On Friday, 11 February 2022, the Tax Appeal Tribunal (TAT or “the Tribunal”) sitting in Lagos, decided in Sahara Energy Exploration and Production Limited (Sahara or “the Company” or “the Appellant”) vs Federal Inland Revenue Service (FIRS or “the Respondent”) that the Appellant’s partial transfer of interest in an oil prospecting license (OPL) constituted a disposal of chargeable asset under Section 3 of the Capital Gains Tax (CGT) Act, and not a gain from petroleum operations as provided under Paragraph 1(2) (b) of the Second Schedule to the Petroleum Profits Tax (PPT) Act
Facts of the Case
In November 2005, Sahara transferred half of its 90% participating interest in OPL 332 to BG Exploration and Production Nigeria Limited (BG) and realised a gain of US$27,915,000 on the transfer. Following a notification from National Assembly regarding Sahara’s tax liabilities from the transaction, the FIRS carried out a routine tax audit on Sahara’s records for the 2004 - 2009 financial years. After several reconciliation exercises, the FIRS assessed the Company in its letter of 23 May 2012 to a capital gains tax of US$3,210,225 inclusive of interest and penalties. Sahara objected to the FIRS’ assessment within the statutory period, stating that the disposal occurred before the Company’s first accounting period. Therefore, the gain derived therein should be treated as part of its chargeable oil receipts, during the first accounting period, in line with Paragraph 1(2)(b) of the Second Schedule to the PPT Act. The FIRS refused to accept the Company’s position and insisted that the CGT assessment was valid.
Dissatisfied with the FIRS’ position, Sahara filed an Appeal before the TAT seeking the following reliefs:
- An order discharging the Appellant of the CGT assessment served on it by the Respondent in respect of transfer of interest in OPL 332 for 2009 year of assessment.
- For such further orders as the Tribunal may deem fit to make