Mar 25, 2014



By Dr. Olumide Kolawole Obayemi, LL.M.; SJD*

/TA/11/12, the decision in Standard Trust Bank Plc –v- Chief Emmanuel Olusola (2007) 9 CLRN 41, clearly shows that the Tax Appeal Tribunals can have concurrent jurisdiction with the Federal High Courts on matters dealing with taxation. Tax practice before tax courts range from the relatively simple to the complex across both direct and indirect tax. Direct tax is a tax that is usually levied directly on an individual or organization, such as income tax or corporation tax. Indirect tax refers to tax that is usually levied on goods or services rather than on an individual or organization, such as VAT or Customs Duty.

The jurisdiction, efficacy and practice before the Nigerian Tax Appeal Tribunal (“NTAT”) are now at issue in Nigeria. The October 30, 2013 decision of Hon Justice Adeniyi F.A. Ademola of the Abuja Federal High Court in TSKJ II Construces Internacionals & Anor vs Federal Inland Revenue Service (FIRS), Suit No. FHC/ABJ/TA/11/12, cursorily highlights the procedural deficiencies in the enabling law setting up the NTAT. It also underscored the need to amend the Nigerian Federal Inland Revenue Establishment Act (FIRSEA) No. 13 of 2007 and the Tax Appeal Tribunals (Establishment) Order of November 25th, 2009 (TAT Order).

That TSKJ—an affiliate of Halliburton is a protagonist in this matter is not lost on oil and gas and taxation law practitioners in Nigeria. The Nigerian Liquefied National Gas terrain is dominated by the American giant. Nigeria LNG Limited was incorporated as a limited liability company on 17 May 1989, to produce LNG and natural gas liquids (NGL) for export. The plant was built by TSKJ consortium, which was led by former Halliburton's subsidiary KBR. Other participants of the consortium were Snamprogetti, Technip and JGC Corporation.

T.S.K.J. NIGERIA LTD is involved as EPCI Contractors in Nigeria.

We examine the enabling laws of the NTAT, and compare the prevailing rules and practice at the NTAT with the American and British practices. We highlight our disagreement with Ademola’s decision and proffer suggestions for the future of tax appeals in Nigeria.

II.        Tax Practice and Procedure in Nigeria.

In Nigeria, a taxpayer (individual or corporate) that is aggrieved by the assessment by a Relevant Tax Authority (“RTA”) may file an objection to the assessment issued by the RTA. The RTA will then amend or refuse to amend the assessment. Where the RTA refuses to amend the assessment, the RTA will then issue a Notice or Refusal to Amend (“NORA”).

Upon receiving the NORA, and within 30 days, the taxpayer may file an appeal with the Nigerian Tax Appeal Tribunal (“NTAT”) under Section 59 the Nigerian Federal Inland Revenue Establishment Act (FIRSEA) No. 13 of 2007, Section 11 of the Fifth Schedule to the FIRSEA and Paragraph 5 of the Tax Appeal Tribunals (Establishment) Order of November 25th, 2009 (TAT Order)

In Nigeria, a tax appeal must be filed before one of the Six (6) NTAT in the region closest to the taxpayer, and after pleadings are completed, a hearing follows.

The Nigerian Tax Appeal Tribunal (NTAT) was established in 2007, and, it replaced the former Body of Appeal Commissioners (BAC) and Value Added Tax (VAT) tribunals. See, section 59, FIRSEA.  The NTAT courts are located in Abuja, Lagos, Ibadan, Benin, Enugu, Kaduna, Jos and Bauchi while the coordinating secretariat located in Abuja is the central coordinating office which renders support services and facilitates the operations of the respective zones. See Paragraph 1(i),(ii),(iii),(iv),(v),(vi),(vii),&(viii).

III.       Tax Practice and Procedure in the United States.

Similarly, in the United States, tax litigation usually involves disputes over federal income tax and penalties—known as “deficiency”—i.e., the excess of the amount the IRS contends is the correct tax over the amount the taxpayer showed on the return—in both cases, without regard to how much has actually been paid.

