An Appraisal Of The Implications Of S.27 (1) (C) & (I) Of The Companies Income Tax Act (CITA) On The Treatment Of Taxes & Levies On Income Or Profits Paid In Nigeria Or Foreign Jurisdictions

By Zhihwi Dauda Esq.

• ABSTRACT:

A Nigerian Company upon registration becomes a juristic personality with powers of a natural person to own property and carry out trade or business within and outside Nigeria. This is however subject to the law of those countries where the company intends to do business.[1] If a Nigerian Company carries out trade or business in any Country outside Nigeria, it will be subjected to the domestic tax laws of that Country and as such will accordingly pay tax on income attributed to such jurisdiction. In most cases, the foreign country will issue Tax Credit Note or Certificate covering the tax paid in their jurisdiction. On 11^th of November, 2020 the FIRS issued an Information Circular No: 2020/13 Dated 21^st October, 2020. This circular gives information to the general public on the processes and procedures for the implementation of Section 27(c) of the Companies Income Tax Act (CITA),[2] regarding the deduction of tax levied outside Nigeria on profits which are also chargeable to tax in Nigeria, where relief for the double taxation of those profits may not have been given under any other provision of the Act. The Circular forms the basis for this article. The aim of this work therefore is to examine analytically the provision of Section 27(c) & (i) of CITA, to identify the defects if any with the provision and the ambiguity which the circular attempts to clarify. This research shows the general rule under Section 27(c) of CITA that taxes paid by Nigerian companies in Nigeria or in foreign jurisdiction are generally not allowable for deduction from the company’s profit for tax purpose. However the exception to the general rule is that, foreign taxes paid may be allowed for deduction upon application by the company subject to fulfillment of certain conditions as provided under the FIRS information Circular mentioned above. This research shows that there is the challenge of lack of response within a reasonable time by the Foreign Tax Authority; confirming the issuance of such Tax Credit Note or Certificate and there is also the issue of corruption in different tax jurisdictions. The research recommended the need to train and re-train the desk officers of the tax authority handling the process. In conclusion, the international member countries should provide mechanisms that will remove trade barriers of which taxation is one. The legislation like Section 27(c) & (i) of CITA which accepts Foreign tax credit Note or certificate under certain strict conditions as allowable deduction for tax purpose should be emulated and domesticated by countries of the world as it will not only encourage cross border trade activities but will also promote inflow of Foreign Direct Investment (FDI) and promote the growth of regional, continental and world economy at large.

• INTRODUCTION:

In the normal course of business, companies usually incur expenses which may be wholly, exclusively, necessarily and reasonably for the production of profit for the company. This is why Section 24 of CITA classified such expenses as deductible or allowable expenses. To achieve this goal, rules are laid down under which companies are able to deduct qualifying expenses incurred in producing assessable profits for tax purposes. One issue which has however remained of interest to all stakeholders in the taxation space in Nigeria is the correct yardstick for determining the deductibility of expenses following the laid down rules. This problem is exacerbated by the fact that the test for deductibility is a question of fact, which in most cases is subject to varying interpretations and views by tax authorities, tax payers and even the Courts.[3]

It is because of the abuse of allowable deductions by companies in preparing their tax return is inevitable; that is why the drafting of our tax laws specifically listed items which are classified as non allowable expenses under Section 27 of CITA. Interestingly, since the list of non allowable expenses are inexhaustible, companies tend to argue that any expenses which are not expressly classified as not allowable expenses and which also qualify under the WREN-Rule test, should be allowed by  the Tax Authority.[4]

In the case of MTN Nigeria Communications Plc v Federal Inland Revenue Service (2020)[5] MTN claimed that the penalty imposed by NCC on them for the violation of their Act which they have paid was an expense that should be allowed because it is wholly, exclusive, necessary and reasonably paid to enable them continue doing business in Nigeria and be producing taxable profits.  However, FIRS argued that a taxpayer should not be allowed to benefit from his wrong. The Court however ruled in favor of the FIRS and disallowed the expenses. To avoid further litigation on issue such as this, Section 11 of Finance Act 2019 amended Section 27(1) of CITA by inserting a new paragraph (k) which now include “any penalty prescribed by any Act of the National Assembly for violating any statute” in the list of expenses not allowed.

