to the interim Prime Minister Commodore Frank Bainimarama calling to his attention Mr Chaudhry’s attempted tax evasion, the gross abuse of power on the part of some of the FIRCA board members in their search for the mole or moles who had leaked Mr Chaudhry’s tax records, and that one of FIRCA’s own consultant was allegedly owing over $630,000 to FIRCA, and indirectly, to the taxpayers.
The consultant was paid $630,000 in consulting fees which he got from the Reserve Bank of Fiji and FIRCA over the period June 2004 and October 2007. The letter to Commodore Bainimarama was curtly acknowledged but nothing was done. Instead, the Fiji Sun publisher Russell Hunter was deported to Australia. And the interim minister is still in Cabinet, now embroiled in a new war of words with his critics over the water bottling tax.
During the stand-off between the water bottling companies and Mr Chaudhry over 20 per cent exercise and 20 per cent litre export taxes, a memo surfaced from inside FIRCA, which was sent to Mr Chaudhry by the same consultant who allegedly owed $630,000 to FIRCA. It concerned the Natural Waters of Viti Ltd or Fiji Water, for shorthand.
The memo dated 3 September 2007 to Mr Chaudhry from the FIRCA consultant notes as follows: “Appendix 2 to the letter corresponds with the expert recommendations of Mr Lyne, a leading New Zealand valuer. In the event of dispute by the taxpayer as to the relevance of what is required on the basis of those recommendations, or as to the existence on availability of information requested, it will be necessary to engage the services of Mr Lyne.”
The valuer, it has been established, is Brendan Lyne, a director of Thorton Corporate Finance, of Auckland, New Zealand.
The memo to Mr Chaudhry from the FIRCA consultant also notified him (Mr Chaudhry) that, “A Formal Demand signed by the Acting CEO, FIRCA (then Parmod Archary), this morning, directed to the above company (Natural Waters of Viti Ltd). In view of the detail required, a month for compliance has been given. This is to avoid the obstacle which has arisen in other cases of formal demands of FIRCA not being able to be enforced, having regard to the view of the Courts as to what is an adequate time frame for compliance”.
The FIRCA consultant pointed out that documentation required was very extensive and detailed, and doubt would require substantial effort to collect and collate, and to transmit the same. “The time allowed for provisions reflects these realities. If it did not, the Formal Demand would be open to legal challenge,” he emphasized, and went on to note: “In default of compliance with the request or upon same not being satisfactorily answered, consideration will be given to revocation.”
On 3 September 2007 Mr Archary sent to the company secretary of the Natural Waters in Lautoka, a letter and attachments, which contained an exhaustive list of information required by FIRCA. He informed the company secretary: “As you will be aware, there are provisions contained in the above laws and in the above agreement which enable the Authority (FIRCA) to require production by the company of information relevant to the grant of concessions. Paragraph 3(d) of the concession letter of 5th October 1995 requires your company to make available information as and when required by inter alia the Department of Customs and Excise and Inland Revenue Department, both of which entities have been assimilated into the Fiji Islands Revenue & Customs Authority”.
Mr Achary also pointed out that the fifth schedule to the Income Tax Act at paragraph 7 provided for termination of concessions by the Minister of Finance on the recommendation of the Commissioner of Inland Revenue if inadequate information was furnished to the Commissioner. Furthermore, “I require to be informed as to the true profitability, since the inception of concessions, of your company and related companies. This information is required to verify the ongoing extent of diminution of the tax base by the concessions granted, and to enquire into the issue of possible Transfer Pricing by your company. The information required is detailed in Annexure B hereto”. The company was given 30 days to supply the information, for the years since 1997 to date.
The 5th October 1995 letter in Annexure B (re: DESIGNATION AS A TAX FREE FACTORY) was from Ratu Isoa Gavidi, the then director and chief executive of the Fiji Trade and Investment Board, to the then shareholder and managing director Janusz Kub of Mineral Waters of Fiji Ltd, who then had a 19 per cent share in the company, along with Wakaya Group Ltd (52%), Mr Kub’s wife Mama’o Henre (20%) and Hayward Marlboro Group Inc of USA (9%).
The letter had informed Mr Kubs of the Government’s designation of Mineral Waters of Fiji a TFF subject to requirements, and also of the list of concessions granted and that there would be “No income tax payable on corporate tax for a period of 13 years, provided the conditions of the 5th Schedule of the Income tax Act are met”. He was however warned that, “Punitive fines will be imposed if your company fails to comply with the terms and conditions of approval. This may led to the revocation of your approval by the Minister. His decision shall be final and shall not be challenged in any Court.”
In October 1997 Mr Kubs sold his shares to the Canadian businessman David Gilmour only to sue him later for allegedly misleading him (Mr Kubs) of the company’s performance and pressuring him (Mr Kubs) to sell his shares. In 2004 Mr Gilmour sold the company to Roll International, a privately owned company owned by the Hollywood couple Stewart and Lynda Resnick.
During the trial in Fiji’s Supreme Court in 2005, Mr Kubs had claimed that Fiji did not benefit from the profits made from marketing of Fiji Water overseas despite its popularity. Mr Kubs lost his court case.
