November 19, 2020
On 8th October, 2020, the Tax Appeal Tribunal (“TAT” or “the Tribunal”), sitting in Benin, delivered a ruling in the case of Citibank Nigeria Limited (“Citibank” or “the Bank”) v. Rivers State Board of Internal Revenue (“RBIR”) on powers of tax authorities to assess taxpayers to back-duty Pay as You Earn (PAYE) taxes and the reasonability of Best of Judgment (BOJ) assessments.
The TAT held, inter alia, that the RBIR cannot carry out a PAYE tax assessment or investigation on back-duty taxes beyond six years except where fraud, willful default or neglect on the part of the taxpayer has been established. The TAT further held that the onus to prove that a taxpayer has committed fraud, willful default or neglect lies on the tax authority that is alleging that the taxpayer has committed such offence and only the Tribunal or a court of competent jurisdiction can determine that fraud, willful default or neglect has actually been committed by the taxpayer.
The TAT also held the view that the RBIR had failed to exercise its BOJ assessment powers in a reasonable manner and consequently set aside the BOJ assessment on Citibank in its entirety and restrained the RBIR from assessing Citibank to any further Personal Income Tax (PIT) for the years 2006 to 2017.
In 2018, the RBIR, by a letter, informed Citibank of its intention to carry out a back-duty PAYE tax investigation for the period of 1999 to 2017. Citibank, however, responded stating its inability to find all the required information for the said years as it only had an obligation to retain the relevant documents for a period of six years under Section 332(2) of the Companies and Allied Matters Act CAP C20 LFN 2004. Citibank thereafter requested for a meeting with the RBIR.
In response, the RBIR assessed the Bank to PAYE taxes based on its BOJ and sent a demand notice of over ₦303 million, covering the periods of 2006 to 2017, to the Bank on 16th September, 2018. Citibank objected to the notice of assessment on 16th October 2018. However, the RBIR sent a demand notice on 29th November, 2018 stating that the tax assessment was final and conclusive. Thereafter, Citibank appealed to the TAT seeking to set aside the assessment and restrain the RBIR from assessing it to any further PIT for the period covering 2006 to 2017.
The main issue before the Tribunal was whether Citibank was liable to pay the sum of ₦303,956,415.36 as unremitted PAYE taxes to the RBIR.
In its submission, Citibank urged the Tribunal to set aside the assessment on the grounds that the Bank had validly objected to the BOJ assessment within the time required by law and thus, the assessment could not have been final and conclusive. Furthermore, Citibank maintained that the alleged back-duty PAYE tax assessment exceeding a period of six years prior had to be set aside in the absence of fraud, willful default and neglect in line with Sections 54 and 55 of the PIT Act CAP P8 LFN 2004. The RBIR, on the other hand, argued that the said “Notice of Objection” by Citibank was not valid and that the assessment had become final and conclusive. The RBIR also argued that the intention of the lawmakers in Section 55(2) of the PIT Act was more geared towards the establishment of a suspicion of guilt for fraud, willful default and neglect as opposed to a conviction.
The Tribunal however ruled entirely in favour of Citibank setting aside the said BOJ assessment by the RBIR and further restraining the RBIR from assessing Citibank to further PAYE taxes for the periods 2006 to 2017. In reaching its decision, the TAT considered Section 54(5) of the PIT Act and stated that tax authorities are limited to a period of six years and cannot go beyond that period to carry out back-duty PAYE investigations, except where the taxpayer has committed fraud, willful default or neglect as provided in Section 55(2) of the PIT Act. The Tribunal further cited a number of judicial authorities to hold that the obligation to establish/prove fraud, willful default or neglect in order to open a tax investigation beyond the limitation period of six years is on the tax authority. Thus, the Tribunal held that since the RBIR has been unable to prove that Citibank has committed fraud, default or willful neglect, it cannot assess the Bank to PAYE taxes beyond the six-year limitation.
In responding to the RBIR’s assertion that the intention of the lawmakers in Section 55(2) is geared towards the establishment of a suspicion of guilt as opposed to a conviction, the Tribunal made reference to Section 36(5) of the Constitution of the Federal Republic of Nigeria, 1999 and stated that “an accused person is innocent until proven guilty”.
On the issue of the use of the RBIR’s “Best of Judgment” as a basis for the alleged liability of Citibank, the Tribunal highlighted the powers of the tax authorities to issue BOJ assessments under Section 55 of the PIT Act and stated that such powers must be exercised reasonably. The Tribunal further held that in line with Sections 41, 54 and 55 of the PIT Act, the BOJ assessment by the RBIR should have provided a year by year liability to culminate in a total tax liability instead of a lump sum figure.
Based on the foregoing, the Tribunal held that the RBIR had been unable to prove its allegation of under remittance of PAYE taxes by Citibank and therefore ruled in favour of the Bank.
Based on the TAT Ruling, a tax authority cannot assess a taxpayer to taxes under the PAYE scheme for periods beyond six years prior to the date of assessment where the taxpayer has not been found guilty of fraud, willful default and neglect by a tribunal or court of competent jurisdiction in connection with the tax liability assessed. The TAT Ruling has therefore addressed the arbitrariness in relying on these exceptions to open an investigation or assess a taxpayer to PAYE tax beyond the limitation period of six years.
Furthermore, the TAT has reiterated the validity of Notice of Objections by taxpayers within the bounds of the law and the invalidity of arbitrary BOJ assessments.
Taxpayers may therefore rely on this Ruling and seek further clarification from tax advisors in relation to audits / investigations outside the statutory period and their rights to object to arbitrary BOJ assessments and PAYE tax assessments.