,
Worthy of note is that the Finance Act 2019 did not amend the provision of Section 27(1) (c) CITA which forms the basis of this Article. “What then prompted the new circular issued by the FIRS” what is the general rule and exceptions under  which taxes paid on profit or income in a foreign country can be allowed as allowable expenses in Nigeria?. Does Section 27(1)(c) CITA provide any condition precedent which must be fulfilled before foreign tax paid can be allowed in Nigeria?.

The writer in search for answers for the above questions will present this article adopting this configuration as follows: Abstract, Introduction, Clarification of basic terms, the treatment of taxes on income or profits paid in foreign jurisdictions with no double taxation agreement with Nigeria under CITA, Challenges to the implementation of Section 27(1) (c) of CITA, Recommendation/way forward and Conclusion.

• CLARIFICATION OF TERMS USED: The following terms used in the context of the article means:

DEDUCTION NOT ALLOWED: These are expenses (by whatever name is called) which are either expressly classified as deduction not allowable under Section 27 of CITA or expenses which failed the test of WREN-Rule as provided under Section 24 of CITA.

TAXES ON INCOME OR PROFIT LEVIED IN NIGERIA: These are taxes other than companies income tax which are levied by other legislation on the profit or income or gain of a company operating in Nigeria (for example, Education Tax, Capital Gain Tax and Stamp duties etc).

DOUBLE TAXATION AGREEMENT (DTA) This is a treaty agreement executed between two member countries which in most cases  provides for relief from double taxation, spells out the taxing rights between the treaty countries partnering on the different types of income arising from cross-border economic activities. It helps in eliminating double taxation suffered by taxpayers from member countries.

FOREIGN JURISDICTIONS: This means any other Country other than Nigeria which has its Tax Authority and operates and charges its own   domestic tax laws, over income or profit gained, received, generated or acquired by indigenous or foreign Companies within the said Country.

• THE TREATMENT OF TAXES ON INCOME OR PROFITS PAID IN FOREIGN JURISDICTIONS WITH NO DOUBLE TAXATION AGREEMENT WITH NIGERIA

A Nigerian Company[6] is a company or corporation other than a corporation sole registered with Corporate Affairs Commission pursuant to the Companies and Allied Matter Act (CAMA)[7]  or under any law enforced in Nigeria. A Nigerian Company can carry out business in any foreign jurisdiction, however its global income or profit generated from such trade or business is deemed to have been accrued in Nigeria and will accordingly be subjected to tax in Nigeria. For the avoidance of doubt Section 13(1) of CITA[8] provides thus: “The profit of a Nigerian company shall be deemed to accrue in Nigeria wherever they have arisen and whether or not they have been brought into or received in Nigeria.”

The rationale behind the taxation of such profit and income from foreign Jurisdiction is that the above section considered such income or profit as having been accrued in Nigeria. The position of our domestic tax law is clear that any income accruing in Nigeria is taxable under Section 9(1) of CITA. The section provides: “Subject to the provisions of this Act, the tax shall, for each year of assessment, be payable at the rate specified in Subsection (1) of section 40 of this Act upon the profits of any company accruing in, derived from, brought into, or received in, Nigeria in respect of-any trade or business…”

I will pause at this juncture to raise the following vital questions: what happens to the tax paid by a Nigerian Company in the foreign jurisdiction which has received a Tax Credit Note or Certificate but such country has no Double Taxation Agreement with Nigeria?, can the Nigerian company deduct foreign taxes paid from its global income or profit in computing its tax liability in Nigeria?, does the word “tax” used in the context of Section 27 (c ) CITA include levies imposed and paid by Nigeria companies within and outside Nigeria on its income or profit.? Can a Nigerian company deduct levies paid on its income or profit in Nigeria or elsewhere?

