Dec 19, 2016

Enforcement Of Tax Judgments Outside Nigeria - Osiri Ndukwe

In this era of increased international trade and foreign direct investment, enforcement of foreign judgments has become very significant in our legal system. Investors are more comfortable doing business with foreign partners knowing that if they obtain a judgment from a superior court in their home country, it can be enforced against the judgment debtor in another country.

Fortunately, Nigerian courts recognize judgments from superior courts of commonwealth countries and countries with which she has bilateral agreements. This has increased the confidence of foreigners and foreign companies to do business with Nigerians and Nigerian companies. However, the current legal regime for the enforcement of foreign judgments especially tax judgments calls for an urgent review.

Legal Framework
There is an imprecision on the particular statute that regulates the registration of foreign judgments in Nigeria. For instance, the Foreign Judgment (Reciprocal Enforcement) Act, Cap. F35, Laws of the Federation of Nigeria, 2004 ("the Act") and the Reciprocal Enforcement of Judgments Ordinance, CAP 175, Laws of the Federation of Nigeria, 1958 ("the Ordinance) exist side by side and both legislations are in conflict with each other with regard to the time within which to register a foreign judgment. Whereas under the Act, the time within which to register a foreign judgment is 6 years[1], under the Ordinance, the time is 12 months. The Supreme Court in this regard has not been very helpful, when it held in the case ofGrosvenor Casinos Ltd v. Ghassan Halaoui[2]that both the Act and the Ordinance are relevant statutes in the enforcement of foreign judgments in Nigeria.

Ordinarily the Act would have been the legislation regulating enforcement of foreign judgments but the Supreme Court in the case of Macaulay v. R.Z.B of Austria[3] held that the Minister of Justice had not made an order extending the Act to judgments of the United Kingdom and other countries with bilateral agreements with Nigeria pursuant to Sections 3 (1) and 9 (1) of the Act, as such the first part of Act is inapplicable.

Another unfavourable provision in both the Act and Ordinance is the provision that foreign judgments in respect of fine, taxes and penalties cannot be enforced in Nigeria[4]. This defeats the whole essence of the reciprocity in enforcement of foreign judgments and may afford a safe haven for tax evaders. 

Cross Border Stance
The requirement in both the Act and the Ordinance is that foreign judgments in respect of taxes cannot be enforced in Nigeria. This is against the whole concept of reciprocal treatment of judgment because it may give a safe haven to tax evaders. With the increase in tax evasion by foreign businesses and multinational companies, inability of states and government bodies to recover judgment in respect of taxes in foreign countries would lead to a great loss of revenue. The role of fines, taxes and penalties is invaluable in the economic development of states in the 21st Century[5].

In recent years, the long-standing principle that the courts of one country will not enforce the penal and revenue laws of another country has been significantly eroded. A range of international agreements have increased tax authorities’ powers to exchange information and give mutual assistance to collect tax debts. This has resulted in a widening of the tax net beyond domestic borders. However, these powers must be exercised within the confines of domestic legislation and the provisions of relevant international treaties. In each case, it must be determined whether the enforcement action is within the confines of the law.

As corporations and individuals find themselves in a global environment and tax authorities look for ways to proactively recover taxes due outside their jurisdictional borders, spreading the tax net by involving the powers of another tax authority is becoming increasingly prevalent and co-operation with other countries has become a strong area of focus.

For instance, in the United Kingdom (UK), the general principle of non-cooperation with foreign jurisdictions in the collection of taxes has been significantly eroded with the introduction of EU Directive 2010/24/EU, which imposes an obligation on the UK to assist any Member State of the European Union in the recovery of tax[6], together with the joint Council of Europe/Organisation for Economic Co-operation and Development Convention on Mutual Administrative Assistance in Tax Matters. However, the lifespan of this obligation depends on when the UK invokes the Lisbon Treaty[7] to practically leave the European Union.

No doubt, it will be beneficial to Nigeria to accord other states the opportunity to recover taxes against evading offenders. This it can do by either amending the extant legislations in this regard or entering into Multilateral and Bilateral treaties with other states to assist one another in the recovery of tax judgments.

In conclusion, there is a need for the lingering crisis on the law regulating enforcement of foreign judgment in Nigeria to be settled, especially those relating to recovery of tax judgments. The legal conditions for the enforcement of foreign judgment have been interpreted too broadly to adequately protect the interest of foreign judgment creditors. Therefore, the law and rules should be amended to reflect modern realities. The Courts should be proactive in breaking new grounds and developing the jurisprudence on enforcement of foreign judgment in Nigeria in accordance with the essence of reciprocity of judgments. This will improve the prospects of Nigeria as a business destination and enhance the growth of her economy.
[1] Section 4(1) of the Foreign Judgment (Reciprocal Enforcement) Act, Cap. F35, Laws of the Federation of Nigeria, 2004
[2] (2009) 10 NWLR (Pt. 1149) p. 309
[3] (2003) 18 NWLR (Pt. 852) p. 282
[4]Section 3(2) (b) of the Foreign Judgment (Reciprocal Enforcement) Act, Cap. F35, Laws of the Federation of Nigeria, 2004
[5], accessed on Friday, October 7, 2016

 Osiri Ndukwe is an associate at Stark Legal.
Ed”s Post – This article was originally published here