CORAM

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Helen Moronkeji Ogunwumiju Justice of the Supreme Court of Nigeria

Emmanuel Akomaye Agim Justice of the Supreme Court of Nigeria

Chioma Egondu Nwosu-Iheme Justice of the Supreme Court of Nigeria

Haruna Simon Tsammani Justice of the Supreme Court of Nigeria

Habeeb Adewale Olumuyiwa Abiru Justice of the Supreme Court of Nigeria

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PARTIES

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HALLIBURTON WEST AFRICA LIMITED

APPELLANTS 

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FEDERAL BOARD OF INLAND REVENUE

RESPONDENTS 

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AREA(S) OF LAW

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TAXATION LAW, COMPANY LAW, CONSTITUTIONAL LAW, ADMINISTRATIVE LAW, APPEAL, PRACTICE AND PROCEDURE

 

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SUMMARY OF FACTS

The Appellant, Halliburton (West Africa) Limited, is a foreign company incorporated in Cayman Islands that is not resident in Nigeria. It carries out business in Nigeria through its subsidiary, Halliburton Energy Services Nigeria Limited (HESNL). Under an agreement dated January 1, 1994, HESNL was engaged to install, operate, and maintain specialized equipment in Nigeria, liaise with Nigerian companies to obtain purchase orders, assist with importation, and provide other necessary services. HESNL would be reimbursed 100% of operating expenses plus 4% of the Appellant’s billed revenue in Nigeria.

The Appellant paid tax on income earned from its business transactions in Nigeria. Rather than submitting audited accounts as required by Section 41(1) of the Companies Income Tax Act (CITA), the Appellant assessed itself on a turnover basis and filed Self-Assessment Tax Returns. The Respondent assessed tax on these returns, which the Appellant paid.

A subsequent Tax Audit revealed that the Self-Assessment Tax Returns for 1996, 1997, 1998, and 1999 excluded income of US$1,747,805 from certain contractual transactions, as well as the “recharges” (costs and expenses) the Appellant had refunded to HESNL for executing contracts in Nigeria. In 2002, the Respondent issued Notices of Additional Assessment covering these omitted recharges.

The Appellant challenged these additional assessments before the Body of Appeal Commissioners, arguing that recharges should not form part of its turnover for deemed profit tax assessment under Section 26 of CITA. The Body dismissed the appeal, ordering the Appellant to pay US$6,686,381.00 to the Respondent.

The Appellant further appealed to the Federal High Court, which set aside the Body’s judgment, declaring the additional assessments invalid on grounds that including recharges would constitute double taxation. The Respondent then appealed to the Court of Appeal, which allowed the appeal, set aside the Federal High Court’s judgment, and restored the Body’s decision. The Appellant subsequently appealed to the Supreme Court.

 

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HELD

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1. The appeal was dismissed for lacking merit.

2.The Court held that the additional assessment of tax on recharges paid by the Appellant to its subsidiary was correct and in line with Section 26(1) of the Companies Income Tax Act.

3. The Court affirmed that the recharges formed part of the turnover of the Appellant’s trade or business attributable to operations carried on in Nigeria and should be considered in determining the deemed or assessable profit.

4. The Court upheld the Court of Appeal’s finding that Exhibit S (information circular) was not subsidiary legislation but merely explanatory notes on tax liabilities in Nigeria.

5. The Court found that the issue of legality of transactions in Exhibits F and G was not determinative of the dispute between the parties and had no effect on the tax liability case.

6. The Appellant was ordered to pay costs of 2 million naira to the Respondent.

 

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ISSUES

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1. Whether the Court of Appeal was correct in concluding that the Appellant was liable to additional taxation on the ground of undeclared income under Section 26 of the Companies Income Tax Act?

2. Whether the Court of Appeal was correct to have reversed the Federal High Court’s decision that set aside the Body of Appeal Commissioner’s suo motu declaration that Exhibits G and F (contracts) were illegal?

3. Whether the Court of Appeal was correct in holding that Exhibit S (the Respondent’s information circular) does not qualify as delegated or subsidiary legislation?