       The Companies Income Tax Act has provided answers to the questions posed above which I will attempt to examine. Section 27 (c) CITA provides thus: “Notwithstanding any other provision of this Act, no deduction shall be allowed for the purpose of ascertaining the profits of any company in respect of taxes on income or profits levied in Nigeria or elsewhere, other than tax levied outside Nigeria on profits which are also chargeable to tax in Nigeria where relief for the double taxation of those profits may not be given under any other provision of this Act.” (The underline is mine for emphasis)

• GENERAL RULE UNDER SECTION 27(C) OF CITA: The general rule under the provision of Section 27(c) of CITA is crystal clear, that if a Nigerian Company to which Companies Income Tax Act applies paid income tax on its income or profits in Nigeria or in any foreign jurisdiction, such taxes paid are not deductible as allowable deduction for the purpose of ascertaining the profits of such companies in Nigeria. For instance, the payment of Education Tax (Tetfund Tax) in Nigeria which is at the rate of 2% of total Profit of all companies operating in Nigeria or Stamp Duties charges paid for fixed or ad-valorem dutiable instrument such taxes paid are not deductible by virtue of Section 27(c) CITA.[9]

The likely debate that might arise from the provision of Section 27 (c) CITA is: Does the word “tax” which is not deductible as used in the context of this section include levies imposed and paid by Nigerian companies within and outside Nigeria on its income or profit? There is a need therefore to apply the appropriate rules of interpretation of statute in this case in order to understand the intention of the legislature in enacting the above section. For emphasis purpose Section 27(c) CITA expressly mentioned “taxes on income or profits levied in Nigeria or elsewhere” The section did not state “taxes and levies”, I am tempted to ask: was it a mistake?, was it deliberate?, was it because tax may sometime take the form of levy?, Is tax and levy the same?

IFRIC 21[10] defined a levy “as an outflow of resources embodying economic benefits that is imposed by governments (including government agencies and similar bodies) in accordance with laws and/or regulations.” Also the Webster Dictionary define levy “as an amount of money that must be paid and that is collected by a government or other authority”[11]  Tax on the other hand is defined as:

 “a compulsory charge imposed by the Government through its agency (a public institution) on the incomes or profit of an individual (natural persons) and Companies/organizations (artificial persons) at a rate define by legislation for the common benefit of a specific country, state or  a nation.”[12]

According to Taiwo (2014)[13] “the major distinction between income taxes and levies is that the former is based strictly on taxable profit while the latter is payable without regard to taxable profit”. I want to state here with utmost respect to Oyedele Taiwo, that his opinion above is faulty in the sense that there are instances where a levy is also charged on the company’s income or profit. For example, Nigeria Police Trust Fund (NPTF) levy is imposed on income and profits of companies, yet it is a levy and not tax as provided by the statutes imposing same. I hold the opinion therefore that, the major difference between “Tax” and “levy” is that, tax are strictly on all occasion a compulsory contribution levied by government while Levies may in some instance not be compulsory and may be imposed by organizations or association etc and not necessarily impose  by government at all time. Another difference is that, taxes are paid not for the direct benefit in return to taxpayers whereas levy can be paid for a direct service rendered, for example: Environmental levy

In response to the question raised above, I hold the opinion that, for us to understand the intention of the legislature on whether the word “tax” as used in the context of Section 27 (c) of CITA includes “levies” there is a need to examine the process of interpretation of tax laws. Constitutionally, the Court is saddled with the responsibility of interpreting legislation (tax laws inclusive). This duty of the Court is borne out of the fact that, statutes in Nigeria are drafted in English language which is inherently pregnant and susceptible to a variety of meanings. The Court therefore has the responsibility of ascertaining the intentions of the legislature from the words employed in the statute. In efforts to carry out this responsibility, various techniques have been employed by the Court to accurately fix the letters of the law to its spirit and these techniques culminate in what is commonly referred to as canons or rules of statutory interpretations.[14] There are three rules of interpretation, the Literal, Golden and Mischief rule of interpretation.[15] In interpreting tax legislations; it is obvious that the intention of tax legislations is to impose the taxes approved by the legislature on the subject affected. Like all statutes imposing pecuniary burdens on the subject, tax statutes are therefore to be construed strictly[16]

