How To Get A Tax Credit In Nigerian Nigeria

Transcription

1 MIND THE GAP PLEASE!!! RECENT JUDICIAL DECISIONS AND SOME OTHER OPEN ISSUES Olaleye Adebiyi Partner WTS ADEBIYI & Associates (Tax Attorneys & Solicitors) House 20 WEMA Terrace Udi Street Osborne Estate, Ikoyi, Lagos. Tel: TAXADVISERS ( )

2 RECENT JUDICIAL DECISIONS OUTLINE GLOBAL INTERNATIONAL DRILLING CORPORATION V. FIRS (2013) 12 TLRN 1 CNOOC EXPLORATION AND PRODUCTION NIGERIA LTD V. ATTORNEY GENERAL OF THE FEDERATION & 2 ORS - (2011) 4 TLRN45 OANDO SUPPLY & TRADING LTD V. FIRS (2011) 4 TLRN ON THE STATUS OF A NORA NIGER DELTA DEVELOPMENT COMMISSION V. NIGERIA LIQUEFIED NATURAL GAS LIMITED (2011) 4TLRN 1 TSKJ II CONSTRUCUOES INTERNACIONAIS & ANOR V. FIRS (2014) 13TLRN 1 SOME OPEN ISSUES SINGLE (TURNKEY) CONTRACT SECTION 19 CITA WITHHOLDING TAXES (WHT) LEVIED ON GROSS FEES SUPPLY OF FEED GAS VIS-À-VIS EXEMPTIONS UNDER THE VAT ACT MULTIPLE TAXATION INTERESTS AND PENALTIES IN TAX ASSESSMENTS 2

3 GLOBAL INTERNATIONAL DRILLING CORPORATION V. FIRS (2013) 12 TLRN 1 Two main issues for determination: Whether the Turnover Basis of Assessment under Section 30(1)(b) of CITA allows for deduction of recharges; Whether the Appellant is entitled to rely on the doctrine of reasonable expectation from reliance on Information Circular Number 9302 of 22 nd March 1993 which stated that for a non resident company or individual with a fixed base in Nigeria, the turnover that can be assessed and charged is only that portion that is attributable to the fixed base. Section 30(1)(b) CITA - Notwithstanding Section 40, for a Fixed Base, FIRS can use a fair and reasonable percentage of the turnover (Turnover Basis of Assessment) to determine tax liability where the true amount of the assessable profit cannot be ascertained. Doctrine of Reasonable Expectation - express or implied undertaking given on behalf of a public authority which the claimant may reasonably be expected to continue. - Council of Civil Service Union and Others v. Minister of Civil Service (1984) 3 All E. R

4 GLOBAL INTERNATIONAL DRILLING CORPORATION V. FIRS (2013) 12 TLRN 1 On Doctrine of Reasonable Expectation - FIRS has freedom to change policy The respondent must have the freedom to interpret the revenue laws and give general practice guidance to tax payers when the tax policy and enactment suggests. On the status of the FIRS Information Circular - merely an explanatory note Cannot by any stretch of statutory interpretation override or supersede the clear and unambiguous meaning of any statutory provision. Therefore, it cannot be clothed with any legal authority giving it statutory flavour. On the effect of Section 30 of CITA - once exercised, it is a foreclosure of other filing method Sections 30 and 55 are the basis of filing tax returns. The failure of the Appellant to comply with Section 55(1) filing audited accounts etc- made it impossible for the Respondent to determine the Appellant's assessable profit and hence resort to Section 30(1)(b)(i) 4

5 CNOOC EXPLORATION AND PRODUCTION NIGERIA LTD V. ATTORNEY GENERAL OF THE FEDERATION & 2 ORS: (2011) 4 TLRN45 Whether VAT is due in respect of the assignment of interest in OML130 under the VAT Act. The Court held that an assignment of interest in Oil Mining Leases does not constitute either supply of goods or services as contemplated by the VAT Act - therefore not VATable. See Section 46 of the VAT Act which defines a taxable person as follows: a person exploiting tangible or intangible property for the purpose of obtaining income therefrom by way of trade or business Goods may be a tangible or an intangible property. It would become goods provided it has the attributes thereof having regard to: its utility; capable of being bought and sold; capable of being transmitted, transferred, delivered, stored and possessed - see Tata Consultancy Services v. State of Andhra Pradesh (2004) 24 PHT 581- India Supreme Court 5

6 OANDO SUPPLY & TRADING LTD V. FIRS (2011) 4 TLRN ON THE STATUS OF A NORA An Appeal was commenced by a taxpayer against an assessment while the Objection to the Tax Assessment has not been resolved by the tax authority. The FIRS filed a preliminary objection on the grounds that the Appellant s Notice of Objection was still pending and being reviewed, hence the TAT cannot assume jurisdiction over the matter - Notice of Refusal to Amend (NORA) had not been issued. The TAT stated that Desirable as they may be, NORA as part of the FIRS internal tax complaints handling procedure are now optional, from the point of view of the taxpayer Paragraph 13(1) of the Fifth Schedule to the FIRS Act. The TAT held that failure to issue NORA within reasonable time or at all is a deemed decision (within the meaning of Paragraph 13(2) of the Fifth Schedule to the FIRS Act) refusing amendment in terms of the taxpayer s Objection or in effect a deemed NORA NORA helps in narrowing down the issues in dispute. 6

