The Grand Court has struck down attempts by government to collect hundreds of thousands of dollars in extra business licensing fees from the territory’s major accounting firms, ruling that such efforts were unlawful.
The case stems from a dispute between government and the accounting firms over the meaning of the Trade and Business Licensing Law (2007 Revision), which includes a schedule of fees. The schedule of fees included a “per firm” fee based on the size of an accounting firm – ranging from $20,000 for a firm with six to 10 accountants to $400,000 for a firm with 51 or more accountants – as well as a “per professional” fee of $2,000 for each accountant a firm employs.
The accounting firms – BDO Cayman, Deloitte and Touche, Ernst & Young, KPMG and PwC – argued at a judicial review hearing last June that only the per firm fee should apply, while government argued that both fees should apply.
Based on the more than 1,110 accountants registered in Cayman, government’s interpretation of the legislation would have cost the major firms hundreds of thousands of dollars in extra fees.
According to the Grand Court judgment, the accounting firms argued if the government wished to impose two sets of fees on accountancy firms, the law should have said so in clear and unequivocal words.
The firms also argued that two sets of fees would amount to unfair double taxation, which other types of businesses are not subject to.
Moreover, government amended the legislation in 2014 to make it clear that the firms have to pay both fees, the firms argued. If the law already required the firms to pay both fees, then government would not have had to amend the wording of the legislation, they argued.
Government, for its part, argued that it was the intent of policymakers for both fees to apply when the law was updated. Government’s evidence included an affidavit from Financial Secretary Kenneth Jefferson, who was assistant financial secretary at the time the fees were being updated in 2001.
“What I am clear about is that the per firm fee was intended to be an additional source of revenue for the government, to be paid on top of the existing per professional fee,” Mr. Jefferson’s affidavit states, according to the judgement. “At no time did we calculate the loss of revenue that would have resulted from the abolition of the per professional fee.”
Government also argued that other types of businesses, such as architects, are subject to two sets of fees.
Justice Ingrid Mangatal sided with the accounting firms, stating in her judgment that “it would be surprising, arbitrary and illogical” for the firms to have to pay two sets of fees.
“It is my judgment that it was the legislative intention to charge the Accountancy Firms … only one fee for their trade or business, and that it was the Per Firm Fee,” she said in her written judgment.
Ms. Mangatal declared that the firms are not required to pay the per firm fees that government was attempting to collect before the new legislation was enacted. However, she declined to make a ruling on whether government should refund potential overpayments.