Ikpaezu J in the case of ADERAWOS TIMBER TRADING CO. LTD V. FBIR[17] held thus “It is the law that the language of a statute imposing a tax duty or charge must receive a strict construction in the sense that there is no room for any intendment and regard must be had to the clear meaning of the words” This decision followed the decision of the English case of CAPE BRANDY SYNDICATE V IRC (1921)[18]  where the court per Rowlatt J. held thus; “In a taxing Act, one has to look merely at what is clearly said: there is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing to be read in and nothing is to be implied. One can only look fair at the language used” if I may add, there is no morality in taxation, tax is based on law and the tax laws must be interpreted strictly given its ordinary and simple meaning of the words used in the tax statutes.

Based on the above decision of Court, Section 27(c) CITA must be interpreted strictly given it ordinary meaning. I hold the opinion that it is the express intention of the legislatures in Section 27(c) CITA  that any form of tax paid in Nigeria or outside Nigeria shall not be treated as allowable deduction except it fall under the exception provided therein, and the word “tax” as used in the Section does not include “levy paid”. Even if it is contested that there is ambiguity in Section 27(c) CITA as to whether Tax used in the said Section include levies paid, it is a trite law  as held in the case of NIGERIAN BREWERIES PLC V FIRS (2016)[19] that where there is ambiguity in tax statutes, it should be resolve in favor of the taxpayers.

It is therefore worthy of note that flowing from my discussion above; there are some levies that are tax deductable because the word tax mentioned in Section 27(c) CITA does not include levies paid either in Nigeria or outside Nigeria. Others levies are tax deductable because the legislation imposing same stated so. Hence the following levies paid by Nigerian companies are tax deductable.

1. National Information Technology Development Act (NITDA) Levy: This is levied at the rate of 1% of profit before tax of companies with an annual turnover of ₦100,000,000 who are into Pension, Telecommunication, Banking and other financial institution. The Act imposing the levy expressly stated in Section 12 (2) (a) of NITD Act 2007 that the levy shall be tax deductable.
2. Nigeria Police Trust Fund (NPTF) Levy: This is levied at the rate of 0.005% of Net Profit of all Companies operating in Nigeria under Section 4 of Nigeria Police Trust Fund (Establishment) Act 2019. Worthy of note is that, the Act is silent on whether the levy is tax deductible or not, it is equally silent on who is responsible for collection  and the modality for the collection of such levy, the unfortunate thing about the Act is that, no penalties was imposed for defaulter who fails to pay the levy. However base on practice and convention such levy like NITDA levy will be tax deductable.
3. Nigeria Social Insurance Trust Fund (NSITF) Levy: This is levied at the rate of a minimum monthly contribution of 1% of the employer’s total monthly payroll under Section 33(1) of the Employees Compensation Act, 2010 (ECA) since the levy is for compulsory insurance for employee, in practice it is equally tax deductable.

4. Industrial Training Fund Levy ITF Levy: this is levied at the rate of 1% of the annual payroll by employers with 5 employees or more or an annual turnover of ₦50 Million and above under Section 6 and 11 of Industrial Training Fund Act of 1971 (ITF ACT) as amendment  2011) even though the ITF Act provides for refund of 60% to 50% of the amount paid by such employer subject to the training programs of the employer being in accordance with the ITF’s reimbursement schemes. The refund would be made in the subsequent year when such company did not enjoy any training from the ITF in the year the levy was paid and when such levy is refunded and was not utilized for training by such company it will be added to the profit of that company in the year it was refunded and be subjected to tax.

