Tax Appeal Tribun al discharges appellant of additional tax assessments

The Tax Appeal Tribunal, Lagos Zone (TAT) delivered a Judgment on January 22, 2016 in Chevron Nigeria Limited Versus Federal Inland Revenue Service (FIRS) (TAT/LZ/044/2013) on the appropriate methodology to be adopted in the determination of the fiscal value of crude oil in the years ended December 31th 2007 and 2008.

While the FIRS contended that the appropriate methodology is the Official Selling Price (OSP), Chevron Nigeria Limited (the Appellant) applied the Realisable Price (RP) in both years. The TAT ruled in favour of the Appellant.

The Appellant, represented in the appeals by WTS ADEBIYI & Associates, contended that it acted in accordance with the provision of Sections 9(2) and 23 of the PPTA in using the Realisable Price as the methodology of determining the fiscal value of crude oil in both years.

The Nigeria Extractive Industries Transparency Initiative (NEITI) carried out an industry wide audit including the operations of the Appellant for a period covering 2006 – 2008.

Based on the said audit report of NEITI, the FIRS issued the Appellant with Notices of Additional Assessment alleging that the Appellant is liable to pay additional tax of $2.899million for the years ended December 31, 2007 and $3.444million for year ended December 31, 2008.

The basis of the additional assessments is the position of the FIRS that in the determination of the Fiscal value of crude oil, the Appellant ought to have used the higher of OSP and actual price per cargo.

The Appellant relying on the provisions of Sections 9(2) and 23(3)(5) of the PPTA applied the RP against actual price. The FIRS’ position led to an additional revenue of $3.411million and $4.052million for years ended 31 December 2007 and 2008 respectively and the resultant tax liabilities of $2.899million and $3.444million respectively.

The Appellant objected to the assessments and subsequently filed an appeal against the assessments at the TAT.

The Appellant also contended that it is the RP that is the only methodology agreed between the Appellant and the Government as well as the other IOCs doing similar business in the years ended 2007 and 2008.

With respect to 2007, the Appellant relied on the provision of the MOU, the letter issued by the Department of Petroleum Resources (DPR) dated 17th January 2008 to argue that based on Sections 9(2) and 23(3)(5) of the PPTA – the appropriate methodology should be a price agreed between the Government and the Appellant and that the MOU and the letter dated 17th January 2008 represent such agreement.

Having also argued that the MOU of 2000 terminated in January 2008, the Appellant relied on a letter issued by the DPR to members of the OPTS dated 19th June 2013 to argue that based on that letter the parties agreed to adopt the RP from 2008 and 2010 and that the RP is the right methodology for the year ended December 31th 2008.

On the other hand, the FIRS contends that in the determination of Fiscal value of crude oil, the Appellant ought to have used the OSP and not the RP, it argued that the use of the OSP as the methodology of determining the value of crude oil in the YOAs is in accordance with the provision of the PPTA.

After hearing the submissions of counsel, the TAT upheld the argument of the Appellant’s counsel WTS ADEBIYI & Associates and discharged the Appellant of the additional tax assessments for the years ended December 31st 2007 and 2008.

The TAT made the following key decisions:  The provisions of Sections 9(2)(a) and 23(1)(2)(3)(5) of the PPTA, relied upon by the Appellant center on agreement between Nigerian Government and the Appellant for the determination of the methodology to be adopted in determining an applicable fiscal value of crude oil. 

• The year 2000 MOU is the Agreement this Tribunal and the Federal High Court as per Saidu J. in the case of Mobil Producing Nigeria Unlimited v FIRS (2015) 18 TLRN 34 at 41 based their decision and that the MOU of 2000 terminated with effect from 17th January, 2008. 

• The year 2000 MOU recognized RP as the applicable fiscal price mechanism for the year ended 2007 because it states clearly that RP is the appropriate price methodology for the fiscal value of Nigerian crude oil was still in force. 

• The FIRS’s additional Notice of Assessment PPTBA 41 is not in accordance with the relevant tax laws and RP is the appropriate price mechanism for the year ended 31st December, 2007.

• By the provisions of the PPTA, and the letter written to members of the OPTS by DPR dated 19th June, 2013, the RP is the appropriate methodology in determining the fiscal value of crude oil in the year ended 31st December 2008 and the Appellant rightly relied thereon.

• The DPR’s letter of 19th June, 2013 reflects the agreement reached between the Oil Producers Trade Section of the Lagos Chamber of Commerce and Industry (OPTS) and Government, the process which involved the NNPC-COMD and FIRS officials.   

• The DPR’s letter dated 19th June, 2013 is an agreement between OPTS and Government which sections 9(2)(a) and 23(1)(2)(3)(5) of the PPTA require  in determining the fiscal value of crude oil. The DPR’s letter states clearly that RP is the applicable fiscal price from January 2008 to June 2010, and OSP be used as fiscal price from July 2010 to December, 2012. 

The DPR’s letter of 19th June, 2013 derived its strength from sections 9(2)(a) and 23(1)(2)(3)(5) of the PPTA and not the MOU of 2000. The MOU of 2000 terminated in 2008 as contained in the Federal High Court decision per Saidu J. in the case of Mobil Producing Nigeria Unlimited v FIRS (supra).

This decision of the TAT is a welcome development and it represents a clear departure from TAT earlier decisions in other cases including Mobil v FIRS (Supra) when it held that the tax payer has not shown any enough basis for it to hold that the RP is appropriate methodology for the year 2008. Being later in time, the decision of the TAT overrides its earlier decisions on the issue and the OICs can on the strength of same file their assessments using the RP.

Iheanyi Nwachukwu