7 NIGER DELTA DEVELOPMENT COMMISSION V. NIGERIA LIQUEFIED NATURAL GAS LIMITED (2011) 4TLRN 1 Whether NLNG, as a company engaged in Gas Processing is liable to pay 3% of its Total Annual Budget to the NDDC further to the provision of Section 14(2)(b) of the NDDC Act. FHC ruled in favour of NNLG, NDDC appealed. The Court of Appeal affirmed the decision of the Federal High Court and held that a key condition for a gas processing company to pay NNDC levy is that it must have a Total Annual Budget within the context of Section 14(2)(b) of the NDDC Act. The Court of Appeal further held that the NDDC failed to prove that NLNG (and all gas processing companies) has a Total Annual Budget as understood in the oil industry on which to base the 3% charge. The decision of FHC on when the 3% becomes payable was not on appeal - upon commencement of production. 7

8 TSKJ II CONSTRUCUOES INTERNACIONAIS & ANOR V. FIRS (2014) 13TLRN 1 Treatment of recharges paid on a Sub-Contract to a Nigerian Company deducted by a non-resident company before calculating tax on Turnover Basis. Compare Halliburton W/Africa v. FBIR In its judgment of August 1, 2012, the TAT, Abuja zone ruled in favour of the FIRS as follows: The Halliburton's case does not apply because while that case involves a tripartite agreement with one turnover, the TSKJ case involves a Subcontract with two distinct turnovers one for the Main Agreement, the other for the Subcontract. Under the turnover basis assessment, it is only 20% of the turnover that is assessed and charged to tax while the remaining 80% covers all expenses incurred by the company including any amount it may have paid to its local concern. That there is no provision of the law which makes payment of fees on a subcontract an allowable deduction. In appealing against this judgment at the Federal High Court, the company raised the issue of the jurisdiction of the TAT over the subject matter of the Appeal. 8

9 TSKJ II CONSTRUCUOES INTERNACIONAIS & ANOR V. FIRS (2014) 3TLRN 1 On the 30th of October 2013, the FHC held that the TAT as constituted under Section 59(1) & (2) of the FIRS Act 2007 does not have jurisdiction to entertain matters relating CIT, PPT, CGT, VAT and any matter relating to the revenue of the Federation. FHC overruled the Tribunal on the issue of recharges and held that any amount paid by a non-resident company to the local company will be deductible. And that TAT should have followed Halliburton given its inferior status to FHC. An order directing the Honourable Minister of Finance to disband the eight (8) Tax Appeal Tribunals across the nation. FIRS has appealed this decision but application for stay refused in February However, in NNPC V. Tax Appeal Tribunal & 3 Others (2014) 13 TLRN 39 the FHC subsequently held that there is nothing unconstitutional about the roles being played by TAT and affirmed that the TAT has jurisdiction to entertain corporate tax matters. But what happens to Appeals on PAYE Matters? LIRS files appeals at State High Court but attends TAT to defend Should TAT not just be an Administrative Panel made up of retired Tax Practitioners mediating and making recommendations to FIRS? 9

10 SINGLE (TURNKEY) CONTRACT In Taufic Karan V. Commissioner for Income Tax (WACA 25 May 1948) judicial interpretation was given to the phrase derived from, brought into, or received in Nigeria. The Court held that the words accruing in and received in import a clear territorial limitation to Nigeria - appear to be designed for cases where profits arise from transactions carried out in Nigeria by non-resident tax payer. A non-resident company must have operated from a Fixed Based - an identifiable place of business with some degree of permanence. Such place includes activities such as building, construction, assembly, or installation, a place of management, a branch, an office, a factory, a workshop, a mine. an oil well, etc. even if not owned by the user - Shell International Petroleum BV v. FBIR (2004) 3 NWLR (Pt. 859) 46 Summary of Section 30(1) (b) (iii) CITA further provides as follows: (b)if the company is a company other than a Nigerian company (iii)..executes one single contract involving surveys, deliveries, installation or construction, assess and charge the company for that year of assessment on such fair and reasonable percentage of the turnover of the contract; 10

11 SINGLE (TURNKEY) CONTRACT That provision clearly applies to instances where both the offshore and onshore activities are awarded to the same non-resident company.- TSKJ II vis-à-vis Halliburton 30(1) (b) (iii) CITA is not triggered merely because a non-resident company and a Nigerian company are parties to the same contract where non-resident company focuses on offshore activities. Focus should be on nature of contract, activities and where the activities are being performed. The offshore element of a contract will only attract tax liability in Nigeria to the extent that it is performed through a PE/Fixed Base or part of a single contract that also involves performance of onshore elements. Where there is a tripartite (single) contract involving a Nigerian customer, an offshore contractor performing activities abroad and a local contractor performing activities in Nigeria, that would not equate to one single contract for purposes of Section 30 CITA Halliburton West Africa v. FBIR. Local classicus is the Indian case of Ishikwajma-Harima Heavy Industries Limited v Director of Income Tax -Taxman 259 (SC) (2007) 207 CTR 361 (SC) where the court held that for purpose of taxation there has to be some activity through a PE/Fixed Place - That only such part of the income attributable to the operations carried out in India can be taxed in India. 11