Tax disputes commence after an examination of a taxpayer's return by the Internal Revenue Service (IRS). If the IRS does not agree with the taxpayer, the IRS will issue notices to the taxpayer. If, after issuance of a series of preliminary written notices and a lack of agreement between the taxpayer and the IRS, there is no resolution, the IRS will formally "determine" the amount of the "deficiency" and will then issues a formal notice called a "statutory notice of deficiency," aka "ninety day letter". See 26 USC, Section 6212

Clearly, once the IRS determines the tax amount, but before the formal IRS assessment of the tax, a statutory notice of deficiency will be issued.

What follows is that upon issuance of the statutory notice of deficiency, the taxpayer generally has 90 days to file a Tax Court petition for "redetermination of the deficiency".

Where the taxpayer waives his right to appear before the US Tax Court with a petition for redetermination of the deficiency issued by IRS–i.e., where no petition is timely filed, the IRS may then statutorily "assess" the tax, by administratively and formally recording the tax on the books of the United States Department of the Treasury.

In the United States, this formal statutory assessment is a critical act, as the statutory tax lien that later arises is effective retroactively to the date of the assessment, and encumbers all property and rights to property of the taxpayer.

The United States Tax Court provides a judicial forum in which affected persons can dispute tax deficiencies determined by the Commissioner of Internal Revenue prior to payment of the disputed amounts. The jurisdiction of the Tax Court includes, but is not limited to the authority to hear: tax disputes concerning notices of deficiency, notices of transferee liability, certain types of declaratory judgment, readjustment and adjustment of partnership items, review of the failure to abate interest, administrative costs, worker classification, relief from joint and several liability on a joint return, and review of certain collection actions,

The US Congress later amended the Internal Revenue Code, by inserting a new Section 7482, now providing that decisions of the Tax Court may be reviewed by the applicable geographical United States Court of Appeals other than the Court of Appeals for the Federal Circuit.

Also, in the United States, "Small Tax Cases" are conducted under Internal Revenue Code section 7463, and generally involve only amounts in controversy of $50,000 or less for any one tax year. The "Small Tax Case" procedure is available "at the option of the taxpayer." These cases are neither appealable nor precedential.

IV.       Tax Practice and Procedure in the United Kingdom.

The Tax Tribunal system in the United Kingdom (“UK”), is administered by the Ministry of Justice. It is a tiered court process, and, as such, cases are allocated to each tier based on their complexity. Specifically, cases are categorized into Default Paper, Basic, Standard and Complex. First–tier Tribunal (Tax) hears appeals against decisions relating to tax made by Her Majesty’s Revenue and Customs (HMRC). Appeals can be made by individuals or organizations, single tax payers or large multi-national companies. Appeals against HMRC decisions in relation to tax heard in the Tax Chamber include: Income Tax, Corporation Tax, Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax, PAYE coding notices, National Insurance Contributions, Statutory Payments, VAT or duties such as custom duties, excise duties or landfill tax, aggregates or climate change levies, or, the amounts of tax or duty to be paid, against penalties imposed upon them and against certain other decisions

According to Olujimi Adedotun, the tax appeal process in the UK, is similar to that of the United States and Nigeria. Her Majesty Revenue and Customs (HMRC) will notify the taxpayer of the HMRC’s assessment of additional tax against the taxpayer or a decision to disallow an expense or deduction as claimed by the taxpayer.

The taxpayer may then petition the HMRC to amend the tax assessment or decision. If the HMRC refuses to amend, the taxpayer has the right to appeal to the Tax Tribunal. Thus, where any decision made by HMRC can be appealed, a taxpayer would be informed of his right to appeal.

There are two (2) options available to the taxpayer, which are either to request an independent review or to appeal directly to the Tax Tribunal.

Where the taxpayer chooses an independent review, such review would be conducted by an officer of HMRC who did not previously handle the case and a decision would be communicated to the taxpayer within 45 days.

