Former Olint investor to pay multimillion-dollar tax bill

A FORMER Olint investor who challenged taxes levied on his returns from the investment club

on constitutional and procedural grounds - and lost - will have to pay just over $20 million to the revenue authorities.

However, the tax that William Andrew Chang now owes is just around one-fifth of the initial assessment.

Chang won an early victory against Commissioner of Taxpayer Audit and Assessment when the Commissioner of Taxpayer Appeals (CTA) cut the taxes and penalties owed on his investments from $97 million to $20.82 million in 2009.

But he appealed further to the Revenue Court, which dismissed the case and affirmed the CTA assessment in October 2011.

Chang then turned to the appellate court, which handed down its judgment last month, siding with the Revenue Court.

Court of Appeal Justice Dennis Morrison said in his March ruling that perhaps unusually for an income-tax appeal, Chang did not challenge the quantum of the assessment. Rather, he strongly challenged his liability to pay it on a variety of grounds, engaging questions of law, procedure and constitutional rights.

Chang's lawyer, Herbert Hamilton, told the Financial Gleaner that he has no clear instructions so far as to whether his client will be appealing the matter further.

In summing up the case, Justice Morrison said Chang was assessed by CTA as owing $12.1 million and $8.1 million for years 2005 and 2006, respectively.

In each case, the tax authorities stated that the assessment represented "the estimated Jamaican dollar value of investment gains made with a non-licensed financial institution", subsequently identified as Olint.

As noted in the background to the case in Morrison's judgment, Chang was selected by Taxpayer Audit and Assessment Department (TAAD) for investigation in January 2008.

TAAD found that he had investments with Olint Investment Club - otherwise described in statements issued to Chang as Overseas Locket International Corp - and that at the end of April 2005, his accounts contained a balance of US$319,423.96.

Over the period 2005-2006, Chang received significant monthly "trading gains", averaging well over 10 per cent per month, the judgment noted. TAAD also said Olint paid out US$746,410.16 to Chang for year ending December 2006.

In 2007, Chang received a loan of $6.5 million from the Bank of Nova Scotia Jamaica to purchase a car valued at around $7 million, and he also purchased two properties valued in excess of $32 million, according to TAAD's investigation.

Based on the results of the probe, Chang was assessed as owing $97.44 million covering three years $565,250 for 2004; $15.3 million for 2005; and $81.6 million for 2006.

Chang's accountant, Henry Parkes, whom he would in due course designate as his agent "in respect of all income tax matters", objected to the additional assessments, saying they were arbitrary and did not reflect Chang's earnings.

Parkes subsequently explained by letter to TAAD in July 2008 that Chang began investing with Olint in January 2005 with US$20,000, but ended his investments with the club in April 2006.

The funds were paid out in May 2006 and invested in his Jamaica Money Market Brokers fund account.

Olint operated two investment accounts in Chang's name, one of which was funded by cash generated from leveraging his ESOP shares received on his departure from JMMB in 2004. The other account, Parkes said, was operated on behalf of a third party, Andrew Stewart, who lived in New Jersey, United States.

Having reviewed the monthly statements, TAAD determined that Chang was liable for tax on investment income of $4.5 million in 2005 and $4.1 million in 2006 received from Olint.

In July 2008, the TAAD commissioner affirmed the tax owed for 2004, but reduced the assessments for the other two years to $18.19 million and $12.2 million, respectively.

The CTA further reduced the figures to $12.1 million and $8.1 million after ruling that there was "some degree of doubt" as to whether the required notice of intention to impose a penalty had been properly served on Chang by the tax authorities.

But they also ruled that Chang failed to provide credible evidence that funds from a Andrew Stewart were invested in his Olint accounts.

Justice Morrison, in dismissing Chang's appeal, concluded that despite the great energy and ingenuity of submissions made by Chang's attorney, Herbert Hamilton, the Revenue Court judge was correct in his decision to confirm the decision of the CTA.

The Revenue Court judge had ruled that the gains Chang derived from his participation in the "non-licensed financial institution" was "income" within the meaning of the Income Tax Act.

Olint was a popular investment club that was later exposed as a Ponzi scheme. Its operator, David Smith, was eventually tried, convicted and jailed in Turks and Caicos and the United States.

mcpherse.thompson@gleanerjm.com