Restaurateur Dino Jagtiani sentenced for tax fraud

GREAT BAY – The Court in First Instance sentenced restaurateur Dino Jagtiani and Dino’s Corporation yesterday each to a fine of $80,550 for tax fraud. Jagtiani also has to do 100 hours of community service, or spend 50 days in prison.

Since 2005, Jagtiani operated a restaurant in St. Maarten under the name Rare. He is the sole shareholder of Dino’s Corporation. Allard Stamm of Standard Trust wrote a franchise agreement for the restaurateur, because, so he told the court, he wanted to set up a franchise network.

On August 23, 2005, Dino’s Corporation entered into a franchise agreement with Rare International Inc., established in Nevis. Real estate agent Arun Jagtiani, a brother of the restaurateur, was de lone shareholder of this company. Dino Jagtiani signed this contract that gave Dino’s Corporation “the right to operate under the name Rare a restaurant based on the concept of Rare International.” The franchise paid a monthly fee to Rare International.

The court established that between 2006 and 2010, Dino’s Corporation paid and recorded in its books more than half a million guilders (to be exact: 554,132 guilders, or $309,571) in franchise fees due to the Nevis-based entity.

However, only in 2006 and 2007 did Dino’s Corporation deposit franchise fees in an escrow account at Standard Trust. According to the court ruling Jagtiani benefited from “a significant part” of these deposits. He used the money for instance to open the Rituals Coffeeshop.

From 2008 forward, Jagtiani did not pay any more franchise fees, but he did book these expenses in his administration. “There are no invoices from Rare International for Dino’s Corporation for the franchise fees,” the court found. “On the side of Rare International there was no contact person.”

The court ruled that the franchise contract does not reflect reality. The condition for a franchise concept is that the franchisor has used a business concept during a reasonable period of time successfully and that this company provides continuous commercial and/or technical support during the term of the contract – and that is not the case here, the court ruled.

“Dino’s Corporation had hardly started with its restaurant and the new concept when the franchise contract was made.” For lack of a contact person at Rare International, there was also no commercial and technical support.

The court ruled that the franchise, in fact, did not exist, because Rare International did not provide any services at all. The franchise contract was designed to create deductibles, to lower profit taxes, while Jagtiani kept the franchise fees at his disposal.

In its considerations, the court stated that Jagtiani’s actions “can affect tax morality and lead to feelings of injustice among those who do honor their tax obligations. This could lead to a situation whereby more people do not pay their taxes and make more control – finances with tax payers money – is necessary.”

The prosecution said at the trial on September 14 that the disadvantage cause to the tax inspectorate by Jagtiani amounts to $107,000, while the defense argued that it was just 72,446 guilders ($40,473). The court however calculated that the disadvantage is $108,141 and that this justified the fine of $80,550 for Jagtiani and the same fine for Dino’s corporation.