Nigeria: Tax assessment upheld, retroactive reduction of “tax holiday” for petroleum companies (tribunal decision)
Tax Appeal Tribunal upheld a tax assessment because the taxpayer had failed to object to the assessment within the statutory limitations period.
Taxpayer had failed to object to the assessment within the statutory limitations period
The Tax Appeal Tribunal (Lagos Division) upheld a tax assessment because the taxpayer had failed to object to the assessment within the statutory limitations period. The tax assessment stemmed from a retroactive reduction (from five years to three years) of a “tax holiday” provided certain oil and gas extraction and production companies.
The case is: Federal Inland Revenue Service v. New Cross Petroleum Limited
Summary
The Nigerian Investment Promotion Council (NIPC) in May 2013 issued to the taxpayer a five-year “Pioneer Status Certificate” (PSC) for the period 2008 through 2012. In turn, the taxpayer notified the tax authority of its “Pioneer Status Incentive” (PSI) status and submitted its self-assessed income tax returns without remitting any taxes (because of the “tax holiday” provided by this pioneer status).
In early 2015, the NIPC notified the taxpayer that the PSI status duration was reduced from five years to three years, effectively ending the taxpayer’s pioneer status on 31 December 2010.
Subsequently, the tax authority issued an assessment notice and demand note that included certain tax liability assessments for petroleum profit tax, tertiary education tax, and capital gains tax for over U.S. $5 million on the taxpayer’s profits of 2011 and 2012 tax years.
The taxpayer maintained that the five-year PSC was legal and that it was not liable to pay the additional tax assessments because its PSC was still valid for 2011 and 2012 tax years. The tax authority countered that it had not received the taxpayer’s letter of objection to the assessment and that the assessments had become final and conclusive when the taxpayer failed to object within the statutory period.
The tribunal agreed with the tax authority and found the taxpayer had failed to object to the assessment within the statutory period of limitations and thus upheld the assessment.
KPMG observation
The legality of the grant of PSI to some exploration and production (E&P) companies by the NIPC—including the single five-year term—has been a subject of on-going debate, especially following the retroactive reduction of the tax holiday’s duration to three years. In turn, this has given rise to disputes between some E&P companies and the tax authority regarding the tax holiday claimed for the years cancelled by NIPC.
Read a July 2021 report [PDF 3.8 MB] prepared by the KPMG member firm in Nigeria
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