Subscribe to our Newsletter to receive the latest updates on our content. By tapping the “Subscribe” button you will be redirected to subscription page. Subscription is free.
In a judgment delivered on 25 February 2025, the Federal High Court allowed an appeal instituted by ALN Nigeria | Aluko & Oyebode on behalf of Rand Merchant Bank of Nigeria Limited (RMB or the Bank) against a judgment of the Tax Appeal Tribunal (TAT or the Tribunal) which upheld the Federal Inland Revenue Service (FIRS)’s assessment of RMB to additional withholding tax (WHT) liability of NGN 602 million inclusive of penalty and interest for the 2017 financial year, and set aside the TAT’s judgment and the assessment.
2 July 25
Other Insights:
The Assessment and the TAT’s Judgment
In October 2022, the FIRS assessed the Bank to WHT of NGN 602,590,815.53 (approx. USD 395,300) inclusive of interest and penalty on the Bank’s undistributed profits for the 2017 financial year pursuant to Section 21(1) of the CITA and demanded payment of this sum.
The Bank objected to the assessment and subsequently appealed to the TAT when the FIRS refused to withdraw the Demand Notice. At the TAT, Aluko & Oyebode team, led by Chukwuka Ikwuazom, SAN, FCTI, had argued that:
a. The powers of the FIRS under Section 21 of the CITA to deem undistributed profits of a close company as distributed and tax the deemed distributed profits can only be exercised where the non-distribution of profits was aimed at tax evasion or avoidance. The non-distribution of the 2017 profits was based on legitimate commercial reasons, and Section 21 was therefore not applicable to the Bank’s 2017 profits.
b. For the FIRS to exercise its powers under Section 21 of the CITA to treat undistributed profits as distributed and tax the deemed distributed profits as dividends or income, it is required to issue a direction to that effect setting out certain prescribed particulars within two years of receipt of the financial statements of the company. The FIRS failed to issue the required direction, and having not done so within the prescribed two-year period, was barred from assessing the Bank to WHT on the 2017 profits.
By a judgment delivered on 4 March 2024, the TAT held that once the FIRS takes the view that the profits of a company could have been distributed without detriment to the company, the company bears the burden of proving that the distribution would have been detrimental and that the discretion of the FIRS under Section 21 is beyond judicial scrutiny.
The TAT further held that Section 21 of the CITA does not prescribe the form in which a direction must be issued, and that FIRS’ letter of 22 October 2019 qualifies as a direction which was issued within two years of receipt of the financial statements. The Tribunal concluded that RMB failed to discharge the burden of proof to show that the distribution of the 2017 profits would have been detrimental to its business and that it was liable to pay the assessed WHT.
The Tribunal also held that RMB was liable to pay penalty and interest on the alleged WHT liability on the ground that penalty and interest accrue from the due date of a tax liability and not when an assessment has become final and conclusive.
Click here to download and read the full article.
Should you have any questions regarding this article series, please do not hesitate to contact Chukwuka Ikwuazom or Emma Ndiyo.