Tax & Business Matters - Nigeria

Tribunal rules again in favour of the FIRS on Excess Dividend Tax

The Federal Inland Revenue Service (FIRS) audited the tax returns of Ecobank Nigeria Plc (“Ecobank”, “the company” or the “Bank”) relating to the 2015 and 2016 financial years (FYs). The FIRS alleged that the Bank paid out about N5.5bn in dividends to its shareholders out of its 2015 FY accounts when the company was in a tax loss position for the year.

The Tribunal made a determination on the following issues:

1. Was the FIRS correct to assess EDT on dividends paid out of profits from Bonds, Treasury Bills and other Government Securities which are specifically exempted from Companies Income Tax?
2. Was the FIRS misdirected as it did not consider the EDT on dividends from taxable profits already paid by the Bank?
3. Whether the FIRS interpreted and applied the EDT provision correctly in line with legal principles.

Read our alert and download a copy of the TAT ruling for more.

Download PwC Tax Alert_TAT ruling re FIRS v Ecobank EDT case_Feb2020

Download TAT Ruling_Ecobank v. FIRS

Nigeria's Tax Appeal Tribunal rules in favour of FIRS in a landmark TP case

On 19 February 2020, the TAT held that the ₦1.74 billion assessment issued by the FIRS to Prime Plastichem Nigeria Limited (PPNL) with respect to the company's TP audit was lawful. The TAT's decision is a landmark ruling as it represents the first major TP ruling in Nigeria since the introduction of TP rules in 2012. Below is a summary of the ruling.

Background

PPNL is a private limited company which engages in the business of trading in imported plastics and petrochemicals. In PPNL’s 2013 TP documentation, PPNL applied the Comparable Uncontrolled Price (CUP) method in evaluating the arm’s length nature of its purchase of petrochemical products from its offshore related party, Vinmar Overseas Limited (VOL) by comparing the prices VOL sold similar products to third party customers. However, in 2014, VOL did not transact with third party customers in Nigeria therefore there was no comparable information available to apply the CUP. As a result, PPNL was constrained to apply the Transactional Net Margin Method (TNMM) in evaluating the purchase of petrochemical products from VOL. 

In 2016, the FIRS reviewed PPNL’s TP documentation and disregarded the CUP analysis applied in the 2013 TP documentation, applied TNMM to both 2013 and 2014 transactions, and issued an assessment of ₦1.74 billion. Both parties disagreed on the applicable profit level indicator (PLI) to be adopted in applying the TNMM and the comparables selected in the TNMM analysis. PPNL appealed to the TAT and on 19 February 2020, the Tribunal upheld the FIRS’ assessment. 

Key issues for determination

1. Whether FIRS’ action in benchmarking PPNL’s transaction with TNMM for 2013 and 2014 was valid and in accordance with the TP Regulations and the OECD/UN Guidelines
2. Whether the FIRS’ action of using the Gross Profit Margin Method as the PLI in the instant TP transaction is valid and in accordance with the TP Regulations, OECD and UN Guidelines
3. Whether PPNL’s failure to file their returns within the prescribed period validates the penalty and interest imposed by the FIRS
4. Whether the Decision Review Panel purportedly set up by the FIRS was in accordance with the TP Regulations

TAT's decision

1. On issue 1, the Tribunal decided in favour of the FIRS on the basis that: PPNL could not provide satisfactory explanation for its use of CUP for 2013; there was insufficient information available to reliably apply the CUP; PPNL admitted it applied CUP in error and on its own volition changed methodology to TNMM in 2014; and the fact that PPNL had not applied the benchmarking analysis consistently across years.
2. On issue 2, the Tribunal agreed with the FIRS that Gross Profit Margin was the applicable PLI especially because the FIRS was able to establish that the Gross Profit Margin is in line with best practices and the fact that it also took into account the various factors enumerated by the OECD.
3. On issue 3, the Tribunal decided that the FIRS is empowered to impose penalties on PPNL for failure to file its returns, and to pay the relevant taxes as and when due.
4. On issue 4, the Tribunal held that the receipt of an assessment, and not a formal notification from the FIRS, is the trigger for the establishment of the DRP. This is because the contemplation of the law is that the taxpayer may within 30 days of receipt of the assessment/adjustment refer the assessment to the DRP.

Read our alert for details and download a copy of the judgement below:

Download PwC Tax Alert_TAT Issues Nigeria's first TP ruling_Feb2020

Download TAT Ruling_TP Case PRIME PLASTICHEM NIG LTD V. FIRS

Nigeria Immigration Service Issues New Visa Policy, Africans to get visa on arrival

The Nigeria Immigration Service (NIS) on 4 February 2020 launched the Nigeria Visa Policy 2020 (NVP 2020). The new policy is designed to facilitate economic activities and in turn economic development and national security.

The NVP 2020 expands the classes of visas from the current six to 79 classes. The new classes are categorized into three:

1. Short Visit Visas (28 classes): These allow foreigners to visit Nigeria for a period of up to 3 months, for the purpose of tourism and short business meetings, amongst others.
2. Temporary Residence Visas (36 classes): These allow individuals to reside in Nigeria for the purposes of employment, accompanying employed migrants and schooling, amongst others.
3. Permanent residence Visas (15 classes): these confer permanent residence status on spouses of Nigerian citizens, Nigerians by birth who have renounced their Nigerian citizenship, and their spouses, investors who import an annual minimum threshold of capital, highly skilled individuals and some classes of retirees.

Read our alert for details and download a copy of the New Visa Policy below:

Download Immigration Alert_NIS Launches New Visa Policy 2020_Feb2020

Visa Policy

The Finance Act 2019 has been gazetted with a commencement date of 13 January 2020

The long awaited 2019 Finance Act has been published in the Gazette with a commencement date of Monday 13th January 2020 being the date it was signed into law by President Muhammadu Buhari.  

What does this mean?

S.2(1) of the Interpretation Act (IA), titled "Passing and commencement", states that an Act is passed when the President assents to the Bill whether or not the Act then comes into force. S.2(2) of the IA says where there is no provision as to the time when a particular enactment is to come into force, it shall come into force on the day when the Act is passed ...

The “Acts Authentication Act LFN 2004” (AAA) S.3(2) requires a duplicate when passed and signed shall be returned to the Clerk of the National Assembly who shall publish in the Federal Gazette; and the production of a copy of the Federal Gazette containing the Schedule as published shall be conclusive evidence for all purposes.

This means:

1. that the Finance Act 2019 came into force on Monday 13^th January 2020
2. since the Gazetted copy was only made public in February, the Act is technically retroactive
3. where it is not practicable to apply any provision of the Act retroactively then the effective date will be 1^st of February 2020 as earlier announced by the Minister of Finance, Budget and National Planning.

You can download the gazetted copy here Download Finance Act 2019 Official Gazette