Rolex-dealer contests tax evasion charge

POSTED: 01/20/12 1:27 PM

Prosecution demands $1.45 million and a hefty fine

St. Maarten – Did a local jeweler manipulate its stock of Rolexes between stores on Front Street and stores in French Saint Martin and St. Barths in such a way that the company evaded 2.6 million guilders ($1.45 million) worth of profit taxes between 2001 and 2006? Is the assessment maybe the result of sloppy research by the Tax Accountant Bureau Foundation SBAB? The public prosecutor’s office wants to fine the jeweler a whopping 500,000 guilders (close to $278,000) and also make sure that the evaded taxes are paid one way or the other. The jeweler’s defense team says there is nothing wrong with the company’s tax filings and asked the Court in First Instance yesterday morning to acquit the company of all charges.
The story played out in the Court in First Instance yesterday; it will continue with a final round on Monday February 27, because prosecutor mr. Gonda van der Wulp needs time to formulate a response to the arguments the defense brought to the table.

The accused company is Spifo N.V. It has Goldfinger-stores on Front Street, in Marigot and in St. Barths and it is the official dealer for Rolex watches.
Basically the prosecution accuses Spifo of charging purchases for the expensive Rolexes to its company in Philipsburg while part of the stock is sold in stores in Marigot and in St. Barths. This mitigates Spifo’s pre-tax profits in St. Maarten and leads to a lower assessment for profit taxes. That’s attractive, prosecutor Van der Wulp said, because the profit tax in French Saint Martin is around 10 percent, while the tariff in St. Maarten is 34.5 percent.

However, Spifo’s attorney mr. Gert Bergman showed the court tax returns the French-side entity filed with the tax authorities in Guadeloupe to prove that the actual top tariff is 33.33 percent – close to the Dutch-side tariff.
The investigation into Spifo’s tax returns over the years 2001-2006 started back in 2008. SBAB-inspector Maria expressed his suspicions in a report dated October 24, 2008, suggesting that Spifo booked expenditures from its French-side stores on the Dutch side because of the difference in profit tax tariffs. While this argument seems questionable, inspector R.F. Maria also reported: “I had heard stories that the jewelry stores in Front Street are possibly cheating.”
Maria compared Spifo’s profit margin with that of Little Switzerland; the latter store realizes a gross profit margin of 84 percent. But another inspector who controlled another respected jeweler on Front Street, found that its profit margins were between 40 and 55 percent.
mr. Bergman told the court that comparing Spifo with Little Switzerland makes little sense because his client’s main business is with Rolex, while Little Switzerland is also selling high-profit articles like Baccarat crystal, Aaron Basha leather bracelets and Lalique glassware.
“The statements by Maria are rife with factual mistakes, he uses a gross profit margin that is not representative and tall stories that jewelers on Front Street are possibly cheating. It is a flagrant violation of good governance that a government entity like the tax accountant bureau, which is charged with auditing from an objective perspective, has started this control based on negative emotions, tall stories, factual mistakes and a lack of knowledge about the French tax system.”
mr. Bergman showed that Spifo’s gross profit margin varies between 25 and 46 percent. He said that his client had booked all purchases for the investigated year based on the invoices from the supplier and that he’d deducted the purchases destined for the French outlets from Spifo’s purchases. The comparison shows, mr. Bergman said, that the amount for purchases destined for the Front Street stores tallies with the amount the company entered into its annual account. “Not a single purchase destined for the French companies is entered into the defendant’s bookkeeping.

On January 19, 2010, Spifo presented a report to the SBAB’s team for intelligence and investigation TIO to explain how it arrived at the total for its purchases.
TIO-inspector De Graauw did the same exercise, based on the same information; yet he found a $1 million higher value in 2003, a $670,000 lower value in 2004 and a $360,000 lower value in 2005. “This calculation diverges so much that the only possible conclusion must be that inspector De Graauw gave himself a certificate of incompetence,” Bergman said.
To calculate Spifo’s fiscal advantage of 2.6 million guilders, the inspector assumed a gross profit margin of 70 percent. Bergman, using the average percentage other inspectors found for similar stores, arrived at a fiscal advantage of almost 670,000 guilders (a bit more than $372,000).
mr. Bergman concluded that there is no proof Spifo intentionally filed incorrect tax returns and asked the court to acquit his client. In a preliminary plea, his fellow-attorney mr. Pieter Soons asked the court to declare the prosecution inadmissible because the company was unjustly marked as a suspect in 2008.

Prosecutor Van der Wulp quoted inspector Maria as saying: “In the beginning no special findings appeared from the tax returns. I did notice that there was a turnover of millions, but with only a little bit of profit or no profit at all.”
The prosecutor quoted Little Switzerland’s gross profit margin of 84 percent, adding, “Spifo realized over the years 2002 until 2005 an average profit margin of just 34 percent. Based on a comparison of sales receipts for 2006 with the unique registration code of the watches, the auditor found an average profit margin of 70 percent.”

The prosecutor said that the physical movement of watches and jewelry between the respective Goldfinger-stores occurred based on unclear methods. “The inspector was unable to find the internal settlement for these goods between Spifo and the French-side entities. The conclusion must be that Spifo’s administration was a mess.”
Because of the inadequate administration, the prosecutor said, the tax returns simply could not be correct. “In spite of this, Spifo kept filing tax returns as if the annual account was an accurate representation of the reality.”
mr. van der Wulp announced the prosecution’s intention to start a procedure to confiscate Spifo’s fiscal advantage of 2.6 million guilders, but that this procedure will be dropped if the tax inspectorate gets satisfaction for this amount within six months after there is an irrevocable sentence.

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