4. Whether the Court of Appeal was correct in holding that there is inconsistency between Exhibit S and Section 26 of the Companies Income Tax Act?

5. Whether the Court of Appeal was correct in dismissing the Appellant’s cross-appeal after acknowledging that legitimate expectation was not a species of estoppel?

 

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RATIONES DECIDENDI

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TAX ASSESSMENT ON UNDECLARED INCOME – WHETHER RECHARGES FORM PART OF TURNOVER FOR TAX ASSESSMENT

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The turnover of a company’s business transactions is the total receipts or income or gross revenue, including the costs of generating the income over a specific period of time. In other words it is the total amount of money a company or business enterprise makes over a specific period of time before any expenses or costs of doing business are deducted. After the expenses or costs of doing business are deducted from the turnover, what is left is the net profit. So turnover is different from net profit, which is the assessable profit. In the light of the foregoing, I hold that the assessment of tax to cover the fees and recharges paid by the appellant to its subsidiary is correct and is in keeping with S.26(1) of the Company Income Tax Management Act (C.I.T.A). – Per EMMANUEL AKOMAYE AGIM, J.S.C.

 

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ADDITIONAL TAX ASSESSMENT – POWER OF TAX AUTHORITY TO ASSESS UNDECLARED INCOME

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A holistic construction of Section 26 of CITA (supra) 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.” – Per EMMANUEL AKOMAYE AGIM, J.S.C.

 

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ASSESSMENT OF FOREIGN COMPANIES DOING BUSINESS IN NIGERIA – TREATMENT OF RECHARGES

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The recharges paid by the appellant to its subsidiary/agent in Nigeria are the costs incurred by the subsidiary in doing the businesses in Nigeria and making all the revenue from the businesses on behalf of the appellant. The appellant has not complained or made a case that the recharges are not attributable to the appellants businesses carried on through its subsidiary in Nigeria. Being costs incurred for the appellants businesses and income derived therefrom in Nigeria, the recharges form part of the turnover of the said trade or business and should be considered to determine the deemed or assessable profit from the turnover of the trade or business carried on Nigeria on behalf of the appellant by its subsidiary. – Per EMMANUEL AKOMAYE AGIM, J.S.C.

 

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TAX LIABILITY OF FOREIGN COMPANIES – ASSESSMENT OF SUBSIDIARY OPERATIONS

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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 Nigeria soil from any transaction conducted within Nigeria, as was the case here.– Per EMMANUEL AKOMAYE AGIM, J.S.C.

 

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DOUBLE TAXATION – DETERMINATION OF WHAT CONSTITUTES DOUBLE TAXATION

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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. – Per EMMANUEL AKOMAYE AGIM, J.S.C.

 

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NATURE OF INFORMATION CIRCULARS – WHETHER THEY CONSTITUTE SUBSIDIARY LEGISLATION

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The circular does not create or pretend to create any rules, regulations or directives to be complied with for the purpose of facilitating the enforcement or application of a principal statute. Its purpose is not to create any rules or regulations by any means. The circular expressly states its purpose thusly – the purpose of the circular is to provide a general description of the application of the Nigerian tax laws to non-residents and in particular the extent of their liability to Nigerian taxes, as well as the payment procedure. Subsidiary or delegated legislation is a set of rules and regulations made pursuant to an enabling power given by a principal legislation to give effect or facilitate the enforcement or application of the provisions of the principal statute. Without the rule making character, the circular does not qualify as a form of legislation. – Per EMMANUEL AKOMAYE AGIM, J.S.C.

 

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POWER TO MAKE SUBSIDIARY LEGISLATION – REQUIREMENT OF EXPRESS STATUTORY AUTHORITY

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The power to make rules and regulations in furtherance of the efficient application of statutory provisions must be expressly conferred by that statute on an authority and cannot be implied or assumed. The provisions of S.2(1) and S.3(1) and (3) of the Companies Income Tax Act relied on by Learned counsel in support of the above argument, do not give the respondent or its chairman the power to make any subsidiary legislation or issue exhibit S as subsidiary legislation.– Per EMMANUEL AKOMAYE AGIM, J.S.C.

