Tobi Aminu

Background Section 19 of the Companies Income Tax Act (CITA) imposes tax at 30% on a company where it declares and pays dividends in excess of its total profit. The relevant total profit is the profit of the year from which the dividend was declared and not the profit of the year in which the dividend was paid. The tax imposed by section 19 is generally referred to as Excess Dividend Tax [EDT]. Previous decisions of the Tax Appeal Tribunal [TAT], Federal High Court  [FHC] and Court of Appeal [CoA] on section 19 have all been against the taxpayers. Facts of the appeal The company involved in this case declared and paid dividends to its shareholders in financial year 2014 even though it had no taxable profits for the year. Based on the audited financial statements, the dividends paid were from retained earnings which had suffered tax in previous accounting years. Taxpayer’s position The company’s arguments are: Section 19 is an anti-avoidance provision introduced to curb tax avoidance schemes where a company pays dividends out of accounting profits or distributable reserves without paying any tax on such distributions. As an anti-avoidance provision, section 19 must be applied to cure tax avoidance schemes only. In the instant appeal FIRS’ application resulted in double taxation since the retained earnings from which the dividends were paid had already been subject to tax in previous years, the mischief rule as opposed to the literal rule should be applied to achieve the objective of section 19.  before section 19 is applied, FIRS must be able to establish that a taxpayer had carried out a tax avoidance scheme. The company also asked the Tribunal to distinguish the earlier decisions because in this case, there was uncontroverted evidence before the TAT that the taxpayer had not carried out any tax avoidance scheme. FIRS’s position The FIRS’s position was that section 19 should be interpreted literally. It argued that in applying the section, two things should be considered: the year of assessment in which the dividend was paid;  the total (taxable) profit of the company for that year. Where the dividend exceeds the taxable profit or there is no taxable profit, the excess should be deemed as profit and subject to tax. The decision The TAT, following previous decisions, applied the four-step test established in those decisions, ruled against the taxpayer. The TAT refused to distinguish the appeals even though there was evidence that the taxpayer paid tax in previous years on the profits from which the dividend was paid.   Source: Mondaq

The Senate on Wednesday urged revenue collecting agencies to ensure timely transfer of funds collected into the Federation Account. President of the Senate, Dr Ahmad Lawan, made the call in Abuja at a meeting with some of the revenue collecting agencies. Lawan also called for timely disbursement of funds to federal, states and local government councils after monthly allocation meetings. The News Agency of Nigeria (NAN) reports that agencies present at the meeting include Federal Inland Revenue Services (FIRS), Nigerian National Petroleum Corporation (NNPC), Department of Petroleum Resources (DPR) and Nigeria Custom Service (NCS) among others. He said that timely collections and disbursement of funds would determine the attainment of the next levels of agenda of the federal government. He said the senate is committed to passing the 2020 budget before the end of 2019, adding that timely disbursement funds would also facilitate the implementation of the budget. He said the senate would look into factors militating against timely transfer of funds into the federation account. He said that late transfer of funds affect the speedy implementation of the budget and ultimately stall the development of economic activities. Lawan said the senate is determined to serve Nigerians, adding the National Assembly is ready to help resolve challenges affecting the agencies.  “We have been voted to make Nigerians feel the impact of government, the economy must work, and it will work when collections and disbursement of funds are made. “But we are going to insist that the right things are done, the right thing is that you transfer the money in good time. “Call FACC meeting at the right time, Federal Ministry of Finance should disburse the resources to the MDAs at the right time,” Lawan said.   Source: Pulse

Often described as Britain’s “most hated tax”, inheritance tax seems uniquely able to enrage all sorts of people. Theoretically charged at 40 per cent on the value of an individual’s estate above £325,000, it is perceived as unfair for many different reasons. “Inheritance tax is a wholly voluntary tax,” reads the most recommended comment underneath last week’s FT article on proposed IHT reforms. “Ask any specialist tax lawyer or accountant. The UK’s annual £5bn IHT bill is only paid by the wealthier middle classes, who have less ability to avoid it through planning. Virtually none is paid by the very wealthy in the UK.” Tax laws surrounding inheritance are also extremely complicated, baffling families and executors at a time when they may be struggling with a bereavement. Meanwhile, rising property prices in many parts of the country, coupled with an IHT threshold that has been frozen for a decade, mean more people are being caught by the tax. Government receipts for 2018-19 were the highest on record. And although only 5 per cent of estates have duties to pay, 10 times as many have to complete and submit lengthy tax forms. Against this restive background, the chancellor asked the Office of Tax Simplification (OTS), an independent statutory body, to review the tax 18 months ago. Its strict remit meant it could only focus on how to simplify IHT from a “technical and administrative” perspective. It therefore did not consider policy questions, such as whether the tax should be abolished. Nevertheless, if enacted, recommendations made last week would represent a major shake-up of the way assets are passed on in the UK — rewriting rules which have not changed for at least four decades. FT Money looks at the main proposals, their implications — and what chance they have of becoming reality.   Source: Punch

