Nigeria: Transfer of interest in oil prospecting license subject to capital gains tax (tribunal decision)

Taxpayer’s partial transfer of interest in an oil prospecting license constituted a disposal of a chargeable asset subject to capital gains tax

Subject to capital gains tax (tribunal decision)

Article Posted date 21 March 2022

The Tax Appeal Tribunal (Lagos) held that the taxpayer’s partial transfer of interest in an oil prospecting license constituted a disposal of a chargeable asset subject to capital gains tax—and was not a gain from petroleum operations pursuant to a provision of the Petroleum Profits Tax (PPT) Act.

The case is: Sahara Energy Exploration and Production Ltd. v. Federal Inland Revenue Service (11 February 2022)

Summary

  • The taxpayer in November 2005 transferred half of its 90% participating interest in an oil prospecting license (that is, a 45% interest) and realised a gain of approximately U.S. $28 million on the transfer.
  • The tax authority conducted a routine tax audit and assessed a capital gains tax of approximately U.S. $3.2 million.
  • The taxpayer asserted that the gain was part of its petroleum operations, under the PPT Act, but the tax authority rejected this argument.
  • The tribunal held that the taxpayer’s transfer of 45% of its interest in the oil prospecting license qualified as a disposal of a chargeable asset and was subject to capital gains tax.
     

Read a March 2022 report [PDF 562 KB] prepared by the KPMG member firm in Nigeria

 

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