Corporate - Significant developments

Last reviewed - 24 February 2023

The President signs the Business Facilitation (Miscellaneous Provision) Bill 2022

On 10 February 2023, the President signed the Business Facilitation (Miscellaneous Provision) Bill 2022 (also known as the Omnibus Bill) into law. The Act is a legislative intervention by the Presidential Enabling Business Environment Council (PEBEC) which codifies Executive Order 001 and amends 21 business related laws to remove bureaucratic constraints to doing business in Nigeria. 

TAT rules that Information Technology (IT) Levy does not apply to network facilities providers

A telecommunication infrastructure company carries on the business of infrastructure sharing and colocation, i.e operates telecom facilities ( e.g masts, towers and related equipment) and gives telecom companies access to these facilities. The Company drew the attention of the Federal Inland Revenue Service (FIRS) to the automatic assessment of IT Levy (1% of its Profits Before Tax) as part of the Company’s 2021 tax returns filed on the FIRS’ e filing platform ( TaxPro Max).

After reconciliation meetings, the FIRS issued an official notice of assessment in this regard, which the Company objected to. The FIRS subsequently issued a Notice of Refusal to Amend this liability, after which the Company filed an appeal at the TAT.

TAT says certain legal costs and employee remuneration are not deductible

A Bank set up a reward scheme (the “Programme”) for exceptional employees. The Programme entailed subsidising the interest on mortgage loans taken by qualifying employees, and therefore the Bank recognised these costs in its books. The FIRS disallowed expenses relating to the Programme.

Also, the Bank incurred legal expenses in respect of a Court of Appeal (COA) suit against the Financial Reporting Council of Nigeria (FRCN) and the National Office for Technology Acquisition and Promotion (NOTAP). The FIRS also disallowed the legal costs on the grounds that they were avoidable and were not necessarily incurred in the course of the Bank’s business. In an interesting turn of events, the Tribunal ruled in favour of the FIRS and held that the Bank was liable to the additional assessments in both instances.

Nigeria Startup Act - Positioning the country for the 4th Industrial Revolution

On 19 October 2022, the Nigeria Startup Act was signed into law and took effect immediately. The Startup Act complements and provides a legal framework for the National Digital Economy Policy and Strategy (NDEPS) launched in 2019. The NDEPS is anchored on eight (8) pillars, i.e. Developmental Regulation, Digital Literacy and Skills, Solid Infrastructure, Service Infrastructure, Digital Services Development and Promotion, Soft Infrastructure, Digital Society and Emerging Technology and Indigenous Content Development and Adoption.

TAT clarifies Permanent Establishment rules, and the application of Stamp Duties on certain contracts

A non-resident company engages in the business of distributing satellite capacity across the globe via its communication satellites in Nigeria.

The Company entered into a contract with the Nigerian Broadcasting Corporation (NBC or the “Customer”) through a related party in Nigeria. Based on the facts presented, this arrangement was in line with a Federal Government Executive Order mandating government Ministries, Departments, and Agencies (MDAs) to include Nigerian companies as parties to contracts with foreign service providers. The also contracted an unrelated local Company to provide uplinks and transmission services to the Customer.

The FIRS took the position that the Nigerian companies created a Permanent Establishment (PE) for the Non-resident company in Nigeria. The FIRS also assessed Stamp Duties at 1% on the contract between NBC and the Non-resident company.

The Tax Appeal Tribunal (TAT) upheld the FIRS' view and ruled that the non-resident Company created a PE in Nigeria. On the other hand, the TAT held that a Non-resident Company is not liable to Stamp Duties.

In view of this judgement, Non-Resident Companies (NRCs) should pay a bit more attention to their arrangements with Nigerian companies, in executing contracts with Nigerian customers. The burden of proof is on the NRC to justify that the activities of the Nigerian company would not be deemed as creating a taxable presence in Nigeria for the NRC. 

FIRS issues Guidance Notes on Tax Audits and Investigations

The FIRS released Guidance Notes on 28 October 2022 which set out general expectations of stakeholders regarding tax audits and investigations including timelines. These Guidelines provide a framework aimed at facilitating seamless tax audits and investigations exercises to increase trust, and reduce compliance costs.