Meanwhile, the information required from Natural Waters and Fiji Water and any associated companies, as contained in the letter of 3 September 2007, and dating after 1997, were as follows: audited financial statements (if audited financial statements do not exist then the final signed financial statements including notes and accounting policies); supporting management financial statements with reconciliation to the audited financial statements; taxation returns, no matter where filed; any and all business plans, strategic plans and marketing plans; any and all forecasts, budgets and projections; product margin reports, analysis and data; any reports that discuss/analyse competitors and competitive threats; board minutes that discuss/analyze competitors and competitive threats; board minutes and management reports.
The company was also required to provide correspondence and any and all information supplied to bankers and other providers of finance in support of or seeking finance; any analysis and documentation regarding the capital expenditure in the year ended 31 December 2000 undertaken by Natural Waters; particulars of abnormal and non-recurring items in each financial year; details of shareholders remuneration and rewards received by associated persons and shareholder employees; details of any personal or non-business transactions/expenses in the financial statements for the period; copies of the auditors work papers and taxation advisors work papers; any and all information provided to the Resnick family, or their interests (together “the Resnicks”) on purchase of Mr Gilmour’s interests in both Natural Waters and Fiji Water LLC. This included (but is not limited to) due diligence data, that was made available to the Resnicks and/or any other prospective purchaser(s). This should include profitability forecasts, business valuations, customer lists (by volume and revenue) and product margin data.
Continuing, the letter demanded as follows: the sale and purchase agreements with the Resnicks for the sale of Natural Waters and Fiji Water LLC. This should include any and all agreements and ancillary agreements at any time between the Resnicks interest and Mr Gilmour’s interests (and associated entities) in Natural Waters, Fiji Water LLC, Fiji Water Holdings LLC and associated entities; copies of any or all business or share valuations.
The letter also noted that “All of the information requested below is for the years since 1997 to date, (“The Period”), unless otherwise stated. Specially for Natural Waters, FIRCA also required the details and supporting documents for major expense categories and in particular: royalty payments for the three financial years prior to and including 31/12/2004; security expenses for the three financial years prior to and including 31/12/2004; wages cost including total wages by employee for the period; legal fees for the four financial years prior to and including 31/12/2004; advertising expense in 2001 and 2002; and audit other services.
The company was also asked to provide particulars of “trade creditors-non related” for each of the three financial years prior to 31 December 2004; details of the trademark owned, and the nature of the legal costs to defend the trademark; details, terms and documentation of any lease the company has entered into; and all documentation surrounding covenants under loan facility agreement dated 31 December 2002.
Also, all the information requested below was for the “period”, and was specifically directed to the Fiji Water LCC, and the letter wanted details and supporting documents for the following expense categories: selling and general administrative; cost of goods sold-US warehousing/transportation; listing fees; $4 arbitration award in 2002; and $4.5 write-off of Project Bula in 2004.
The letter also asked for details of the sales from Fiji Water LLC to its 20 largest third party customers for each financial year for the “period”; the details was to include volumes, revenues and margins. In addition FIRCA required representative samples of supporting invoice documentation; and management reports and marketing reports analyzing sales prices forecast and/or achieved, and margins forecast and/or achieved, by market and by third customer. It also wanted pricing policies between Natural Waters of Viti Limited and Fiji Water LLC for the “period”.
The demand for information sent to Fiji Water, according to FIRCA sources, was allegedly drafted with the help of one particular FIRCA consultant, with past links to Fiji Water. The demand, according to the sources, was completely unrealistic. The volume of information requested required months of work by Fiji Water. In conducting transfer pricing audits this type of information is not demanded of the taxpayer. The tax auditors need to obtain such information from the company’s documents and from discussions over a long period of time, and using experts in various areas.
According to FIRCA sources, those who drafted the letter knew the information could not be provided by the company in the specified three weeks, hence the memo from the consultant to Mr Chaudhry warning that the courts could throw out the demand as being unrealistic. In addition, some of the information demanded was not held by Fiji Water, for example, the details of competitors prices and working papers were held by the accountants, and not Fiji Water.
In any event, the company made an effort to respond to the demand and provided several thick binders of documents. According to FIRCA sources, nothing that Fiji Water provided would have been satisfactory.
Mr Lyne is yet to reply to my questions of his involvement in the case, as outlined in the consultant’s memo of 3 September 2007 to Mr Chaudhry.
In early December 2007, FIRCA raided the Wakaya Group Limited and their accountants, Pricewaterhouse Coopers, at which they removed all original Wakaya documents. FIRCA still had those originals and had allegedly refused to release them.
This raid, according to FIRCA sources, was allegedly orchestrated by another consultant about a week after he joined FIRCA. The sources claimed there were grave misgivings among some of the FIRCA officers about this because they felt they and their powers were being misused by the consultants.
It seems the Fiji bottlers found themselves once again in deep waters with FIRCA, in the form of extra duty on their products. The FIRCA sources claim that one of their tax consultant had promised the Interim Government and the Military Council that he could rake in about $1billion in back dated tax from Fiji Water.
Was it the lure of $1billion that had convinced the Cabinet to go ahead with the extra tax, even if meant a thousand jobs and millions in revenue, sinking to the bottom of the Fijian sea?
The views expressed are those of Victor Lal and not that of the Fiji Sun. E-mail: email@example.com