BUSINESS ESSENTIALS Vol. 3 No. 16
Dear Esteemed Member,
In keeping faith with our continued enlightenment of members on taxation matters, which has become very essential to business, we reported a landmark judgment delivered by the Tax Appeal Tribunal, Lagos Zone in this edition. It was a ruling in favour of Star Deep Water Petroleum Limited, which we believe you will find very useful and informative.
Much had been shared in the public domain on the ‘Brexit’ referendum by Great Britain and the outcome to leave the European Union (EU). We have attempted a highlight of the event’s likely impact on the Nigerian economy. Also included in the edition are the key conclusions from the recent NECA/NLC meeting on the issue of retrenchment and non-unionisation in the banking industry.
Our regular Labour and Employment Law Review, Upcoming Training Programmes and recent activities of the Association were not left out.
Have a pleasant reading.
In this Issue:
- Tax Matter: An Assessment Not Compliant With The Law Cannot Be Final And Conclusive
- What would a ‘Brexit’ mean to the Nigerian Economy
- Conclusions At The Meeting Between Nigeria Labour Congress (NLC) and NECA/Representatives Of Banks On the Issues of Retrenchment and Non-Unionisation In the Banking Industry
- LABOUR & EMPLOYMENT LAW: Doctrine of Res Judicata (Muhammed Kawu Modi & 3 Ors vs. Abdullahi Yanko & 5 Ors, 2014) 45 N.L.L.R. Pt 146, P. 708 NIC
- Upcoming Training Programmes
TAX MATTER: AN ASSESSMENT NOT COMPLIANT WITH THE LAW CANNOT BE FINAL AND CONCLUSIVE
Star Deep Water Petroleum Limited (SDWPL), a special-purpose vehicle affiliated with Chevron Nigeria Limited (Chevron) was set up to operate Oil Mining Lease 127 (OML 127) and Agbami Unit in Nigeria. To operate the OML and Agbami Unit, SDWPL entered into two agreements with Chevron; the Nigeria/Mid-Africa SBU Master Service Agreement and a Cost Sharing Agreement (CSA), which allowed SDWPL to make use of Chevron’s resources, including personnel, in carrying out its activities.
In 2011, the LIRS conducted an audit of SDWPL’s tax and financial records for tax compliance purposes for 2005-2009 and issued a Demand Notice on 28 June 2012 for an outstanding liability of close to N650 million. This alleged liability covers PAYE withholding tax, the State Development Levy, the Business Premises Levy and the attendant penalty and interest charges.
SDWPL claimed it subsequently objected to the Demand Notice but the LIRS insisted that it did not receive any such objection notice. Consequently, on 20 September 2012, the LIRS issued a Notice of Intention to Obtain Warrant of Distrain on SDWPL. In the notice, the LIRS stated that its assessment had become final and conclusive, given that the 30-day window within which SDWPL could challenge the assessment had lapsed.
SDWPL appealed the LIRS’s Demand Notice and Notice to Obtain Warrant of Distrain on the basis that the LIRS’s assessment does not comply with the PITA since it did not have any employees.
In its appeal, SDWPL argued, among others, that it:
- Served a notice of objection on the LIRS, although this was not acknowledged by the LIRS; and the provisions of Section 58(1) of the PITA did not render an assessment final and conclusive where no notice of objection is served on the tax authority within 30 days from the date the assessment is received.
- Had no employees during the period in question; therefore, it should not be required to remit PAYE taxes.
- Should not be liable to pay business premises registration levy and development levy since it was operating through its affiliate’s office premises and employees for its activities and operations.
In response, the LIRS contended among others, that:
- With regards to the assessment being final and conclusive, SDWPL failed to issue or serve any notice of objection within the 30-day period stipulated in Section 58(1) of PITA thus the assessment was final and conclusive.
