Overview

In a notable ruling on 21 July 2022, the Tax Appeal Tribunal (TAT) tackled critical tax issues in the case involving Dangote Industries Limited (Dangote) and the Federal Inland Revenue Service (FIRS). This case not only sheds light on fair hearing principles but also delves into the application of Excess Dividend Tax and VAT on reimbursable expenses.

Here are the key takeaways and lessons learned from this landmark ruling:

Fair Hearing and Documentary Evidence:

The Tribunal affirmed that Dangote was accorded adequate time and opportunities to present evidence and counter FIRS assessments. However, the Company’s failure to provide substantial documentary evidence to support its claims of non-taxability weakened its position. This underscores the importance of taxpayers providing comprehensive documentation during tax audits to substantiate their claims and avoid unexpected tax liabilities.

Excess Dividend Tax Clarifications:

The case addressed the application of Excess Dividend Tax on Dangote’s pioneer profits and franked investment income. While the Tribunal recognized that Section 19 is an anti-avoidance provision, it noted the absence of documentary evidence supporting Dangote’s claim that its dividends were distributed from exempted income sources. This decision highlights the significance of maintaining clear records and evidence to support claims of non-taxability under relevant tax provisions.

VAT on Reimbursable Expenses:

The Tribunal ruled in favor of Dangote regarding VAT on reimbursable expenses, stating that the FIRS did not consider the gross-up arrangement between the parties when assessing VAT. This emphasizes the need for tax authorities to thoroughly evaluate contractual agreements and arrangements between taxpayers to ensure accurate tax assessments, especially concerning VAT on reimbursable expenses.

Implications and Future Expectations

The ruling underscores the critical role of documentary evidence in tax disputes and assessments. Taxpayers must prioritize maintaining comprehensive records and providing necessary documentation during audits to support their positions effectively.

Furthermore, the decision on Excess Dividend Tax aligns with the Finance Act 2019, which introduced clear categories of profits exempt from this tax. This is expected to bring clarity and reduce controversies surrounding the application of Section 19 of the CIT Act.

As taxpayers navigate tax compliance and disputes, it is crucial to engage professional advisors, maintain robust record-keeping practices, and stay updated on tax laws and regulations to ensure accurate tax assessments and mitigate potential disputes.

In conclusion, the Dangote vs FIRS case serves as a valuable learning experience, emphasizing the importance of fair hearing principles, documentary evidence, and a clear understanding of tax provisions to achieve favorable outcomes in tax disputes and compliance matters.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Inner Konsult Ltd at www.innerkonsult.com at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.