6. Nigeria Content Development or Local content Levy: Section 104(2) of Nigerian Oil and Gas Industry Content Development Act (NOGICDA) N0.2 of 2010 provides thus: “One (1) of every Contract awarded to any operator, contractor, subcontractor, alliance partners, or any other entity involved in any project operating, activities or transaction in the upstream sector of the Nigeria oil and gas industry shall be dictated and paid into the fund of Nigerian content development fund” this further backed in paragraph 4.0 of NCDB guidelines made pursuant to section 70(1) of NOGICDA. The Act is silent on whether the levy paid is tax deductable but in practice it is considered expenses that qualified for WREN-Rule under Section 24 of CITA
7. Cabotage surcharge: This is levied at 2% of contract sum performed by any vessel engaged in coastal trade based on Section 43(a) of the Coastal and Inland Shipping (Cabotage) Act No.5 of 2003 this is on marine companies operating in Nigeria. The Act is also silent on whether the levy paid is tax deductable but in practice it is considered expenses that qualified for WREN-Rule under Section 24 of CITA

As for any other expense of any description including levies paid by Nigerian Companies in foreign jurisdictions, I hold the opinion that Section 27 (i) CITA has taken care of it and it is left to the discretion of the Board of the FIRS to allow or disallow it. For avoidance of doubt Section 27 (i) CITA provides thus: “Notwithstanding any other provision of this Act, no deduction shall be allowed for the purpose of ascertaining the profits of any company in respect of any expense or any description incurred within or outside Nigeria for and or behalf of any company EXCEPT of a nature and to the extent as the board may consider allowable” (the underlined is made for emphasis). The sentence in the above section: “EXCEPT of a nature and to the extent as the board may consider allowable” signify that if the Board of FIRS are of the opinion any expenses by whatever name is called including levies paid in foreign jurisdictions is of a nature that can be regarded as qualified to be tax deductible they will allow it.

• EXCEPTION TO THE GENERAL RULE UNDER SECTION 27(C) OF CITA: The exception to the general rule laid down under Section 27(c ) of CITA is that taxes paid in foreign jurisdiction by Nigerian companies  that do not have DTA with Nigeria can be treated as an allowable or  tax deductable subject to certain conditions.  Let us examine the wording of Section 27 (c) CITA once again:

 “Notwithstanding any other provision of this Act, no deduction shall be allowed for the purpose of ascertaining the profits of any company in respect of taxes on income or profits levied in Nigeria or elsewhere, OTHER THAN TAX LEVIED outside Nigeria on profits which are also chargeable to tax in Nigeria where relief for the double taxation of those profits may not be given under any other provision of this Act.” (The underline is made for emphasis)

The phrase “..other than tax levied..” as used in the above section provides the foundation of an exception to the general rule of non deductibility of other taxes paid in foreign jurisdiction for the purpose of ascertaining the profits of any Nigerian company in Nigeria. Therefore where a company had paid tax in a foreign jurisdiction with which Nigeria does not have a tax treaty and that income is chargeable to tax in Nigeria, the tax paid in that foreign jurisdiction may be allowed as deduction in ascertaining the company’s assessable profits provided that relevant conditions are met.[20]

Paragraph 2.0 of the Federal Inland Revenue Service (FIRS) Information Circular No: 2020/13 date: 21^st October, 2020 provide thus:

“In order that taxes paid in another jurisdiction may be allowed for deduction in computing assessable profits of a company in Nigeria, all the following conditions shall be met:

1. There is no Double Taxation Agreement (DTA) between Nigeria and the country to which the tax was paid.
2. The income from which the tax was paid in the foreign jurisdiction is included in the company’s assessable profits for the relevant year of assessment,
3. The tax charged in the foreign jurisdiction is similar to the tax imposed by the Companies Income Tax Act (CITA), excluding any fine, interest or penalty,
4. The income or profits on which the tax was charged in the foreign jurisdiction is chargeable to tax in Nigeria i.e. it is not exempt under any provision of the law, and
5. The taxpayer presents evidence of the tax payment in the foreign jurisdiction in the form of a certificate (Tax Credit Certificate) or note (Tax Credit Note) issued by the tax authority of the jurisdiction to which the tax was paid.”

A crucial examination of the conditions stipulated above will be helpful in understanding the Information Circular.

The 1^st condition is that “there is no Double Taxation Agreement (DTA) between Nigeria and the Country to which the tax was paid” Hypothetically, this connotes that, taking for instance, a Nigerian “Company A” paid foreign tax to “Country B” on its rental income over a property purchased in that jurisdiction but “Country B” has no any Double Taxation Agreement with Nigeria.

