⦿ CASE SUMMARY OF:
Federal Board of Inland Revenue v. Halliburton (WA) Limited (2014) – CA
Federal Board of Inland Revenue
Halliburton (WA) Limited (2014) – CA
Court of Appeal
⦿LEAD JUDGEMENT DELIVERED BY:
Joseph Shagbaor Ikyegh, J.C.A.
⦿ LAWYERS WHO ADVOCATED
FOR THE APPELLANT
– Mr. A. Kalu, SAN
FOR THE RESPONDENT
– Mr. L.O. Akangbe
The appeal is from the decision of the Federal High Court Lagos (the court below) which had set aside the judgment of the Body of Appeal Commissioners (the Body) respecting a tax matter decided by the Body in the appellant’s favour.
The facts that bear on the appeal indicated that the appellant had made additional assessment of US$6,927,248 (six million, nine hundred and twenty seven thousand, two hundred and forty eight dollars) for the tax years of 1996, 1997, 1998 and 1999 on the respondent which was affirmed by the Body. The respondent appealed to the court below on points of law alone seeking an order of the court below to set aside the judgment of the Body by declaring the said additional assessment invalid, null and void and directing the appellant to refund to the respondent the said sum of US$6,927,248 with interest thereon to be determined by the court below.
The additional assessment arose from contract transactions between the respondent, a foreign or non-resident company incorporated in Cayman Islands, and its affiliate operating in Nigeria under the entity called Halliburton Energy Services Nigeria Limited (HESNL).
It was agreed between the respondent and HESNL that the respondent would obtain contracts from third parties in Nigeria for execution by HESNL with billing for the contracts made in United States of America (U.S.A.) Dollars. It was the income in U.S.A. Dollars derived by the respondent from the services rendered by HESNL to third parties that the appellant taxed additionally in 2002 to the tune of US$6,972,248 (six million, nine hundred and seventy two thousand, two hundred and eight dollars) for the years of 1996 – 1999 that brought the dispute to the Body.
In further resolution of the dispute, the Body held as untenable the respondent’s grouse that having paid the initial tax originally assessed by the appellant based on money paid by the respondent to HESNL for the expenses incurred in executing certain contracts pursuant to the parent contract as not allowable deductions and are thus taxable in the hands of the respondent. The Body dismissed the said complaint reasoning that the said revenue was taxable upon which it assessed the disputed amount of tax in question as recharges and ordered the respondent to pay it to the appellant forthwith. The respondent complied with the order made by the Body.
The Court below disagreed with the Body and held that the additional tax amounted to double taxation and that the Body was wrong to raise and decide suo motu the question of the illegality of the working arrangement between the respondent and HESNL against the respondent without affording the parties the opportunity to react to it.
The court below ended by setting aside the judgment of the Body and ordering the appellant to refund to the respondent the additional tax of US$6,972,248 (six million, nine hundred and seventy two thousand, two hundred and eight dollars) the respondent had paid to the appellant.
Unhappy with the decision of the court below, the appellant filed a notice of appeal.
1. Whether it was a misdirection for the court below to rely on the decision in Ibori v. Agbi (2004) 6 NWLR (pt.868) 78 to set aside a finding of fact made by the Body of Appeal Commissioners and if the answer is in the affirmative, whether the Respondent could take advantage of an illegal contract.
2. Whether the Judge in the court below was not in error when he invalidated the additional assessment to tax of the Respondent by the Appellant for 1996, 1997, 1998 and 1999.
3. Whether there was any legal basis for the Judge in the court below to hold that there was double taxation.
The Appeal was allowed in its entirety.
1. The Court of Appeal resolved issue 1 in favour of the Appellant. It stated further,
“… The failure to give parties or their counsel the opportunity to address the court on an issue is not necessarily fatal to the outcome of the case, all the moreso none of the parties established any miscarriage of justice”
“So, ex-facie illegality being one of the items a court could take judicial notice of, without requiring the parties to address it on the issue as stated, the court below erred by holding that the Body was wrong to raise and decide suo motu the issue of ex-facie illegality of the contract or transaction in Exhibits F and G.”