12 Section 19 of CITA provides as follows: SECTION 19 CITA Where a dividend is paid out of profits on which no tax is payable due to o no total profits; or o the total profits which are less than the amount of dividend which is paid.the company paying the dividend shall be charged to tax as if the dividend is the total profits of the company for the year of assessment to which the accounts, out of which the dividend declared relates. What are the conditions? Dividend payable from profits on which tax has not been paid; Total profits must be less then the dividend declared (or nil) - FIRS treat this as the only condition Section 19 should therefore not apply to: Frank Investment Income Dividend declared from retained earnings of profit already subjected to tax 12

13 WITHHOLDING TAXES (WHT) LEVIED ON GROSS FEES WHT not a separate tax but advance payment of tax - affirmed in FIRS Circulars and the case of 7UP Bottling Company Plc v. Lagos State Inland Revenue Board (2000) 3 NWLR (Pt650) 565. Tax is payable on PROFITS not INCOME. WHT on gross amount-contract for the Supply of a Printer for N Cost of Printer- N950- Profits N50- WHT N50 Works perfectly well for Non-resident Contractors (Turnover Basis of Taxation) but not local business Should WHT apply to supply of goods or simply services? Sale and purchase in the ordinary course of business Other than Dividends, Interest Income, Rents and Royalties- no statutory provisions on WHTgoverned mainly by FIRS Regulations. Section 81(6) CITA (deemed Omnibus Section) not sufficient- Every person required under any provisions of this Act to make any deduction from payments made to any company shall account to the Board in a such manner prescribed by the Board for the deduction so made. Create an Alert System for WHT Credits as in banking- Win-Win for everyone 13

14 SUPPLY OF FEED GAS VIS-À-VIS EXEMPTIONS UNDER THE VAT ACT Non-oil Export is Zero Rated under VAT Act implications-lng, EGTL Methanol and other processed gas products for export Feed Gas- Refund mechanism and Cash flow issues FIRS most probably lacks power to refund despite provisions in the FIRS Act -See Halliburton v. FBIR Why not just exempt Feed Gas on production meant for export? Sale in domestic market does not lead to loss of tax revenue Allow Net-Off from other tax obligations-firs the only winner-time value of money 14

15 MULTIPLE TAXATION Multiple taxation is not only about FIRS or LIRS raising more taxes but continued existence of certain other Taxing Authorities ITF Contribution made by Companies on the basis of 1% of annual payroll cost NSITF Contribution - on the basis 1% of the total monthly payroll NHF Contribution - a Nigerian worker who earns N3,000 and above per annum in both the public and the private sectors contributes 2.5% of his basic monthly salary to the fund. Why continue charging ITF when there is Education Tax? Or NSITF when there is now Pension Act mandating Contributory Pension? If tax payers are reluctant to pay taxes may be FIRS/JTB should address activities of these Federal Institutions 15

16 INTERESTS AND PENALTIES IN TAX ASSESSMENTS Where a taxpayer fails to file returns or pay the tax due, the relevant tax authorities impose penalties and interest on the taxpayer, agent or employer from the due date of filing. CITA, PITA and PPTA position on the interest for non payment or late payment of income tax is as follows: The tax due from a taxable person shall carry interest on annual basis at the bank base lending rate and penalty at 10% from the date when the tax becomes payable until it is paid Interest payment as stated in the provisions of law is to be charged on the sum in the same way as the penalty. But what happens in practice? Applicable interest rates differ at Federal and State Level- FIRS at the prevailing CBN Minimum Rediscount Rate +5%, States at 21%.-Compare Section 32 FIRS Act and Sections 77 and 82 of PITA There is a contradiction between the provisions of FIRS Act and PITA for example Section 68 (1) and (2) of FIRS (Establishment Act) provides that where there is an inconsistency between any other tax law and FIRS (Establishment Act the provisions of FIRS (Establishment Act) would prevail - Oando Supply &Trading Ltd v. FIRS (2011) 4TLRN

17 INTERESTS AND PENALTIES IN TAX ASSESSMENTS Tax laws are interpreted strictly Ahmadu v. Governor of Kogi State. (2009) 1 TLRN 319- A law which imposes pecuniary burden is, under the rules of interpretation, subject to the rule of strict construction. All charges upon the subject must be imposed by clear unambiguous language because in some degree they operate as penalties. In Aubyn v. Attorney General (1952) A.C. 15 at 44, it was held per Lord Radcliffe as follows: The taxpayer is entitled to be told with some reasonable certainty in what circumstances and under what conditions liability to tax is incurred. On the basis of AHMADU & AUBYN- Can the tax authorities charge interest the way they like? 17

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