The 2^nd condition is that “The income from which the tax was paid in the foreign jurisdiction is included in the company’s assessable profits for the relevant year of assessment.” This signifies that rental income from the first example above which was subjected to tax in “Country B” is accurately reported in “Company A’s” financial statement/annual return as part of its assessable profit. Therefore where such profit is not accurately reported or is under reported, “Company A” will not be allowed to deduct such foreign tax paid as allowable expense in Nigeria.

The 3^rd condition is that “The tax charged in the foreign jurisdiction is similar to the tax imposed by the Companies Income Tax Act (CITA), excluding any fine, interest or penalty,” This denotes that the Nigerian “Company A’s” rental income from the first example given above which was subjected to tax in “Country B” must equally be an income which is also subject to Companies Income Tax in Nigeria, but the penalties, fine and interest paid on such tax to “Country B” will be disallowed in Nigeria even if all the other conditions are complied with. Therefore if for instance “Company A” suffered Estate Development Tax on its rental income in “Country B” such tax paid will be disallowed in Nigeria for the purpose of ascertaining “Company A’s” assessable profits for tax. This is because, Estate Development Tax charge in “Country B” is not a similar tax imposed by the Companies Income Tax Act in Nigeria.

The 4^th condition is that “The income or profits on which the tax was charged in the foreign jurisdiction is chargeable to tax in Nigeria i.e. it is not exempt under any provision of the law,” this means that the Nigerian “Company A’s” rental income from the first example given above which was subjected to tax at “Country B” must equally not be an income that is expressly exempted from tax by any statutes enforced in Nigeria. Therefore once it is established that the tax paid by the Nigerian company in the foreign jurisdiction was paid over an income or profit which is exempted or not subject to tax in Nigeria, even if the foreign jurisdiction issued a Tax Credit Certificate to such Nigerian company, it will not be honored in Nigeria. The tax paid will be disallowed.

The 5^th condition is that “The taxpayer presents evidence of the tax payment in the foreign jurisdiction in the form of a certificate (Tax Credit Certificate or Tax Credit Note) issued by the tax authority of the jurisdiction to which the tax was paid.” This means that the Nigerian “Company A’s” rental income from the first example given above which was subjected to tax at “Country B” must also be issued Tax Credit Certificate or Tax Credit Note covering the exact amount paid. It is worthy to note that if for instance the Tax Credit Certificate indicates that the sum of $2,000 was paid as tax, the Tax Authority will examine the detail or summary of the amount paid and will accordingly disallow all penalties, interest and fine that cumulatively add up to the sum of $2,000. So it is only the amount which made up the actual tax paid that will be allowed for the purpose of ascertaining the assessable profit of the said Nigeria Company for tax purpose.

The 6^th Condition: “The Nigerian company must formally apply to the Tax Authority attaching the relevant documents and to show that it has met the required conditions for the Nigerian tax authority to accept the tax paid in the foreign jurisdiction as deductible for tax purpose in Nigeria” The FIRS Information Circular cited above did not mention the above as the 6th condition but it was given as part of the procedure. It is a conventional practice in all jurisdictions that the Tax Authority is not a Father Christmas that allows taxpayers to expense from its profit all tax paid from foreign jurisdiction without a formal request or application from such taxpayer. The  Tax Authority will also not go on the voyage of discovery on behalf of taxpayers to ask the foreign jurisdiction whether the Nigerian company has paid any tax in their jurisdiction or not. Therefore, the Nigerian Company seeking to deduct tax paid in foreign jurisdiction in computation of its tax liability in Nigeria must formally apply in accordance with the procedure laid down by the Tax Authority. What then is the procedure laid down by FIRS?