Adedotun also stated that cases in the Default Paper category are usually decided without a hearing once the parties have submitted documents relevant to their case. The Tribunal will base its decision on the documents submitted and inform the parties of its decision as soon as it completes its review. The procedure for cases in the Basic category is similar. However, in addition to the documents that may have been submitted to the Tax Tribunal, the case is decided at an informal hearing where the parties present their case. It is typical that judgment is given at the end of the hearing. For cases in the Standard and Complex categories, there is also a frontloading of evidence to the Tax Tribunal. The Tax Tribunal reviews the evidence prior to the hearing date. On the chosen date, after both parties have made their case, the Tribunal judge would either give judgment on the same day or may decide to deliberate further on the matter. In the latter case, the Tribunal would communicate its decision within 28 days.

V.        The Adventures of TSKG Consortium, TSKG II, and T.S.K.J. NIGERIA LTD in Nigeria.

According to Chudi Offodile, the Nigeria Liquefied Natural Gas Limited (NLNG) was incorporated in 1989 with the Nigeria National Petroleum Company [NNPC] having majority stake. In 1993, the Administration of Chief Ernest Shonekan agreed to a reduction of Nigeria’s equity in the company, ceding 51% to the foreign share holders in this order: Shell – 25.6%, TotalFina ELF – 15%, ENI- 10.4%. The remaining 49% is held by the NNPC.

In November, 1995, the engineering, Procurement and construction (EPC) contract was awarded to the TSKJ consortium owned equally by Technip (French) Snamprogetti, (Italy) Kellog, Brown & Root (KBR) (Halliburton) and Japanese Gas Corp (JGC) at the cost of $3.6 billion knocking out the rival consortium BCSA, comprised of Bechtel, Chiyoda, Spibat and Ansaldo. The rivalry between the two consortia was so intense that it nearly derailed the Project.

The TSKJ consortium through its subsidiary, LNG SERVICOS, engaged the services of a Company called TRI-STAR Investments Limited to among other services, promote and support the consortium in its commercial action and assist in the maintaining of ‘favorable relationship’ with the client and other Government and business representatives when deemed desirable.

The issues before Justice Ademola were whether the costs paid by TSKG Ii to its Nigerian subsidiary were deductible as business expenses, whether the Assessment and NORA issued by the FIRS were valid, and, whether the Order of the NTAT that upheld the assessment and NORA can be enforced.

While Ademola’s decision fell on the jurisdictional issues, we are of the opinion that the court failed to deal with the substantive issues as to propriety of the assessments and taxes assessed against TSKJ conglomerate.

VI.       TSKJ II Construces Internacionals & Anor vs Federal Inland Revenue Service, Suit no. FHC/ABJ/TA/11/12. (the judgment delivered by Justice A. F. A. Ademola on October 30, 2013, was formally signed about 2p.m Tuesday, November 12, 2013.)

Herein, TSKJ II Construces Internacionals (TSKJ) sued the Federal Inland Revenue Service (FIRS) at the Federal High Court by challenging the judgment of the NTAT—the tax appeal tribunal, after the NTAT had issued a ruling mandating TSKJ to pay the sum of $12.9 million as tax liabilities for 1997, 1998,1999, 2000, 2001 and 2002 to the FIRS.

As we saw above, TSKJ, a non-resident tax payer had obtained a contract for the construction of the Nigeria Liquefied Natural Gas (LNG). In executing the contract, TSKJ II Construces Internacionals used its subsidiary—TSKJ Nigeria, to render logistic support service to TSKJ II Construces Internacionals in the course of the contract. TSKJ II Construces Internacionals then filed self-assessment forms on deemed profits meaning that its profit could not be ascertained.

TSKJ II Construces Internacionals thereafter made deductions of recharges being the cost paid to its local subsidiary.

FIRS disallowed the said deductions on the ground that the deductions were not allowed under the turnover basis assessment.

FIRS consequently issued additional assessment in respect of the alleged wrong deductions made by TSKJ II Construces Internacionals.

TSKJ II Construces Internacionals objected to the additional deductions and filed an appeal with the tax appeal tribunal, asking that the additional assessment be set aside. The NTAT dismissed TSKJ II Construces Internacionals’ claims following which an appeal was filed at the Federal High Court.

