A Review of the Nigerian Energy Industry

Court orders TSKJ to pay $35m tax liability to FIRS

06 August 2012, Sweetcrude, ABUJA – THE Abuja division of the Tax Appeal Tribunal, TAT, has ordered TSKJ – the construction contractors to the Nigeria LNG Limited, NLNG – to pay N5.14 billion ($35,938,087) as tax liabilities to the Federal Inland Revenue Service, FIRS.

The order specifically concerns TSKJ II, a multinational company and parent firm to TSKJ Nigeria Limited.

It follows an appeal by TSKJ II, challenging the FIRS Tax assessments in a contract for the construction of the Nigeria liquefied natural gas project. The assessment is for the period, 2006 to 2008,

Acting Chairman of the Tribunal, Hon. Nnamdi Ibegbu (SAN), who issued the order, also awarded N300, 000 against TSKJ II as cost of the three appeals decided in favour of FIRS.

The company (TSKJ II) had filed three separate appeals with suits No TAT/ABJ/APP1010/2008, TAT/ABJ/APP/006/2006 and TAT/ABJ/APP/017/2010 before the tribunal.

In the appeal to the Tax Appeal Tribunal by TSKJ II against the FIRS assessment, the company challenged FIRS refusal to amend its assessments for 1997-2002 and additional assessment raised by the Service and 550, 556.74 dollars tax liabilities for 2008 and 2009 tax years, among others.

In the first ruling on the appeal of FIRS assessment for 1997-2002, the Tax Appeal Tribunal upheld FIRS assessment that TSKJN is to pay $ 16,688,267 dollars as tax.

Also, in the ruling, the court upheld FIRS assessment of $ 19,249,820 million dollars.

In trying to fulfill its tax obligations for the years in question, TSKJ II filed its tax returns, under Section 26 of Companies Income Tax, CITA, but made deductions on expenses incurred by its subsidiary, TSKJ Nigeria Limited, but, the FIRS scoffed at that.

FIRS maintained that since TSKJ II did not file its audited accounts, but filed under Section 26 of CITA, deductions in favour of TSKJ Nigeria Limited were not allowable.

Rather, FIRS maintained, Section 26 of CITA gives the FIRS Board discretionary powers to allow 80 per cent turnover as expenses/costs, and assess the remainder of 20 per cent of turnover at 30 per cent.

Statutorily, companies are required to file returns based on audited accounts, but TSKJN filed its returns for the years in question based on the Section 26 of CITA, with turnover as basis for assessment.

The FIRS additional assessment was also based on the company’s refusal to file its returns based on its audited accounts, in accordance with the law.

The tribunal said that tax law on the issues raised were clear and that there were no ambiguities whatsoever in Sections 41 and 26 of Companies Income Tax Act (CITA), which provides that payments to a subcontractor in any transaction by the taxpayer is not an allowance deductible under section 20 of CITA.

Said the TAT Chairman: “On resolving this issue in favour of the respondent, it is not disputed that the Appellant filed its returns on turnover basis, so under that basis, it is the respondent who defines what amount is fair and reasonable percentage of the turnover.

“It is undisputed that 80 percent covers all the costs incurred by the taxpayer when using the Turnover Basis of Assessment. There is no provision of the law which makes subcontract allowable deduction.”

He, therefore, dismissed the appeal.

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