(This Statement discusses some of the anomalies in interpreting Section 185 of The Companies Act, 1965 and seeks to achieve uniformity and full disclosure in keeping with a true and fair view. It supersedes the Council’s recommendations on the subject issued in November 1969 and applies to all companies for accounting periods ending after December 31, 1975.)
| Part | Item | Paragraph |
| I | Explanatory Forward | 1 |
| II | Exposition of Difficulties |
2-4 5 |
| III | STANDARD ACCOUNTING PRACTICE | 6 |
| IV | Duty of Members | 7 |
1. Directors’ Emoluments are required to be stated separately in financial statements in order that shareholders may be adequately informed as to the earnings of their directors in relation to their stewardship as officers of the company and the company’s subsidiaries. However, Section 185 (the Section) of the Companies Act (the Act) which provides for this disclosure is ambiguous in part and may cause insuperable difficulties of interpretation. For this reason it must be emphasised that the over-riding requirement of the Act is that company accounts give a true and fair view (Section 143) and the council requires that this principle be given preference over any anomalies which may arise out of adherence to the literal meaning of words contained in the Section
Part II - Exposition of Difficulties
2. The main problems of disclosure arise out of the interpretation of the definition of emoluments contained in paragraph (b) of sub-section (2) of the Section.
The definition may be set out as follows:
the expression ‘emoluments’ in relation to a director, means
(a) the gross sum subject to income tax payable to him as his emoluments and includes fees and percentages,
(b) any sums paid by way of expenses allowance in so far as those sums are charged to income tax,
(c) any contribution paid in respect of him under any pension scheme, and
(d) the estimated money value of any other benefits received by him otherwise than in cash.
3. It will be observed that the Section (unlike Section 196 of the UK. Act on which it is patterned) unfortunately includes the words, "means the gross subject to INCOME tax payable to him as emoluments" (Emphasis added). It is not clear why these words emphasised were added when the Section was drafted, except that they may have been intended to widen the net for disclosures: in fact, the opposite results, and grave doubt arises as to
(i) the correct emphasis to be placed on the matter of taxability in (a) and (b), and
(ii) the interpretation of the Section as a whole if the qualifying words can be read as applying to (c) and (d).
NOTE: (The corresponding part of the UK Section reads as follows:
"For the purpose of this Section the expression ‘emoluments’, in relation to a director, includes fees and percentages, any sums paid by way of expenses allowance in so far as those sums are charged to United Kingdom income tax, any contribution paid in respect of him under any pension scheme and the estimated money value of any other benefits received by him otherwise than in cash." It will be appreciated, therefore, that the UK. Section does not result in taxability being an essential attribute of an emolument.)
4. More specifically some of the problems which may be encountered are as follows;
(a) The gross sum subject to income tax payable to him as emoluments and include fees and percentages:
Taken literally this clause would mean that if a Jamaican company had a branch in the Cayman Islands and had in charge of the Cayman office a director who is permanently resident in Cayman, then in view of the fact that director may not be liable to Jamaican income tax, the emoluments of that director should not be disclosed in the accounts of the company. Clearly, to include a heading for directors’ emoluments in a set of accounts but to disclose merely the emoluments of the Jamaican directors resident in a tax-free zone would be unfair presentation and would be likely to mislead shareholders.
(b) Any sums paid by way of expenses allowance in so far as those sums are charged to income tax;
Although all expenses allowances are required to be reported to the Commissioner of Income Tax they are not necessarily "charged to income tax" as such. Even if so charged, there is often a delay between the date they are reported and the point at which it is agreed they should be taxed. Further, if for some reason allowances are not returned they may never become "charged to income tax". (It would appear that the phrase shouldhave read "chargeable to income tax"). Again, as in (a), a true and fair view of directors’ emoluments may be thwarted as a result of a strict interpretation of the words of the Section.
(c) Any contribution paid in respect of him under any pension scheme:
This clause presents no difficulties in the context in which is given.
(d) The estimated money value of any other benefit received by him otherwise than in cash:
It is sometimes argued that the question of taxability should also enter into the determination of benefits e.g. in relation to rent paid by the company for a director which rent is taxable to the extent of 10% of the director’s salary, the benefits is sometimes said to be the taxable portion. It seems clear, however, that this is not the meaning which can be fairly attributed to the present wording, or indeed to a true and fair view.
5. OTHER PROBLEMS OF DISCLOSURE
(a) Directors Acting in Other Capacities:
It appears that there is uncertainty as regards the disclosure of his emoluments where a director acts (or purports to act) in a capacity other than that of director. For example, a director might receive a commission in his capacity as sales representative for his company. The question is whether such payments are properly disclosable as "director’s emoluments".
(b) Service Companies:
Another problem arises where a service company controlled by a director is paid a management fee which but for such company would be paid to the director himself. Again the question is whether such payments are properly disclosable as "directors’ emoluments".
(c) Amounts paid to directors by other companies or persons:
It sometimes happens that a subsidiary company pays a director a certain salary and, for example, the parent company abroad also pays that director an over-riding amount. Alternatively, a director of the parent may be paid by a subsidiary which he also manages. These points are dealt with by the Act but mention is made of them in this statement for easy reference.
PART III - STANDARD ACCOUNTING PRACTICE
6. Company accounts should disclose as Director’s Emoluments the following which follow the order of the headings (a) to (g) in Part II of this Statement.
(a) Emoluments should include any amounts which if payable to a person domiciled and resident in Jamaica, would be taxable in Jamaica.
(b) The full amount of any expenses allowance which does not represent a reimbursement of expenditure incurred by a Director should be included.
(c) As required by the Act.
(d) The cost of benefits accruing to a Director should be disclosed whether or not these are subject to tax. To the extent that provision of a facility (e.g. a motor car) does not benefit the Director exclusively (e.g. in so far as the car is used for business) an adjustment should be made in recognition of this fact.
(e) Directors’ Emoluments should include all emoluments paid to or receivable by a Director in whatever capacity he acts.
(f) With regard to amounts paid to service companies the Council hereby endorses the rule of the Jamaica Stock Exchange which reads as follows:
"Where in connection with the services of a person who is its Director, a company engages the service of another company or institution, the existence of such company or institution shall be stated by way of note to the Financial Statements unless the gross amount accruing to that company or institution is included in Directors’ emoluments".
(g) Section 185 - (2)(a) states that there must be shown in the accounts all emoluments paid to a director in respect of his services (whether) as a director of the company or in respect of his services, while director of the company, as director of any subsidiary thereof, or otherwise in connection with the management of the affairs of the company or any subsidiary thereof. It will be noted therefore that:
(a) The Act refers to emoluments of the director both(i) as director of the company, and (ii) as director of a subsidiary whilst he is a director of the company, and
(b) the Act does not refer merely to that portion of the emoluments for those services as are paid for the company.
Thus, if a director in relation to those services is paid not only by the company, but also by any other person, whether that other person is the parent company or a fellow subsidiary or anyone else, the payment received from those other parties must properly be included as part of the director’s emoluments.
7. It shall be the duty of members of the Institute who prepare company accounts to ensure compliance with this Statement so far as they are able. Similarly in their capacity as auditors of companies it shall be the duty of members to mention in their report any material deviation from this Statement that comes to their attention.
However nothing in this Statement should be construed as imposing upon the members of the Institute who act as auditors, primary responsibility for discovering deviations from this Statement. It is the duty of Directors to report their emoluments for inclusion in the accounts of their company under Section 187.