Justice Ademola upheld TSKJ II Construces Internacionals’ argument—i.e., that the NTAT lacked the jurisdiction to entertain the suit on the ground that the FIRS (Established) Act 2007 under which the tribunal was established conflicted with the exclusive jurisdiction of the Federal High Court conferred by section 251 (1)(a) and (b) of the constitution. Justice Adeniyi Ademola, while giving judgment in an appeal filed by TSKJ Construces Internacionals Unipessoal LDA, declared tax appeal tribunals illegal saying the bodies were established in contravention of section 251 (1) (a) and (b) of the Constitution of the Federal Republic of Nigeria.

The judge also ordered the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, to immediately disband the eight tax appeal tribunals constituted by her, saying they were illegal. The judge held thus:

"The respondent counsel's arguments that Tax Appeal Tribunal created by FIRS (Established) Act 2007 as being an administrative panel and not a court affecting the exclusive jurisdiction of the Federal High Court on federal revenue and taxation of companies are mere semantics, misconceived and untenable in law in as much as their decisions affect the civil rights and obligations of companies in relation to taxation matters and revenue of the federal government."

The judge found that the jurisdiction of the tribunal was in direct conflict with the jurisdiction of the Federal High Court. He therefore advised that the constitution should be amended before such jurisdiction could be conferred on the tribunals. He ordered Ngozi Okonjo-Iweala, the coordinating minister for the economy and minister of finance, to disband the eight Tax Appeal Tribunals (TAT) across the six geo-political zones of the country:

“The judgment and orders of this court made today (October 30, 2013) are to be served on the attorney general of the federation and the minister of finance.”

This implies that the NTAT as constituted further to the provision of the Federal Inland Revenue Service (Establishment) Act, 2007 now does not have jurisdiction to entertain corporate tax matters – matters relating companies’ income tax, petroleum tax, capital gains tax, value added tax and any matter relating to the revenue of the federation.

In addition to the implication of this judgment on settlements already entered as judgment of the Tax Appeal Tribunals, it also implies that any tax payer who is aggrieved with any assessment or decision or action of the tax authority will now file an appeal at the regular courts.

All the commissioners in the Tax Appeal Tribunals across the six geopolitical zones had on November 4, 2013 moved down to Abuja where they held crucial meetings with the minister of finance as a way to look for way out of the judgment and continue to sit.

VII.     Section 251 of the Constitution of the Federal Republic of Nigeria (1999).

Section 251 of the Constitution of the Federal Republic of Nigeria (1999) enumerates the jurisdiction of the Nigerian Federal Courts thus:

251. (1) Notwithstanding anything to the contained in this Constitution and in addition to such other jurisdiction as may be conferred upon it by an Act of the National Assembly, the Federal High Court shall have and exercise jurisdiction to the exclusion of any other court in civil causes and matters -
(a) relating to the revenue of the Government of the Federation in which the said Government or any organ thereof or a person suing or being sued on behalf of the said Government is a party;
(b) connected with or pertaining to the taxation of companies and other bodies established or carrying on business in Nigeria and all other persons subject to Federal taxation;
(c) connected with or pertaining to customs and excise duties and export duties, including any claim by or against the Nigeria Customs Service or any member or officer thereof, arising from the performance of any duty imposed under any regulation relating to customs and excise duties and export duties;
(d) connected with or pertaining to banking, banks, other financial institutions, including any action between one bank and another, any action by or against the Central Bank of Nigeria arising from banking, foreign exchange, coinage, legal tender, bills of exchange, letters of credit, promissory notes and other fiscal measures:
Provided that this paragraph shall not apply to any dispute between an individual customer and his bank in respect of transactions between the individual customer and the bank;
(e) arising from the operation of the Companies and Allied Matters Act or any other enactment replacing the Act or regulating the operation of companies incorporated under the Companies and Allied Matters Act;…
We disagree with Justice Ademola, when he declared that tax appeal tribunals illegal saying the bodies were established in contravention of section 251 (1) (a) and (b) of the Constitution of the Federal Republic of Nigeria. The fact is that this Constitutional provision notwithstanding, the controversy rages on as some borderline cases have presented difficulties to the Court to define. See, e.g., Madukolu –v- Nkemdilim (1962) 2 SCNLR 341, S.P.D.C (Nig.) Ltd –v- Sirpi-Alusteel Const. Ltd (2007) 1 NWLR (Pt. 1067) p 128; Jammal Steel Structures Ltd. –v- African Continental Bank Ltd. (1973) All N. L. R (PT 2) 208, Bronik Motors Ltd. –v- Wema Bank (1983) 1 SCNLR 296, Savannah Bank (Nig.) Ltd –v- Pan Atlantic (1987) 1 A.N.L.R (PT 1) 31 etc., stating with exactitude which of the two courts has jurisdiction in a given commercial matter.