• PROCEDURE FOR APPLICATION AND UTILIZATION OF FOREIGN TAX CREDIT NOTE OR CERTIFICATE IN NIGERIA: Paragraph 3.0 of the Federal Inland Revenue Service (FIRS) Information Circular No: 2020/13 date: 21^st October, 2020 provide thus:

“A taxpayer claiming deduction for foreign tax paid pursuant to Section 27(c) of CITA shall include a Tax Credit Certificate or Tax Credit Note in its tax returns as evidence of the tax paid in the foreign jurisdiction. The Service shall adopt the following procedures in accepting the tax paid in a foreign jurisdiction as an allowable deduction:

1. the tax office, upon receipt of a Tax Credit Certificate or Tax Credit Note, will forward the certificate or note to the Tax Policy & Advisory Department for confirmation.

2. The Service will confirm that there is no DTA between Nigeria and the foreign jurisdiction.

4. The Service will confirm from the foreign jurisdiction that:
5. a) The Tax Credit Certificates or Tax Credit Note is authentic; and
6. b) Tax charged in the foreign jurisdiction qualifies as tax on income or profits.
7. The Service will, through its desk review or tax audit establish that the relevant income is included in the assessable profits of the taxpayer for the relevant year of assessment and was in no way exempt from CIT and that the expense relates to the income that is chargeable to tax in Nigeria.”

• CHALLENGES/LIMITATIONS: The process of granting the application and utilization of Foreign Tax Credit by a Nigeria company for the purpose of determining its assessable profit for tax purpose is not without challenges. Below are some of the limitation:

1. Lack of response or reply within a reasonable time by the Foreign Tax Authority confirming the issuance of such Tax Credit Note or Certificate may hinder the taxpayer from enjoying the benefit of deductibility of such tax paid in the foreign jurisdiction in the current year of the company’s assessment in Nigeria.
2. The differences in nomenclature, nature and structure by which taxes are named or called in foreign jurisdiction may limit the deductibility of foreign tax paid by Nigerian company. This is because the law has vested the power on the FIRS to determine whether the said foreign tax paid is similar to the tax impose under Company income tax in Nigeria before allowing it to be tax deductable.
3. The rates of some foreign tax are higher than the rate applicable under Nigerian domestic tax law, hence even though a Nigerian company meets all the conditions provided in the FIRS’s circular above, the company may not be allowed to deduct the whole of the taxes paid in foreign jurisdiction when the rate is higher (in some cases almost two times what the rate is in Nigeria) this is because it will significantly reduce the amount of assessable profit that will be subjected to tax in Nigeria.
4. The high rate of corruption in some Tax Jurisdiction particularly some developing African countries limits the success of the whole process. A company may conspire with tax officials of the foreign country to issue illegal Tax Credit Certificate or Tax Credit Notes which if accepted and approved by Nigerian tax authority will reduce the amount of tax Nigerian government will get from income or profits from such foreign trade or business.
5. Lack of information circular from FIRS on tax deductibility of all forms of levies payable by Nigerian companies who are subject to the application of the Companies Income Tax Act

• RECOMMENDATION/WAY FORWARD: The following recommendation are hereby suggested as the way forward to mitigate the challenges posed by the whole process:

1. The Nigerian Tax Authority should strictly ensure that the accurate profit of the foreign trade or business which foreign tax was paid on is reported in the financial statement of the said company in the same year of assessment.
2. The Nigerian Tax Authority should amend the Circular issued on Section 27(c) of CITA as much as possible listing some of the foreign taxes that  will not be allowable in Nigeria on ground that they are not similar to tax imposed under the Companies Income Tax Act. This is what United State of America’s Internal Revenue Service has done in respect to their Personal Income Tax and deductibility of foreign tax paid by US Citizen.
3. The Nigerian Tax Authority should design a form for application of utilization of Foreign Tax Credit Note or Certificate for ease of business.
4. The desk officers of the Nigerian Tax Authority handling application for the utilization of Foreign Tax Credit Note or Certificate under Section 27(c) of CITA should be well trained to avoid revenue leakages and to promote effective service delivery.
5. FIRS to issue Information Circular on tax deductibility of all forms of levies payable within Nigeria or in foreign jurisdiction by Nigerian company which are taxable under Companies Income Tax Act.