 

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TURNOVER BASIS OF ASSESSMENT – APPLICATION TO FOREIGN COMPANIES

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This is an alternative to the normal basis of assessment to tax based on the profit as per the financial statement submitted as part of the taxpayers annual returns. Under the basis, the turnover, which is often apparent, is used to ascertain the assessable profit by applying a reasonable percentage on it. The recent amendments to the tax laws have modified the mode of application of the turnover tax to a trade or business carried on in whole or in part in Nigeria when the following conditions exist; when: (i) the trade/business has produced no assessable profits; or (ii) the assessable profits produced appear less than might be expected to arise from such a trade or business; or (iii) the true amount of the assessable profits of the company cannot be readily ascertained. – Per EMMANUEL AKOMAYE AGIM, J.S.C.

 

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CHALLENGING FINDINGS OF FACT – REQUIREMENT OF SPECIFIC GROUNDS OF APPEAL

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An appeal against a conclusion drawn by a Court from several findings of facts or holdings it has made, without each of such specific finding or holding being isolated and complained against in a separate ground of appeal is invalid and unarguable. This is because each specific finding or holding is a decision and by not appealing against it in a ground of appeal, the parties to the appeal have accepted it as correct, conclusive and binding. – Per EMMANUEL AKOMAYE AGIM, J.S.C.

 

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TRANSACTIONS BY FOREIGN COMPANIES – COMPLIANCE WITH COMPANIES AND ALLIED MATTERS ACT

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It is clear from the judgment of the Body of Appeal Commissioners that the illegality of the transactions in Exhibits F and G arise from the notion that the appellants participation in those transactions violate S.54 of CAMA that provide that a foreign company such as the appellant shall not carry on business in Nigeria until it is registered or incorporated in Nigeria as a separate entity. It is not in dispute that the appellant is a foreign company. To enable it carry on business in Nigeria, it incorporated a separate entity in Nigeria, Halliburton Energy Services Nigeria Limited as its subsidiary in Nigeria that carried out all its trade and business transactions including the ones in exhibits F and G in Nigeria as its agent. This arrangement accords with the requirements of S.54 of CAMA. – Per EMMANUEL AKOMAYE AGIM, J.S.C.

 

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LEGITIMATE EXPECTATION – APPLICATION IN TAX ASSESSMENT

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In the light of the foregoing, I hold that exhibits B, C and S and the circumstances of this case do not justify the invocation and application of the principle of legitimate public expectation. – Per EMMANUEL AKOMAYE AGIM, J.S.C.

 

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ASSESSMENT OF RECHARGES – POSITION OF COURT OF APPEAL ON INCLUSION IN TURNOVER

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The Court below held that the Appellant was taxed on the income omitted to be submitted or declared to the Respondent by the Appellant in the original assessment occasioned by the Respondent’s non-disclosure at the material time of the original assessment. This was monies remitted to the subsidiary of the Appellant in Nigeria. The Court below held that the undisclosed was income subsequently discovered by the Respondent through a tax audit and as a result of Section 26(1) of the Companies Income Tax Act Cap 60, Laws of the Federation (CITA). – Per HELEN MORONKEJI OGUNWUMIJU, J.S.C.

 

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DOUBLE TAXATION – REJECTION OF DOUBLE TAXATION CLAIM

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I agree with the ratio of the Court below where it held that ‘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’. The Court below rejected the argument of double taxation which had been accepted by the Federal High Court. I agree on the facts with the Court below that there appears to be no double taxation and that the Appellant was properly assessed. How can the Appellant want to benefit from its wrong of failure to fully declare its profits by alleging double taxation?” – Per HELEN MORONKEJI OGUNWUMIJU, J.S.C.

 

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CASES CITED

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STATUTES REFERRED TO

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1. Companies Income Tax Act (CITA), Cap 60, Laws of the Federation of Nigeria

2. Companies and Allied Matters Act (CAMA)

 

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