Tax audits and investigations can be quite time, cost and resource demanding if not properly managed. It is therefore commendable that the FIRS has engaged with key stakeholders to seek input in putting together the Guidance Notes. The engagement and feedback process with relevant stakeholders should be sustained to ensure regular review of the Guidance Notes and further improvement of the audit and investigation process.

FIRS appoints Telcos and Banks to withhold VAT

The FIRS has appointed MTN, Airtel and all money deposit Banks to collect or withhold VAT on invoices received from their vendors and remit to the FIRS effective from 1 January 2023.

Ordinarily under a VAT system, a supplier or service provider charges VAT on their invoice which is to be paid by the customer along with the price of the good or service for onward remittance to the FIRS. However, under the Withholding VAT rule, a customer is required to pay the vendor net of VAT while the VAT is remitted directly to the FIRS. Currently a similar arrangement is applicable to companies operating in the Oil & Gas sector as well as Government and their agencies.

The new excise duties on telecommunications services: What you need to know

The Federal Government of Nigeria recently announced excise duties at 5% on telecommunications services in Nigeria, as part of the 2022 Fiscal Policy Measures and Tariffs Amendments Order. This is further to recent amendments to the Customs and Excise Tariff, Etc. (Consolidation) Act which included telecommunications services provided in Nigeria, as subject to excise duties.

Although there are indications that the tax may have been suspended according to the Minister of Communications and Digital Economy, the legal process required to suspend the tax is yet to be activated or published. Therefore, from a legal perspective, the tax is still applicable and affected taxpayers need to take steps to ensure compliance. 

TAT rules on the applicability of Excess Dividends Tax on certain income, VAT on reimbursements, and taxpayers’ right to fair hearing

The Federal Inland Revenue Service (FIRS) audited a Nigerian company (NigCo) for the period 2013 - 2015 after which it assessed the Company to N10.98b in additional taxes. NigCo disputed the assessment on the basis that the Company was not given fair hearing during the process. NigCo also disputed the Excess Dividends Tax (EDT) assessments on the basis that EDT should not apply on the redistribution of dividends received from pioneer companies and from subsidiaries which have been subject to WHT (franked investment income). The FIRS subsequently issued a Notice of Refusal to Amend (NORA), after which NigCo filed an appeal at the Tax Appeal Tribunal (TAT).

The TAT ruled that VAT should not apply on the reimbursement of costs paid on behalf of NigCo by another entity, and subsequently recharged to the Company. Also, the distribution of dividends comprising franked investment income and dividends received from pioneer companies are exempt from EDT (even before this was specifically included in CITA in 2020). Recent tax law amendments may significantly impact similar transactions going forward.

Tax Appeal Tribunal rules that assessments without justifiable support are invalid

The Anambra State Internal Revenue Service (ASIRS) audited a Nigerian (NigCo) for 2001-2014 after which it assessed the Company to N1.3b WHT liability. NigCo submitted a series of objections until ASIRS issued a final assessment of N130,311,903.51. In response, NigCo filed an appeal at the Tax Appeal Tribunal (TAT or the Tribunal).

The TAT held that the basis for the ASIRS' additional assessment on NigCo was not supported by documentary evidence and as such was not tenable. Taxpayers are encouraged to object to assessments which are not backed by documentary evidence and seek redress in court where necessary.

FHC rules that the FIRS is the relevant authority to collect N50 Stamp Duty on bank transfers

The Stamp Duties Act was recently amended to introduce a N50 stamp duty or Electronic Money Transfer Levy (EMTL) on electronic receipts or transfers of N10,000 and above in any bank. Further to this amendment, the Federal Inland Revenue Service (FIRS) and the Central Bank of Nigeria (CBN) directed a Nigerian Bank (NigCo) to collect and remit the N50 duties to the FIRS.

The Anambra State Internal Revenue Service (AIRS) subsequently wrote to the NigCo demanding that duties on transactions concluded by individuals resident in Anambra State, be remitted to AIRS. This led to the sealing and locking up of some of the bank’s branches in the state. NigCo then approached the Federal High Court (FHC) to seek the interpretation of the relevant tax laws.

The FHC ruled that electronic receipts and transfer of money transactions between customers is a banking transaction, and the Bank is a party. Therefore, the FIRS is the lawful authority to collect the said duty.

This judgement is expected to bring some respite to banks and other financial institutions who may be swamped with conflicting demands from the FIRS and State tax authorities where they have branches, to remit the N50 duty collections.