A REVIEW OF THE 2023 TAX APPEAL TRIBUNAL JUDGMENT IN CHECK POINT SOFTWARE TECHNOLOGIES B. V. NIG LTD v. FIRS
As 2023 winds down, the need for a thorough review of tax-related judicial decisions likely to significantly impact the 2024 tax atmosphere cannot be overstated. With respect to international taxation and transfer pricing, the Tax Appeal Tribunal (TAT) decision in Check Point Software Technologies B. V. Nig Ltd v. Federal Inland Revenue Service (FIRS) stands out. Stating that this decision has far-reaching implications for the current and 2024 Nigerian international tax and transfer pricing landscape may turn out to be an understatement in light of current realities.
Before examining few current and potential implications, it is crucial to examine the TAT judgment itself. Thereafter, a short commentary cum recommendation fittingly follows to conclude this article.
- HIGHLIGHT OF FACTS
The Federal Inland Revenue Service (“FIRS” or “the Respondent”) issued and served on Check Point Software Technologies B. V. Nig Ltd (“the Appellant”), Notices of Administrative Penalties dated 10th March 2022 and 15th March 2022 for late filing of the 2019 and 2020 Country by Country (“CBC”) Notifications under the CBC Regulations 2018. The Appellant submitted letters of objection dated 21st March 2022, and 22nd March 2022 respectively on the grounds that the notices were illegal and ultra vires for imposing a penalty beyond that which is stipulated in the mother statute (of the CBC Regulations, which is, the Federal Inland Revenue Service (Establishment) Act).
The Respondent was unwilling to withdraw its notices of penalty, compelling the Appellant to file an appeal before the TAT sitting at Lagos.
- ISSUES FOR DETERMINATION
The TAT adopted the following issues for determination:
- Whether the CBC Regulation 2018 NOT made by the Board of the FIRS as mandatorily required by Section 61 of the FIRS Act is illegal, unconstitutional, null and void and hence liable to be quashed by the Tribunal as well as the Notices of Administrative penalties served on the Appellant by the Respondent on the enforcement of same?
- Whether the Respondent can administer the Income Tax Country by Country Reporting Regulation 2018 against the Appellant?
However, the first issue for determination holds huge relevance to the subject discussed in this article and only the first issue for determination will be examined herein.
- RELEVANT LEGISLATIONS
- 1999 Constitution of the Federal Republic of Nigeria (as amended) (“CFRN”).
- Federal Inland Revenue Service (Establishment) Act 2007 (FIRSEA).
- The Tax Appeal Tribunal (Procedure) Rules 2021.
- Income Tax (Country by Country) Reporting Regulations.
- SUMMARY OF ARGUMENTS ON ISSUE ONE
The Appellant argued, inter alia, as follows:
- Section 3 of the FIRSEA created the FIRS Board (“the Board”); section 4 of the FIRSEA provides for the Board’s tenure; while section 7 provides for the Board’s powers, and functions. By section 61 of the FIRSEA, the National Assembly delegated powers to the Board, empowering it to make subsidiary legislation for giving full effect to the provisions of the FIRSEA (with the approval of the Minister of Finance).
- Every subsidiary legislation made by the FIRS Board necessarily derives validity from the FIRSEA (as enabling statute). This includes the CBC Regulations.
- The power to make subsidiary legislation can be validly exercised onlyby the person or body named as the donee of such legislative power, to the exception of any other person or body. A breach of this principle of power delegation leads to an ultra vires scenario – such law is invalid and inoperative ab initio. Such power cannot be delegated, on the basis of the maxim, delegatus non potest delegare.
- The Board was dissolved and in abeyance between 2012 and January 2020, the period during which the CBC Regulations was made.
- A non-existent Board could not have (validly) made the CBC Regulations. Thus, the CBC Regulations is invalid and inoperative, considering that it was created by a person or body different from the Board.
- Assuming without conceding that the CBC Regulations is only a replica of, seeks to enforce the CBC Multilateral Competent Authority Agreement (CBC MCAA)and does not fall within the purview of the FIRSEA, the Appellant contended that by section 12 of the CFRN, the CBC Regulations are unenforceable in Nigeria by reason of not being domesticated.
- Assuming without conceding that the CBC Regulations is valid, the imposition of a penalty for non-filing or late filing of CBC notification is beyond the scope of the delegated legislative powers donated to the Board by the National Assembly pursuant to section 61 of the FIRSEA, the said penalties having been clearly stipulated in section 26 of the FIRSEA.
For the purpose of this article, the Respondent’s counter to the Appellant’s arguments is as follows:
- On pages B69 and B71 of the Federal Republic of Nigeria Official Gazette No. 2 Vol. 105 Government Notice No. 16 dated 8thJanuary 2018, the CBC Regulations was validly made, having been done pursuant to the FIRSEA.
- Regulation 1 of the CBC Regulations states that the CBC Regulations gives effect to such laws as the FIRSEA, Companies Income Tax Act (CITA), the now-repealed Petroleum Profits Tax Act, the Income Tax (Transfer Pricing) Regulations 2012, and the CBC MCAA.
- Section 92 of CITA shows that where a regulation specificallyprovides for a penalty, then such penalty is extant and operative to the subjugation of the general penalties provided in CITA. Thus, the CBC Regulations’ penalties are valid and binding as they provide specific (rather than general) penalties for CBC Regulations offences.