• CONCLUSION: With the advent of technology and access to unlimited information around the globe, the world has since become a global village. Cross border trade, business or transactions have become inevitable. It is therefore necessary to suggests that the international Trade Organization and their members’ countries should provide mechanism that will remove trade barrier in cross boarder transaction of which taxation is one. A Legislation like Section 27(c) CITA which accepts Foreign Tax Credit Note or Certificate under certain strict conditions as allowable deduction for tax purpose should be emulated and domesticated by countries of the world as it will not only encourage cross border trade activities and promote inflow of Direct Foreign Investment, it will also promote the growth of regional, continental and world economy at large.

 Wrtitten by Zhihwi Dauda Esq. (LL.B, B.L, LLM, ACTI). E-mail: daudathihwi@gmail.com Phone: 08059538671

[1] S. 42 CAMA Cap C20 LFN 2004 as amended in 2020.

[2] Companies Income Tax Act Cap C21 LFN 2004 as amended.

[3] G. Nwodo “Tax Appeal Tribunal’s decision on deductibility of expenses in determining Companies Income Tax in Nigeria” published in Guardian newspaper online of 2^nd June, 2020 https://guardian.ng/features/law/tax-appeal-tribunals-decision-on-deductibility-of-expenses-in-determining-companies-income-tax-in-nigeria/ Accessed on 11^th November, 2020.

[4] Tetra Pak West Africa Limited v Federal Inland Revenue Service [Consolidated Appeal Nos.: TAT/LZ/CIT/030/2015; TAT/LZ/EDT/031/2015; TAT/LZ/CIT/032/2015;   and TAT/LZ/EDT/033/2015].

[5] MTN Nigeria Communications Plc v Federal Inland Revenue Service (2020) Vol.50 TLRN42.

[6] S.105 of Companies Income Tax Act Cap C21 LFN 2004 as amended.

[7] Companies and Allied Matter Act Cap C20 LFN 2004 as amended in 2020.

[8] S.13 (1) of Companies Income Tax Act Cap C21 LFN 2004 as amended.

[9] However for companies subject to Petroleum Profit Tax Act, Education Tax  paid will  be treated as an allowable deduction under S. 10(1)(i) of PPT Act.

[10] International Financial Reporting Interpretation Committee (IFRIC) issued by The International Accounting Standards Board (IASB).

[11] T. Oyedele “Is it a tax or a levy?”Published on 24^th August, 2014 https://www.mondaq.com/nigeria/income-tax/336590/is-it-a-tax-or-a-levy. Accessed on 13/11/2020.

[12] Z.Dauda “The impact of effective application of the Value Added Tax act as a tool for increased (non oil) revenue in Nigeria” being an unpublished thesis submitted to Faculty of law University of Just for the award of LL.M in the year 2017. Pg 16.

[13] Ibid foot Note No.11.

[14] A. M. Ekanem  “Illuminations on the Attitude of the Court in the Interpretation of Tax Legislations in Nigeria- F.B.I.R v. IDS Ltd in View (November 21, 2016)”

https://ssrn.com/abstract=2873618or http://dx.doi.org/10.2139/ssrn.2873618, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2873618 Accessed on 19^th November, 2020.

[15]https://djetlawyer.com/interpretation-of-statutes/#:~:text=INTERPRETATION%20OF%20STATUTES%201%20The%20Literal%20rule%202,be%20the%20case%20if%20statutes%20are%20wrongly%20interpreted. Accessed on 18^th November, 2020.

[16]  Ibid  Foot Note 14

[17] Aderawos Timber Trading Co. Ltd v. FBIR (1966) LLR 195 Cited by A. M. Ekanem. Foot Note 14

[18] Cape Brandy Syndicate v IRC (1921) 2 KB 403 Cited by A. M. Ekanem . Foot Note 14

[19] Nigerian Breweries PLC v FIRS (2016) Vol. 24 TLRN 40 ratio 3 at page 43.

[20] FIRS Information Circular No: 2020/13 publication date: 21^st October, 2020.www.firs.gov.ng Accessed on 10^th November, 2020.