The Finance Act 2019 (“FA 19”) was signed into law on 13 January 2020. One of the FA 19 amendments was the removal of the Minimum Tax exemption previously granted in the Companies Income Tax Act (“CITA”), to companies with at least 25% foreign ownership. The question that then arose was how to determine the accounting period covered by FA 19.
Accugas Limited (“Accugas”), a company with at least 25% foreign ownership and with a January to December financial year (FY), filed its 2019 FY returns in June 2020. On this basis, Accugas wrote to the Federal Inland Revenue Service (“FIRS”) to confirm that the minimum tax exemption still applied to its 2019 FY returns, since the amendments became effective in January 2020. The FIRS refused the request, stating that the law change affects returns due after the effective date, notwithstanding that the FY was before the amendment. To avoid interest and penalty, Accugas filed its tax return and paid the minimum tax. Accugas thereafter filed an appeal at the Federal High Court (“FHC”).
The FHC ruled that FA 19 did not apply to income earned before its enactment, and that as the intention of the legislature was not to make FA 19 apply retroactively, FA 19 could not be given retroactive effect. Therefore, Accugas could still enjoy the pre-FA 19 minimum tax exemption, to its 2019 FY returns filed in 2020.
The judgement raises interesting questions with respect to the application of FA changes, especially with respect to CIT. Companies are encouraged to review how the judgement could impact their historic tax returns and what their approach should be if the FIRS appeals the judgement.
Please see our Tax Alert on this, and the FHC judgement below: