Privy Council backs Methanex in tax dispute over US $85.4m in dividends
In a ruling on April 22, the UK-based court upheld the methanol producer’s appeal in its long-standing tax dispute over the applicability of withholding tax on dividends paid to its holding company.
The case revolved around whether dividends paid by Methanex Trinidad to its sole shareholder, Methanex Barbados, should have been subject to a five per cent withholding tax.
In 2007, Methanex Trinidad paid US$85.4 million in dividends to Methanex Barbados.
However, those funds were passed on to Methanex Cayman and ultimately to Methanex Canada. The TAB claimed that these dividend payments were “artificial and fictitious,” and were essentially made to Methanex Canada and should have been taxed under a Trinidad and Tobago-Canada tax treaty, which mandates a five per cent withholding tax.
According to the judgment, the TAB assessed Methanex Trinidad for approximately US$28.4 million in withholding tax on four dividend payments made in 2007 to Methanex Barbados, its immediate holding company.
The TAB had argued that the payments were, in substance, made to the Canadian parent company, Methanex Corporation, and therefore subject to the five per cent withholding tax under the Double Taxation Relief (Canada) Order 1996.
In January 2019, the TAB ruled against Methanex Trinidad, dismissing its appeal. The Appeal Court affirmed the TAB’s dismissal of Methanex Trinidad’s appeal against the assessment in November 2021, upholding the view that the transactions were “artificial and fictitious” under section 67 of the Income Tax Act.