VIII.    Analysis and Deductions

As we stated above, our position is that notwithstanding the decision in TSKJ II CONSTRUCES INTERNACIONALS UNIPESSOAL LDA vs FEDERAL INLAND REVENUE SERVICE (FIRS), Abuja Federal High Court, Suit No. FHC/ABJ/TA/11/12, the decision in Standard Trust Bank Plc –v- Chief Emmanuel Olusola (2007) 9 CLRN 41, clearly shows that the Tax Appeal Tribunals can have concurrent jurisdiction with the Federal High Courts on matters dealing with taxation.

In Nigeria, for a jurisdictional test, the foundations of such a test was laid by the Supreme Court
in NEPA –v- Edegbedero (2002) 18 NWLR (Pt. 798) p79 SC. per Tobi JSC at page 100 as follows:

“ In construing section 230(1) of the 1979 constitution as amended, two important matters arise. They are the parties in the litigation as well as the subject-matter of the litigation”.

Thus, the elements of the jurisdiction test are (i) ‘what is the cause of action and the subject matter of litigation as determined from the claimants writ of summons, particulars of claim (if any) and statement of claim’, and (ii) ‘who are the parties’.

While the two elements above may apply concurrently, they are independent and disjunctive indices, dependent on the exact paragraphs of section 251(1) in issue and the facts of each case. According to F.O Akinrele, it is very important to consider the cause of action and subject matter first before referring to the parties. A reference to the parties without first having a clear view of the cause of action and subject matter may mislead the court. Further, the exception created in the case of simple contracts can only be determined by having regard to the cause of action and the subject matter first and foremost. It is also not enough to conclude that it is a contractual matter without having regard to the relevant paragraph of section 251(1) to determine the subject of the contract.

In addition, a consideration of the parties is particularly relevant where the Federal Government or any of its agencies is a party to the action, as section 251(1) paragraphs (a), (p), (q), (r) and (s) tends to deal with parties more than the subject matter; subject to the exception as it relates to simple contracts.

Coming back to TSKJ II CONSTRUCES INTERNACIONALS UNIPESSOAL LDA vs FEDERAL INLAND REVENUE SERVICE (FIRS), the matter was between TSKJ and the FBIR related to contracts performed between TSKJ and its subsidiaries and had no governmental flavor. The underlying project concerned the works performed by TSKJ conglomerates. For instance, it had nothing to do with federal elections, or Nigerian Airways. In addition, it was not a contract involving maritime or construction of airport.

It would have been a proper federal case if TSKJ was suing the federal and/or state government, or it was for the enforcement of right of way over the seas.

IX.       Conclusion

For the fact that the issues before Justice Ademola were whether the costs paid by TSKG Ii to its Nigerian subsidiary were deductible as business expenses, whether the Assessment and NORA issued by the FIRS were valid, and, whether the Order of the NTAT that upheld the assessment and NORA can be enforced, these are not strictly federal government issues.

These are simple business deductions and have no bearing on governmental interests. Such cases should remain in the tax court.

Dr. Olumide Kolawole Obayemi, LL.M. (Alberta Canada); LL.M. in Taxation Law; SJD in International Legal Studies, is of the Bars of the Federal Republic of Nigeria and State of California. He is admitted to practice before the United States Tax Court in Washington, DC.


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