- SDWPL was liable to PAYE taxes in line with the provisions of Section 82 of PITA and Regulation 2 of the Operation of PAYE Regulations that provides that “where an employee works under the supervision or management of a person who is not his employer, that person (the Manager) must furnish the particulars of the employee’s remuneration to the Tax Office nearest to the company and the Manager must deduct the tax due from the employee’s remuneration and remit same to any of the designated collecting banks.”
- SDWPL was liable to remit the Business Premises Registration and Development Levies since it had its head office in Lagos State.
In delivering its judgment, the Tax Appeal Tribunal (TAT) dismissed the LIRS assessment of PAYE taxes, business premises registration and development levy assessment holding that:
- Although SDWPL should not rely on an unacknowledged objection letter to the demand notice raised to validate its claim, the LIRS’s assessment failed to comply with the provisions of PITA since SDWPL had no employees, thus invalidating the assessment in respect of which the objection was purportedly filed.
- For Business Premises Registration, since SDWPL shared the same business premises with Chevron and those business premises registration fees had been paid by Chevron, it was unlawful for LIRS to request SDPWL to pay business premises registration fees in respect of the same premises.
- SDWPL should not be liable to pay the State Development Levy, subject to payment already made by Chevron. The State Development Levy is for individuals only, and is N100 per annum on all taxable individuals. Since the personnel used by SDWPL were also Chevron’s employees it is required to deduct and remit this to the LIRS.
- The decision of the Tribunal proved that an assessment can only be final and conclusive if it is compliant with the law under which it was issued. Even though the Appellant’s objection was outside the 30 day period, the Tribunal set aside the assessment. However, taxpayers are advised to object within the time stipulated by law to any assessment, demand notice, tax liability reports, order or decision made by the tax authorities in the event that such assessments are considered to be in line with the law and to prevent distrain on their goods or premises.
- The ruling also provides an important insight into the importance of receiving an acknowledgement to any objection filed against an assessment by the relevant tax authorities. In this case, had the assessment been valid, a failure to confirm that the objection was received by the relevant tax authorities would have led to a final and conclusive situation. Taxpayers are therefore advised to ensure that valid objection letters are filed within the required time frame and that a duly acknowledged notice of objection is properly filed in the event of any future dispute.
- PAYE assessment is based on the existence of an employment relationship, where a company relies on the employees of another entity and such entity accounts for the taxes of the employees, the first mentioned company should not be held accountable for the PAYE tax of the employees concerned. Taxpayers should also make sure that the substances of contracts are consistent with the terms of the contract. This was a decisive factor in the court’s decision.
The decision of the Tribunal may also apply to cases where personnel are sourced from employment agencies, in such cases, it can be inferred that it is the party paying the salaries of the workers that would be liable to deduct and remit PAYE taxes.
The ruling is also consistent with the provisions of Section 81 and 82 of PITA, which requires employers to deduct and remit applicable monthly PAYE taxes from the remuneration of its employees under their employment.
- Furthermore, the judgment established precedence that entities without a separate registered address or entities that operate from the premises of a related entity should not be required to pay the Business Registration Levy.
- Finally, taxpayers should not hesitate to challenge the tax authorities on any BOJ assessment that is arbitrary and not in line with provisions of the relevant Act. This was clearly demonstrated in SDWPL’s refusal to accept the LIRS’ subjective assessment for these years.
VISIT OF THE ACTING MANAGING DIRECTOR, FEDERAL MORTGAGE BANK OF NIGERIA (FMBN), MR RICHARD ESIN TO THE DIRECTOR GENERAL, NIGERIA EMPLOYERS’ CONSULTATIVE ASSOCIATION (NECA), MR. O. A. OSHINOWO
The Acting MD/CO of FMBN, Mr. Richard Esin visited NECA House to engage the most representative voice of Business / Employers in Nigeria as critical stakeholder in the Bank’s quest to deliver on its mandate. He was received by Mr. Oshinowo, who reflected on the long history of the cordial relationship between the two bodies.