- Paragraph 14 of the Second Schedule to the FIRSEA provides that the validity of any proceeding of the Board of its committees shall not be affected by (a) vacancy in membership; (b) reason that a person not entitled to do so took part in the proceedings; or (c) any defect in the appointment of a member.
- The Respondent therefore urged the TAT to uphold the administrative penalties of the Respondent and to set aside the Appeal as a deliberate ploy to obstruct the Respondent’s fulfilment of its duties and obligations.
- DECISION OF THE TAT ON THE ISSUE
The TAT agreed with the Appellant on the following:
- That section 61 of the FIRSEA specificallyempowers the Board (to the exclusion of any other person or body) to make subsidiary legislations by way of Regulations, rules, forms, and guidelines as are necessary and expedient in giving effect to the provisions of the FIRSEA.
- The Board must be legally constituted and properly composed to exercise this power.
- The Appellant provided concrete and uncontroverted evidence that during the period at which the CBC Regulations was made, the Boards of all federal parastatals and agencies (including that of the FIRS) were dissolved and had not been reconstituted.
- The non-existence of a Board during the said period would mean that a legal and legitimate exercise of the delegated powers under section 61 of the FIRSEA was impossible. Thus, any step, process, or action done in the name of the Board would be null and void.
Therefore, the TAT held that the CBC Regulations are null and void.
The question which forms the heading of this article now has a definite negative answer. Nigeria does not have an extant CBC Regulations today; the CBC Regulations purportedly made by the FIRS is destitute of legal effect. The immediate-past decade arguably accounts for the most eventful and legally active point in Nigeria’s transfer pricing and international tax history. Even the first transfer pricing judicial decision on 19th February 2020 arose from the legal and administrative tax doings of the previous decade.
With the increasing traction of transfer pricing, some may consider this decision as a huge stumbling block to progress. On the contrary, it is respectfully submitted that kudos ought to be given to the TAT for its judicial courage in exposing the legislative frailties behind the CBC Regulations and several other unnamed subsidiary legislations.
In fact, the courage of the TAT panel is accentuated by the fact that whilst it was evidently conscious of the huge economic benefits of alignment with international agreements or instruments of international cooperation, the fulfilment of the spirit and letters of the law was foremost in its mind.
A major implication of this decision is that tax administrative steps taken in the period when the Boards of all federal agencies and parastatals were dissolved (between 2012 and 2020), especially in relation to or on the basis of the CBC Regulations, are deemed invalid and impotent of any legal effect whatsoever. These steps are already susceptible to litigious challenges, as well those taken on the basis of other subsidiary tax legislations made by the FIRS between 2012 and 2020.
As 2023 merges into 2024, this decision should galvanize the Federal Government and specifically, the FIRS into proactive action. Transfer pricing, and CBC reporting obligations are subjects whose criticality go to the root of Nigeria’s economic survival. Urgent executive and legislative steps are required to give relevant CBC and transfer pricing legislations a fresh start to prevent a floodgate of litigation.
Where affected laws are reenacted or re-issued, such laws would likely apply prospectively rather than retrospectively. The FIRS and the Federal Government are respectfully advised to adopt a realist perspective and begin strategizing in anticipation of potential loss of fiscal revenue from taxpayers who have previously been charged taxes, interests, and penalties on the basis of illegal laws and subsidiary legislations.
Legislative thoroughness must be accorded with the same importance (or even urgency) as the approach to such huge issues as insurrection. Until something similar to this is done, avoidable fiscal revenue losses may have scheduled a lengthy date with the government at all levels.
For further information on this article and area of law,
please contact Olukolade O. Ehinmosan at:
S.P.A. Ajibade & Co., Lagos
By telephone (+234 1 472 9890), fax (+234 1 4605092)
Mobile (+234 815 0865 646 +234 815 9794 230)
- Associate, Tax, Real Estate and Succession, SPA Ajibade & Co, Lagos, Nigeria.
- Judgment delivered on 17th August 2023. Electronic copy of judgment available at https://tat.gov.ng/judgement/details.php?id=237 last accessed 20th December 2023 at 3:45 pm.
- Income Tax (Country by Country Reporting) Regulations, Federal Republic of Nigeria Official Gazette Volume 105 No. 2, Government Notice No. 16 (Lagos – 8th January 2018), copy available at https://www.firs.gov.ng/wp-content/uploads/2021/01/Official-Gazette-of-Income-Tax-CbC-Regulations-2018.pdf last accessed 20th December 2023 at 5:30 pm.
- No. 13, 2007.
- A fundamental principle in administrative law to the effect that delegated power is directly and personally exercisable only by the person to whom it is delegated. Based on this principle, the delegate lacks the power to re-delegate such power. See Registered Trustees of Kano Motor Club v. Yola & Ors. (2021) LPELR-56184(CA); and Incar (Nig) Plc & Anor v. Bolex Enterprises (Nig) (2001) LPELR-1514(SC).
- The Multilateral Competent Authority Agreement on the Exchange of Country-By-Country Reports, signed by Nigeria 27th January 2016 and ratified by the Federal Executive Council on 3rd August 2016, available at https://www.taxes.gov.az/uploads/2022/beynelxalq/CBCR%20ENG_FR.pdf last accessed 20th December 2023 at 6:48 pm.
- Prime Plastichem Nigeria Limited v. FIRS (unreported), Appeal No. TAT/LZ/CIT/015/2017, before the South West Division of the Tax Appeal Tribunal.