Nigerian Association of Small and Medium Enterprises (NASME) has partnered with Oxfam International to bring about 180 Micro, Small and Medium Enterprises (MSMEs) in the tax net, in order to aid the redistribution of wealth in the country. According to the president and Chairman of Council, NASME, Segun Agboade, the move was to also help generate more income for the federal government to redistribute wealth and create job opportunities in the country. Agboade at a press briefing to present Corporate Affairs Commission (CAC) certificates and Federal Inland Revenue Service’s (FIRS) Tax Identification Number (TIN) to beneficiaries of the NASME/Oxfam MSME tax compliance project,  advised the federal government to urgently address issues hindering the business community, saying that businesses must be able to enjoy the benefits of the present administration’s ease of doing business mandate. In his words: “We are partnering with Oxfam to make ready about 180 SMEs in Benin and Lagos and as you know lots of small businesses belong to the micro segment. Many of them are un-banked, unregistered and what the government needs to do now is to widen the tax net and encourage the micro businesses to enjoy the benefits of the ease of doing business. “They need to be formalised and be registered in order to be attractive and eligible for lending from banks. This effort we are putting together is to migrate SMEs of the lowest ladder to the next level by giving them their Tax Identification Number (TIN), so that they can pay their taxes as and when due and get access to finance to support their businesses. “If government wants the micro businesses to migrate to SMEs, which is better because it widens the tax net, they need to make sure they address issues around infrastructure, power and other bottlenecks hindering the growth of businesses. “This is going to be a permanent benefit to the federal government because they have been captured into the tax net. We want to also commend Oxfam for believing in us that we can carry out this initiative,” he added. He noted that the recent directive by Central Bank of Nigeria (CBN) to commercial banks to dedicate 60 per cent of bank deposit as loan is still inadequate, but a welcome development as it would encourage lending to businesses. “We want CBN to monitor this directive, because if that is done, it would make banks give businesses attention because they need to comply. It is a good thing and we are grateful to the federal government for that laudable policy, but we look further to more. The CBN has so many windows to support businesses but not many are opened; we believe things are gradually getting better and we want CBN to encourage these banks to do more,” he stressed.   Source: Guardian

Summary On 18 June 2019, the Tax Appeal Tribunal (TAT or Tribunal) held that the Lagos State Internal Revenue Service (LIRS) could not hold employers accountable for taxes arising from withdrawals of Voluntary Pension Contribution (VPC) of their employees. This decision was reached in the case between Nexen Petroleum Nigeria Limited (Nexen or the Company) v Lagos State Internal Revenue Service (LIRS). According to the Tribunal, VPCs are tax-exempt under the law except when withdrawn within five years from the date of contribution. The Court further held that employers are not under any obligation to monitor the withdrawal of VPCs within the period and thus should not be accountable for any taxes arising therefrom. Details In 2018, the LIRS issued additional notices of assessment to Nexen following a tax audit of the Company’s 2013 and 2014 Years of Assessment (YOAs). Nexen objected to the additional assessment notices and upon receipt of a Notice of Refusal to Amend (NORA) from the LIRS, the Company instituted an action at the TAT. The crux of the issues before the TAT was whether Nexen was liable to remit tax arising from the operations of its employees’ VPCs to the LIRS. Nexen contended that pension contributions are tax exempt under the law and it had discharged its statutory duty to the LIRS by deducting, remitting and filing PAYE tax returns of its employees. Nexen further argued that the responsibility to recover any additional income tax from its employees should automatically revert to the LIRS. On the other hand, the LIRS posited that as long as the employees’ VPCs arise from part of the emolument of the employees, the obligation to deduct and remit taxes arising from the VPCs withdrawn remains with the employer. The TAT, however, ruled in favour of Nexen that the Company is a statutory agent of the LIRS with the obligation to deduct, remit and file PAYE returns of its employees. Thus, the Tribunal stated that Nexen had fulfilled all its statutory obligations and was not under any additional obligations to account for its employees’ further dealings with their VPCs. In addition, the Tribunal held that the responsibility to deduct any further tax on the income of employees no longer lies with Nexen after the initial deduction and remittance from the employees’ emolument. The Tribunal, in interpreting Section 10(4) of the Pension Reform Act (PRA) and Section 20(1) of Personal Income Tax Act (PITA) stated that VPCs are exempt from tax. However, this exemption does not apply where such VPCs are withdrawn within five years from the date of contribution. Implication This ruling implies that the LIRS cannot hold employers accountable for any taxes arising from subsequent VPC withdrawals of their employees. In 2017, the LIRS had communicated in its Circular on “Tax Relief on Voluntary Pension Contribution”, that it would rely on Section 81(2) of the PITA to recover such taxes on VPCs from employers. However, there have been some concerns as to the legality of this approach. Until the Federal High Court reaches a contrary decision, it would be unlawful for the LIRS to assess employers for VPCs withdrawn within 5 years. Instead, the LIRS would be expected to assess the employees in Nigeria. This decision is also in line with the provisions of Section 10(4) of the PRA that VPCs are to be entirely exempt from tax at the point of withdrawal, except such withdrawal is made within five years from the date of contribution.   Source: Mondaq