“I most respectfully resolve issue (1) in favour of the appellant to the effect that the Court below was in error to have set aside the decision of the Body on the premise that it suo motu raised and decided the issue of ex-facie illegality of the transaction or contract contained in Exhibits F and G.”
2. On issue 2, the Court of Appeal declared in favour of the Appellant. It stated further,
“A holistic construction of Section 26 of CITA entitles the appellant to assess to tax the income of the respondent by way of additional assessment where found necessary by the appellant, like in cases of discovered undeclared income not covered by the initial or first assessment to tax of a taxpayer. By making the additional assessment to tax on the undeclared income of the respondent subsequently found out by the appellant, the appellant cannot be accused of revisiting or taxing over again the initial declared income that was earlier taxed as to amount to double taxation.”
3. On issue 3, the Court of Appeal held in favour of the Appellant. It stated further,
“I do not see double taxation here. It would have been double taxation if the same (the respondent and its subsidiary, HESNL) were taxed twice on the same income, which was not the case here. The court below was, with full deference, wrong to hold that there was double taxation of the respondent by the appellant. The court below should not, again, with full deference, have set aside the additional assessment to tax on the undeclared income the respondent derived from the transaction in Exhibits F for remission to its subsidiary, HESNL.”
Section 26(1) of CITA 1990;
⦿ SOME PROVISIONS
Section 26(1) of CITA 1990 reads:
“26(1) Notwithstanding Section 29 of this Act, where in respect of any trade or business carried on in Nigeria by any company (whether or not part of the operations of the business are carried on outside Nigeria) it appears to the Board that for any year of assessment, the trade or business produces either no assessable profits or assessable profits which in the opinion of the Board are less than might be expected to arise from that trade or business or, as the case may be, the true amount of the assessable profits of the company cannot be readily ascertained, the Board may, in respect of that trade or business, and notwithstanding any other provisions of this Act if the company is a –
(a) Nigerian company, assess and charge that company for that year of assessment on such fair and reasonable percentage of the turnover of the trade or business as the Board may determine.
(b) Company other than a Nigerian company, assess and charge that company for that year of assessment on such fair and reasonable percentage of that part of the turn-over of the trade or business attributable to the operations carried on in Nigeria, as the Board may determine.
(2) The provisions of this Act as to notice of assessment, additional assessment, appeal and other proceedings shall apply to an assessment or additional assessment made under this section as they apply to an assessment or additional assessment made under any other section of this Act”;
⦿ NOTABLE DICTA
I believe a subsidiary company is one owned or controlled by another company (Oxford Advanced Learner’s Dictionary (7th Edition) page 1475). An affiliate company is equally a company that is connected with or controlled by another larger company (Oxford Advanced Learner’s Dictionary (7th Edition) page 24. – Joseph Shagbaor Ikyegh, J.C.A. Federal Board of Inland Revenue v. Halliburton (WA) Limited (2014)
A company not registered in Nigeria but derives income from a transaction in Nigeria through its affiliate or subsidiary cannot, in my modest opinion, dispute assessment to tax on the profit or income it remits to the subsidiary as the subsidiary’s share of the income from the transaction. Because the foreign company, though not registered in Nigeria, is deemed to have generated income in Nigeria by the transaction done in Nigeria. The tax authority is thus concerned essentially with and targets only the income made or deemed to be made on Nigerian soil from any transaction conducted within Nigeria. – Joseph Shagbaor Ikyegh, J.C.A. Federal Board of Inland Revenue v. Halliburton (WA) Limited (2014)
Let me just add that when a tax payer does not make full disclosure of its income, the part kept away when discovered must be taxed by the authorities. – Yargata Byenchit Nimpar, J.C.A. Federal Board of Inland Revenue v. Halliburton (WA) Limited (2014)