Former oil supplier disputes owing ASG tax over $88M
Absent a trade or business in the territory, the American Samoa Power Authority’s former oil supplier has questioned how the government determined that the company owes over $88 million in taxes for years 2009 to 2012.
ExxonMobil Asia Pacific PTE, an indirect subsidiary of U.S. based Exxon Mobil, raised this and other issues in a petition filed last month with the High Court after getting in October 2013 four “Notices of Deficiencies” for the years at issue from the ASG Treasury Department.
Besides ASG, other defendants named in the suit are Treasury Department and ASG Treasurer Dr. Falema’o ‘Phil’ M. Pili and Gov. Lolo Matalasi Moliga. ASG claimed in the notices that the petitioner owes $88.6 million in income and corporate taxes for 2009 to 2012. The notices provide a break down of taxes allegedly owed for each year.
However, the petitioner said it disputes the amounts cited in the notices and that Treasury’s determination of these amounts is based on “certain errors.” Also disputed by the petitioner and considered errors is Treasury’s determination of the company’s total income, total deductions and taxable income for the years at issue.
The petitioner took over in December 2008 the supply of petroleum fuels for ASPA and the Petroleum Supply Agreement with ASPA was executed outside of the territory, said court documents, which also says that petitioner had no employees based in American Samoa during the years at issue.
The supply agreement — extended through Nov. 30, 2013 — calls for the petitioner to supply and deliver petroleum to ASPA using medium range tankers (MRTs), which were required to meet certain requirements set by ASPA.
During the tax years at issue, Standard Tankers, LLC — a wholly owned subsidiary of Exxon Mobile — charted the MRTs from an unrelated third party Vessel Owner, which operates and remains in control of the MRTs.
During the years at issue, the petitioner made approximately one delivery per month to ASPA, said court documents and noted that between 2003 and 2009 about 20 different MRTs made deliveries to ASPA.
Additionally, all deliveries were made to a discharge terminal owned by ASG and operated by entities unrelated to the petitioner. And as required by the supply agreement, on or before Nov. 30 of each year, ASPA and petitioner met in person to discuss performance as well as relevant market trends.
According to the petitioner, all such meetings occurred outside of American Samoa.
Furthermore, the petitioner provided to ASPA “as a courtesy at no additional cost” services such as advice related to product specification and forecasting. None of these services were provided in American Samoa as they were done via phone or email, the petitioner said.
And pursuant to the supply agreement, the price for each petroleum product delivered to ASPA was exclusive of any duties, fees, taxes, government levies and cost or payments at the discharge port was borne by ASPA, it says.
According to the petitioner, all its gross profit as well as income generated under the supply agreement with ASPA for the years at issue were treated as Singapore source income by the Singapore taxing authorities and subject to income tax in Singapore, where all taxes were paid.
According to court filings, the notices issued by the Treasury state that the petitioner is subject to American Samoa corporate tax, but do not describe the basis for this determination or provide an explanation as to why the petitioner is required to file American Samoa tax returns or pay American Samoa taxes.
Additionally, Treasury failed to explain how it came up with the total income, total deduction amounts, and taxable income cited in the notices.
Petitioner contends that based on the U.S. Internal Revenue Code, as adopted and followed by American Samoa, relevant case law, and other authorities, “sales earned by petitioner under the supply agreement could not be treated as effectively connected income subject to tax in American Samoa unless petitioner had a trade or business” in the territory.
“Absent such a trade or business in American Samoa, it is irrelevant whether such income is American Samoa source income,” the petitioner argued. “The mere delivery of [petroleum] products to American Samoa, standing alone, does not give rise to a trade or business in American Samoa.”
Petitioner stressed that it had no employees based in the territory, no agents and no fixed place of business in the territory and did not maintain an inventory in the territory during the years at issue.
In closing, petitioner asked the court to hear this case and determine that it does not owe any tax in the years at issue, and therefore is not liable for any interest and penalties listed in the notices. It also seeks any other relief the court deems appropriate.