The Tax Appeal Tribunal, Lagos Zone, has ordered Ecobank to pay at least N1.6 billion to the Federal Inland Revenue Service (FIRS) as its company income tax for 2016.
The tribunal declared as illegal, the decision of Ecobank Nigeria Limited to pay N5.5 billion as dividends to its shareholders ”in a year the bank claimed it made no taxable profit and rather declared losses from its banking operation.”
According to a release by the Director, Communications and Liaison Department, FIRS, Abdullahi Ahmad, the tribunal reached the decision in its judgment dated February 20, 2020 which it delivered in Appeal No. TAT/LZ/CIT/024/2018.
Consequentially, Ecobank must now pay at least N1.6 billion to the FIRS as company income tax for the year in dispute – 2016
“Ecobank had dragged the Federal Inland Revenue Service (FIRS) to court over the insistence of the Service that the bank must pay in full its excess dividend tax liability of N2,079,375,000, inclusive of interest and penalty for the Year of Assessment (YOA) 2016.
“But ECO Bank argued that the dividend it paid out was tax-exempt as N4,372,244,556 out of the total sum was “profit from bonds and treasury bills”, which was not taxable based on the provisions of the Company Income Tax (Exemption of Bonds and Short-Term Government Securities) Order, 2011,” the FIRS said in the statement.
The bank after reportedly admitting to only making N1.1 billion “trading profits” from other business sources, decided that it would only pay N351 million tax to the FIRS.
The bank was said to have paid the service after some months of delay.
However, FIRS “demanded the immediate payment of the outstanding excess dividend tax liability of N1,311,673,367” from the bank, which impasse led to suit before the tax tribunal.”
Spokesperson of the bank, Austin Osokpor on Wednesday said he does not ”have prior knowledge of the case”.
“I don’t know about it at all before this time,” he said on the telephone.
He promised to react once he is able to clarify the story.
Ecobank’s ‘argument’
Meanwhile, according to the FIRS statement, the bank presented three issues for determination, namely whether the FIRS “was correct to assess the Appellant to tax under Section 19 of CITA when the income earned was “from Bonds, Treasury Bills, and other Government Securities”.
“Whether the FIRS misdirected itself by failing to take account the CIT paid by the Appellant and whether by the rules of Interpretation of Statutes, the Respondent has erred in law in its application of Section 19 of CITA.”
In its consideration of the three issues raised, the tribunal reportedly resolved them in favour of the FIRS.
It held that “companies that invest in bonds will, by virtue of the tax exemption, become liable to pay excess dividend tax on their profits.”
The court maintained that “if the tax exemption granted by the order creates an excess dividend situation, Ecobank or any other company should be liable to pay excess dividend tax on the same income that otherwise would have been exempted from tax.”
“A liability to pay excess dividend tax arises where a company that seeks to pay dividends has no taxable profit as in the instant case but has the distributable profit that is higher than the taxable profit,” the tribunal said.
The tribunal also said that the FIRS properly directed itself by not failing “to take into account the sum already settled by the Appellant” (Eco Bank) in the Service’s “total assessment of N1,663,500,000.”
Addressing the final issue for determination, the tax tribunal headed by Ado-Baba Ahmed, resolved all issues raised in favour of the FIRS.
It declared that the Ecobank “appeal fails and is hereby dismissed.”