WHAT WOULD A ‘BREXIT’ MEAN TO THE NIGERIAN ECONOMY
On Thursday 23 June 2016, citizens of the United Kingdom (UK) voted in a referendum either to leave or remain in the European Union (EU). In a most shocking outcome, over 17 million, precisely 17,410,742 or 52% out of the total 33,551,983 voters voted to leave the EU compared to 16,141,241 or 48% that voted to remain. Since the outcome of the referendum, the very first exit by any country since the EU was established has got the whole world wondering what would happen next and the implications not only to the UK and the EU but also the rest of the world.
The Brexit vote has not only shocked the EU and the rest of the world, it also left many citizens and residents of the United Kingdom themselves stunned. It is not surprising that millions of British people have now signed a petition requesting for another referendum. Whatever happens next, one thing is certain – that Great Britain and the EU will no longer remain the same.
The impact will be far reaching. Over USD 2 trillion has been wiped off global capital markets across all continents. This also means that less value for pension and retirement plans with investments in those markets. Other issues range from reconfiguration of the single market, renegotiation of trade agreements, immigration and labour law, functions and so on. As a result of the uncertainty created by the exit vote, the market has perhaps over-reacted as the British Pound depreciated by about 10% within 24 hours, the worst in over 30 years. In the medium to long term, the exchange rate to other major currencies will probably recover but likely to be lower than pre-referendum levels for some time.
Likely Impact on the Economy:
- For Nigeria, there will be minimal impact. Nigerians studying in the UK will need relatively less Naira to pay their fees. Those travelling to the UK for business and vacation will also find it slightly more affordable.
- In terms of importation from the UK, this will become cheaper for Nigerians while exports to the UK will become more expensive and therefore less attractive. British businesses in Nigeria will be relatively more valuable to their UK group both in terms of their returns on investment and consolidation value in Sterling.
- The monies stolen from Nigeria and stashed away in the UK by some politicians will be of less value than if the funds had been recovered pre-referendum. We may have to renegotiate the double tax treaty between Nigeria and the UK if Brexit triggers a leave vote by any of its territories such as Scotland.
In the Economic Community of West African States (ECOWAS), which was established in 1975, Mauritania pulled out of the Union in December 2000 without any fanfare and no noticeable impact. This is largely due to the fact that ECOWAS has not really fully integrated and taken off. The Common External Tariff within ECOWAS was only agreed in 2015, forty years after the Union was formed. Also, the size of the UK economy and its influence on the global stage makes it completely different and unprecedented.
The actual exit could still take about 2 years. Where possible, government must address all controllable uncertainties as much as possible from macro-economic policies, fiscal direction and so on.
- Investors and businesses do not like uncertainties. Unfortunately there will always be uncertainties in any economy but savvy investors learn to manage rather than avoid uncertainties. However, uncertainties that are self-inflicted should be avoided as they not only discourage investors; they also necessitate a risk premium for investments to be viable. As a country we can do very little or nothing to control the price of crude oil, we had no control over Brexit vote, and we will not be able to control whether Donald Trump wins American’s election but we can, for instance, control the uncertainties created by our failure to pass the Petroleum Industry Bill, inability to fully deregulate the downstream sector, the uncertainties around fiscal and industrial policies.
- Government must strive to reduce uncertainties to attract both domestic and foreign investments. Businesses that wish to play in this market need to plan for the long run but also must be sufficiently agile to respond quickly and efficiently to unplanned changes which they will inevitably encounter. Either way, Africa and Nigeria in particular continues to be an attractive market for discerning investors who will gain an advantage for moving in earlier than those who wait until they get more certainty, which may be a very long wait.
