Susan Gordon, Business Reporter

Michael Bernard, managing director of Carreras Limited, says the company would be paying the judgment within 30 days. - File

Carreras Limited has lost its four-year legal battle with tax collectors, but can claim some level of vindication from a High-Court decision that has freed it from paying out billions in penalties, while holding it liable for the original taxes.

The Taxpayer Audit and Assessment Department (TAAD) had assessed the Cigarette Company of Jamaica (CCJ), a now defunct subsidiary of Carreras, as owing $5.7 billion in taxes and penalties, saying the company had failed to pay taxes on a transaction between them.

On Wednesday, the Revenue Court, a division of Jamaica's Supreme Court, threw out Carrera's appeal of the TAAD assessment, and ruled that the company must pay the $2.17 billion in taxes.

But the court also said TAAD should either throw out the penalties or otherwise cap them at 5.0 per cent of the taxes owed.

Essentially, the $3.54 billion of penalties assessed by the TAAD was stripped to no more than about $109 million.

"We haven't had any discussions with the commissioner as yet," said Carreras managing director, Michael Bernard, in response to Financial Gleaner queries on whether the TAAD had informed the company of how it plans to proceed.

"It is my understanding from our legal team the commission is likely to accept the recommendation of the court."

Bernard said also the company would pay over the judgment to the tax department within the 30-days allowed, but said they were considering an appeal.

"The judgment requires we make good on the judgment within 30 days then interest will accrue after that," Bernard told the Financial Gleaner.

"So it is prudent that we want to do that."

Capital gains

The $2.17-billion tax assessment related to five years of back taxes from 1997-2002, which TAAD claimed to have been distributions - that is, dividend payments or capital gains - and not loans as booked by Carreras.

Carreras had made provision for the judgment and Bernard again assured shareholders that there was adequate funds to cover the assessment.

"What we have left is enough money to cover the total original amount assessed. This was $5. billion," he said.

This sum, he said, was retained over the course of the liquidation of the Cigarette Company of Jamaica, which was wound up in late 2005, marking Carreras' exit from cigarette manufacturing.

susan.gordon@gleanerjm.com