N5.85bn Tax: SPDC and FIRS settle out of court

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By Akin Kuponiyi

The Federal Inland Revenue Service, FIRS and the Shell Petroleum Development Company (SPDC) have settled out of court the lingering tax legal battle that has been going on for the past two years.

The Shell Petroleum Company of Nigeria Limited being dissatisfied with the decision of the Tax Appeal Tribunal (TAT) delivered on 10th February, 2015 in Appeal number TAT /LZ/004/2014 on the deductibility of withholding Tax dividends paid on Gas Profit filed a notice of Appeal dated 11th March 2015 at the Federal high court in Lagos.

SPDC had filed a notice of appeal before the Tax Appeal Tribunal challenging the FIRS demand note dated 28th October, 2013, setting out an assessment of withholding Tax, Penalty and interest in the sum of USD16,275,081 (N5.85bn) on dividends on SPDC’s Gas profits for the years 2010-2011.

The Tax Appeal Tribunal upheld the FIRS’ decision and SPDC appealed against this decision of the Tax Appeal Tribunal of the Federal High Court.

The demand notice was issued based on the FIRS position that SPDC, having enjoyed the tax incentive provided under section 11(2) (d) of the Petroleum Profits Tax Act Cap P13 Law of Federation of Nigeria 2004 (PPTA) for the computation of tax liability on income from natural gas operations at the Companies Income Tax (CITA) Act Cap C21 Law of the Federation CITA at 30% rate, that the income and profits from SPDC’s gas operations must be subjected solely to the tax regime under the Company Income Tax Act.

As such, the dividends paid out to shareholders from SPDC’s Gas Profits are liable to withholding Tax as provided under Companies Income Tax Act.

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The Tax Appeal Tribunal, in dismissing SPDC appeal, held that the additional incentive provided for in section 60 of Petroleum Profit Tax Act did not apply to Gas, and that as such, the Companies Income Tax Act governed the taxation of Gas income and all taxable derivatives of Gas income.

Consequently, the Tax Appeal Tribunal upheld the validity of the Demand Notice issued by the FIRS. The FIRS then approached SPDC to explore amicable resolution of the dispute.

In this regard FIRS and SPDC, their respective solicitors and their officials held a reconciliatory meeting on 28th of November, 2017 to reach amicable settlement and had now agreed to settle their differences with regard to the Demand Note issued by FIRS to SPDC for years 2010-2011.

In line with the reconciliation exercise carried out by SPDC and communicated to the FIRS, the FIRS has agreed to amend the tax liability based on the actual Gas income derived by SPDC for the years 2010-2011.

In full and final settlement of this dispute, SPDC agreed to pay to the FIRS, the amended withholding Tax liability for the years of assessment, in the sum of USD 8,979,214.

The terms of settlement have been made the consent and final judgment of the court.

The terms of judgement was executed on hehalf of the FIRS by its Executive Chairman, Mr Tunde Fowler while the Finance Director of SPDC, Mr Yakov Kravchenco executed the agreement on behalf of his company.

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