Tax & Business Matters - Nigeria

What constitutes turnover for a nonresident company, and when does tax default interest start to count?

The Tax Appeal Tribunal (“TAT”) on 11 December 2014 delivered a judgment on the treatment of revenue allocation by a non-resident company (“NRC”) under the deemed profit regime. The TAT relied on the recent judgment of the Court of Appeal (“CA”) in the Halliburton case, and ruled that where an NRC is assessed to tax on deemed profits basis, further deductions (outside the deemed cost) cannot be taken in any form.

On interest and penalties, the TAT took the position that interest on additional assessment will only start to accrue 2 months after an undisputed assessment has been served and not when the disputed assessment was raised or when the self-assessment returns were filed.

Download PwC Tax Alert_Revenue Determination & Default Interest

Tax is the new black gold

But it will take more than luxury tax to plug the hole. We need to simplify the tax system and broaden our tax base.

Brent crude price has now declined by over 40% hovering around USD 65 per barrel from its peak of over USD 110 per barrel in June 2014. Analysts continue to slash both their demand forecast and crude price for 2015 indicating that we may be in for a long period of decline.

Nigeria’s 2014 Budget was predicated on an average crude oil price of USD 77.5 with a daily production of 2.39 million barrels per day. Even though the average price for the year to date is still above the benchmark price, the pain point for Nigeria seems to be much higher than the benchmark price coupled with the impact of less than budgeted daily production. No thanks to oil theft, vandalisation and delay in enacting the Petroleum Industry Bill into law.

Read my article in today Guardian Newspaper pg 58 for further insights.

Download Tax is the new black gold

When the going gets tough, you need to pay extra attention to your tax matters!

In the past few weeks, the FIRS started to enforce filing of tax returns and payment of outstanding taxes by distraining properties and procuring the arrest of principal officers of defaulting companies. This unconventional means of tax enforcement is as a result of the need to generate revenue in the light of dwindling oil revenue. There is however a big question as to whether this procedure follows due process.

Here is our alert which provides further insights on the subject.

Download PwC Tax Alert_FIRS clamps down on tax defaulters

Court of Appeal upturns the decision of Federal High Court on recharges

The Court of Appeal on 2 December 2014 delivered a judgment on the deductibility of recharges by non-resident companies filing income tax returns under the deemed profit regime in a case brought before it by the Federal Inland Revenue Service (“FIRS”) against Halliburton West Africa Limited (“HWAL”).

The new judgement overturned the decision of the Federal High Court which had set aside the judgment of the Body of Appeal Commissioners that decided the case in favour of the FIRS. The Court of Appeal ruled in effect that where a non-resident company is assessed to tax on deemed profits basis, additional tax assessments can be raised by the FIRS on the discovery of new facts or previously undisclosed information.

Read our tax alert below for further insights and download a copy of the judgement below.

Download PwC Tax Alert_Court of Appeal upturns ruling of Federal High Court on recharges

Download Court of Appeal_Judgement on Recharges_2Dec2014

 

Court of Appeal upturns the decision of Federal High Court on the deductibility of expenses by non resident companies under the deemed profit basis

We understand that the Court of Appeal has reversed the long standing decision of the Federal High Court (FHC) regarding the treatment of sub-contracting expenses in the determination of deemed profit of a non resident company.

The FHC had ruled in a case between the FIRS and Haliburton to the effect that payments by the foreign entity to a Nigerian subcontractor should not be included in the turnover of the foreign entity used in calculating deemed profit tax. This was on the basis that doing so will amount to double taxation since the income will also be taxed as income in the hands of the local entity. Under the deemed profit basis, 20% of the turnover of a foreign company is deemed to be profit taxable at the corporate income tax rate of 30% resulting in an effective rate of 6% on turnover.

This new judgement will have implications for foreign companies with subcontracting arrangements in Nigeria especially if the judgement is applied retrospectively. It is important to note that the FIRS now requires that tax returns be filed based on actual profits.

Watch this space for further updates on this new development.

Tax and Economy Watch: Is there a perfect storm gathering?

"You never know who is swimming naked until the tide goes out." - Warren Buffet

There have been significant developments in Nigeria over the past few weeks and days which have impacts on businesses, and could redefine the tax landscape. The falling oil prices and the depletion of the foreign reserves have led to the devaluation of Naira and a more aggressive approach to tax collection by the authorities.

Read our tax alert and economy watch to find out how these developments may affect you and the steps you should take to manage the impact.

Download Tax Alert_Key Tax Issues and Stakeholder Forum

Download Economy Watch - Managing the impact of declining oil prices

December 2014 Tax Calendar

As the year comes to a close, remember to tidy up your tax affairs. You need to ensure full compliance and on time.

Here is our tax calendar for the month of December to assist you in this regard.

Download Tax Calendar_December 2014