The Court of Appeal in Lagos on Tuesday ruled that the Federal Inland Revenue Service (FIRS) was right in its assessment of an additional $6.97 million (about N1.24 billion) as tax against Halliburton Energy Services Nigeria Limited (HESNL).
The Service had raised an additional tax assessment against HESNL for year 1996 to 1999.
But displeased with the FIRS decision, Halliburton filed a complaint before the defunct Body of Appeal Commissioner, which upheld the revenue agency’s decision.
Still dissatisfied, HESNL approached the Federal High Court, which quashed the Body’s decision and ordered FIRS to refund the said amount to Halliburton.
But FIRS headed to the Court of Appeal to challenge the order of the High Court.
The appellate court, in its unanimous decision by three justices, ruled that the Service was empowered by law to assess the income not disclosed earlier.
The additional assessment arose from contract transactions between Halliburton West African Limited, a foreign/non-resident company incorporated in Cayman Islands, and its affiliate operating in Nigeria, under the entity called Halliburton Energy Services Nigeria Limited, (HESNL).
The two companies agreed that Halliburton would obtain contracts from third parties in Nigeria for execution by HESNL, with billing for contracts made in U.S. dollars.
FIRS taxed additional income in U.S. dollars derived by Halliburton West African Limited, to the tune of $6.97million, for the years 1996 to 1999.
The Body of Appeal Commissioners assented to FIRS additional assessment, though the Federal High court voided the assessment, compelling the FIRS to head for the Appeal court.
Citing Section 26 of CITA (Companies Income Tax Act, and other decided cases, Justice Joseph Shagbaor Ikyegh noted that the FIRS was right to have assessed tax on the income of the respondent (Haliburton West Africa).
“By making additional assessment to tax of the declared income of the respondent (Halliburton West Africa Limited), subsequently found out by the appellant (FIRS), the appellant cannot be accused of revisiting or taxing over again, the initial income that was earlier taxed as to amount to double taxation.
Justice Ikyegh ruled, “what the appellant (FIRS) assessed to tax was the income omitted to be submitted or declared to the appellant (FIRS) by the respondent in the original assessment occasioned by the respondent (Halliburton)’s non-disclosure at the material time of the original assessment to tax.
“Put in another way, it was the undeclared income subsequently discovered by the appellant (FIRS) through tax audit that was taxed which is covered by the supervening Section 26 (3) of CITA. It was not a case of taxing twice the same income or asset or a situation tax was levied on an income that had already been taxed.”
Justice Ikyegh rejected Halliburton West Africa’s claim that taxing its parent company’s undeclared income after having taxed HESNL (the subsidiary) amounted to double taxation.
Rather, the appeal court held that: “A company not registered in Nigeria, but derives income from a transaction in Nigeria through its affiliates, 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 foreign company, though not registered in Nigeria, is deemed to have generated income in Nigeria by the transaction done in Nigeria.
The Judges said the tax authority is thus concerned essentially with and targets only the income made or deemed to have been made on Nigerian soil from any transaction conducted within Nigeria, as was the case here.
“I do not see double taxation here. It would have been double taxation if the same (respondent and its subsidiary: HESNL) were taxed twice on the same income, which was not the case here.
Continuing, Justice Ikyegh, who read the lead judgment said: “Some of the points argued on the cross-appeal, though well taken, do not have the significant effect of altering the decision of the Body, as they do not affect the core issue of the liability to tax of the cross-appellant which was properly settled by the Body.”
Also, Justice Yargata Nimpar, in his consenting judgment agreed that the judgment adequately covered the complex issues formulated for determination.
“Let me just add that when a taxpayer does not make full disclosure of its income, the part kept away when discovered must be taxed by the authorities. The appellant rightly, and as empowered by the law assessed the income not disclosed earlier.
“The lead judgment covered the field leaving no room for me to make any useful additions. I too allow the appeal and dismiss the cross appeal. I also abide by the orders made therein,’’ he said.
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