NECA/NLC MEETING ON INDUSTRIAL RELATIONS’ MATTERS IN THE BANKING SECTOR
The meeting held in Abuja. In attendance are: The DG, NECA – Mr. O.A Oshinowo, representatives of the Banking Sector and Comrade Ayuba Wabba, NLC President. Read More>>
LABOUR & EMPLOYMENT LAW: Doctrine of Res Judicata (Muhammed Kawu Modi & 3 Ors vs. Abdullahi Yanko & 5 Ors, 2014) 45 N.L.L.R. Pt 146, P. 708 NIC
By their Originating Summons, the claimants seek the following seek the following reliefs amongst others:
- A declaration that the Academic Staff Union of Secondary Schools, Bauchi State (ASUSS) formerly called Conference of Secondary School Tutors, Bauchi State is not a registered Trade Union under the Trade Union Laws of Nigeria
- A declaration that the Academic Staff Union of Secondary Schools (ASUSS) Bauchi State not being a registered Trade Union is not eligible to enjoy the privileges of recognition by Bauchi State Government and enjoyment of check off dues from its members and other benefits and privileges of registration and recognition.
- An injunction restraining the 1st and 2nd respondents from arrogating to themselves and the members of the Association ASUSS the status and privileges of a registered Trade Union and enjoyment of all benefit and privileges of a registered and recognised Trade Union
- An injunction restraining the 3rd to 6th respondents from according the 1st and 2nd respondents or ASUSS Bauchi State any form of recognition or privileges of a registered Trade Union
The respondents filed a motion on notice, seeking the following reliefs:
- An order striking out the suit for being incompetent in that it was caught up by the principle of estoppels per res judicata
- An order striking out the suit for being an abuse of judicial process
- Whether the claimants/respondents’ suit was caught by the principle of estoppels per res judicata and can be competently determined by the court
- Whether the suit was an abuse of judicial process
On requirements of doctrine of res judicata:-
The rule of res judicata requires that where a final decision is given by a court of competent jurisdiction, the parties cannot be heard to contradict that decision in any subsequent litigation between them in respect of the same subject matter. For the doctrine to be applicable in a suit, it must be shown that the parties, issues and subject matter in the previous suit are the same as those in the suit which the plea of res judicata is raised. See: Aro vs. Aro (2000)3 NWLR pt. 649, p443, AIB Ltd vs. Purification Tech. Ltd (2000) 10 NWLR pt. 676 p. 552
On what court will do to determine whether or not claims are same in two different suits:-
In determining whether or not the claims raised in two suits are the same, it is necessary for the court to refer to the nature of claims made by the parties in their pleadings. A cursory look at the subject matters if Suit No. BA/116/2000 and the instant suit clearly reveals that they are at sharp variance with each other. The issues and subject matter in the two cases are clearly different. Therefore, the principle of res judicata will not apply in this case. See: CBN vs. Ahmed (2001) 11 NWLR pt. 172 p 36
On when abuse of process of court is said to exist:-
An abuse of the process of the court is said to exist when a party improperly uses the uses of the judicial process to the irritation and annoyance of his opponents, such as instituting multiplicity of actions on the same subject matter against the same opponent on the same issue. In the instant case, having held that the issues and subject matter in Suit No. BA/116/2000 and the present suit are not the same, there was no abuse of court process. See: ACB Plc vs. Nwaigwe (2000) 1 NWLR pt. 640 p. 201
The Court dismissed the preliminary objection and held that the suit was competent and it was not an abuse of court process.
It is in the interest of society as a whole, that litigation must come to an end.
1) Theme: Work Ethics and Etiquette for Organizational Competitiveness
Date: 14th – 15th July, 2016 (2 Days)
Venue: NECA Learning Centre
Fee: N82,500 (NECA Members) N87,500 (Non-NECA members)
Protecting Enterprises/Businesses from Regulatory Excesses
Date: 20th – 21st July, 2016 (2 Days)
Venue: NECA Learning Centre
Fee: N82,500 (NECA Members) N87,500 (Non-NECA members)
Effective Conflict Management, Grievance Resolution and Arbitration Procedures
Date: 27th – 29th July, 2016 (3 Days)
Venue: NECA Learning Centre
Fee: N110,500 (NECA Members) N115,500 (Non-NECA members)