E (Private) Limited v Zimbabwe Revenue Authority

The appellant is a licensed telecommunications company in Zimbabwe. Following an audit in 2018, the respondent (Zimbabwe Revenue Authority) discovered that the appellant had paid fees to several non-resident telecommunications companies for roaming and interconnection services without deducting the withholding tax required by section 30 of the Income Tax Act read with the Seventeenth Schedule. The fees were paid to foreign entities in Mauritius, Canada, France, Malaysia, Norway, Poland, South Africa, Sweden and the United Kingdom. The respondent issued additional withholding tax assessments for tax years 2015-2018 and levied a penalty of 20%. The appellant concluded a Traffic Termination, Management and Facilities Provision Agreement with Liquid Telecommunications Operations Limited (a Mauritius company) which provided interconnection services allowing international call termination. The appellant also had roaming agreements with 266 mobile operators worldwide, regulated by the GSM Association, which allowed its customers to use foreign networks when travelling. The appellant objected, arguing that the fees were not for technical services, that they fell under business profits not taxable in Zimbabwe due to Double Taxation Agreements, and that the penalty was unwarranted. The penalty was reduced to 5% and the appellant appealed to the Special Court for Income Tax Appeals.

• Whether roaming and interconnection fees payable to foreign telecommunications companies should be subjected to non-residents tax on fees in terms of section 30 read with the Seventeenth Schedule of the Income Tax Act
• Whether the fees constituted payment for services of a technical, managerial, administrative or consultative nature as defined in the Seventeenth Schedule
• Whether money paid for roaming and interconnection services to non-resident companies in Mauritius and other listed countries is taxable in Zimbabwe in light of Double Taxation Agreements
• Whether there is a legal basis for the imposition of a 5% penalty

The appeal was dismissed in its entirety. The additional withholding tax assessments for tax years 2015-2018 were upheld, as was the 5% penalty imposed by the respondent.

The binding legal principles established are: (1) The word 'technical' in the definition of 'fees' in the Seventeenth Schedule to the Income Tax Act is of sufficiently wide import to embrace specialized services requiring expertise and know-how of persons specially trained and equipped with skills necessary for operation in a particular field, including telecommunications; (2) Interconnection and roaming services provided by foreign telecommunications companies constitute services of a technical nature within the meaning of the Seventeenth Schedule and are subject to non-residents' tax on fees under section 30 of the Income Tax Act; (3) Where a Double Taxation Agreement does not contain a specific provision regulating taxation of certain fees earned from a source in Zimbabwe, Article 22(3) (or equivalent residual clause) applies to permit taxation of such income in Zimbabwe; (4) Services rendered under an agreement may fall within multiple categories of the definition of 'fees' (technical, managerial, administrative or consultative) and the Court will consider all applicable categories regardless of the basis on which assessments were raised; (5) The burden of proof in tax appeals rests on the appellant to show that the Commissioner's decision is wrong, in accordance with section 63 of the Income Tax Act.

The Court made several non-binding observations: (1) The Court noted that it is the obligation of the appellant to produce evidence and acceptable material in support of its case, and failure to do so might result in failure to discharge the burden of proof. This was stated in the context of the appellant's failure to produce the complete Indian statute and certain call data records; (2) The Court observed that the application of the principle from Econet v Zimra to divorce one adjective from the other three contained in the definition of 'fees' was erroneous; (3) The Court noted that since the provisions of the DTA with South Africa differ from the Mauritian DTA, and no argument was presented regarding the other countries listed, the judgment was confined to the DTA with Mauritius on the basis that the issue must be determined by reference to the provisions of the DTA with each of the listed countries as and when the question arises; (4) The Court observed that no attempt was made by the appellant to prove the Commissioner wrong on the penalty issue and it was not surprising that counsel made no submissions on this point.

This case is significant in Zimbabwean tax law as it provides guidance on the interpretation of 'technical services' under the Seventeenth Schedule to the Income Tax Act in the context of modern telecommunications services. It establishes that interconnection and roaming services provided by foreign telecommunications companies constitute services of a technical nature subject to non-residents' tax on fees. The judgment clarifies the application of Double Taxation Agreements, particularly the residual clause in Article 22(3) which allows taxation in Zimbabwe of income not specifically dealt with in other articles of the DTA. The case demonstrates the broad interpretation given to 'technical services' and confirms that such services need not be limited to one category (technical, managerial, administrative or consultative) but can encompass multiple categories. It also reinforces the burden of proof on taxpayers in tax appeals under section 63 of the Income Tax Act.