Third Party Investigations and Six-Year Limit for Tax Assessments

INTRODUCTION

The tax investigation involving Lafarge Africa Plc (Lafarge) and the Ogun State Internal Revenue Service (OGIRS) (APPEAL NO: TAT/IB/057/2021) provide key insights into the complexities of tax assessments and the interpretation of statutory limitations in Nigeria. This analysis explores the background of the case, the arguments presented by both parties, the tribunal’s decisions, and the actionable takeaways for businesses and tax authorities.

Lafarge faced a tax investigation by the OGIRS covering the years 2010 to 2014. Initially assessed in November 2018 for over $1.28 billion, this amount was later adjusted through reconciliatory meetings and settled at $191 million in May 2020. However, OGIRS issued further assessments, prompting Lafarge to challenge the legality of these actions. The company argued that the 2021 assessment breached the six-year limitation period outlined in the Personal Income Tax Act (PITA), improperly delegated tax responsibilities to a private firm, and violated a prior out-of-tribunal settlement agreement. 

ARGUMENTS

Company’s Arguments

Statutory Limitation: Lafarge argued that the revised assessment issued in 2021 exceeded the six-year limitation period specified in Section 55 of the Personal Income Tax Act (PITA). OGIRS failed to prove fraud, willful default, or neglect by the company, which are necessary grounds for issuing assessments beyond the statutory period.

Delegation of Duties: Lafarge contended that OGIRS unlawfully delegated its statutory duties to a private firm, contrary to sections 88(3) and (4) of PITA. The delegation was not validly documented through a gazette or other official document.

Settlement Agreement: The company asserted that the further revised assessment violated the out-of-tribunal settlement agreement, accusing OGIRS of acting in bad faith and breaching the agreed terms.

OGIRS’ Arguments

Authority to Revise Assessments: OGIRS maintained that tax authorities are empowered to issue revised or additional assessments if new information arises, and taxpayers must fulfill their tax obligations regardless of computation errors by the tax authority.

Allegations of Fraud: The tax authority accused Lafarge of using mirror accounts to channel payments to expatriate staff, thus committing fraud and justifying assessments beyond the statutory limitation period.

Delegation of Functions: OGIRS argued that the delegation of tax investigation duties to third parties is permissible under section 88(3) of PITA, as long as the assessments are issued under the authority of the tax authority’s executive chairman.

Settlement Agreement Validity: OGIRS claimed there was no legally binding settlement agreement or consent judgment restricting its ability to issue further assessments.

TRIBUNAL DECISION

Statutory Limitation:

The tribunal upheld the six-year limitation period for assessments under section 55(1) of PITA but noted that exceptions apply in cases of fraud, willful default, or neglect, which OGIRS failed to prove.

Issuance of Revised Assessments:

The tribunal ruled that there was no binding agreement preventing OGIRS from issuing additional or revised assessments. Tax authorities retain the statutory power to reassess taxpayers as needed.

Delegation of Duties:

The tribunal clarified that while tax audits cannot be delegated, the delegation of tax investigation duties is permissible. This differentiation highlights the distinct roles and responsibilities within tax administration.

CONCLUSION AND TAKEAWAY

The Lafarge case underscores several important aspects of tax administration and compliance in Nigeria:

1. Compliance with Statutory Timelines: Tax authorities and taxpayers must adhere to the statutory limitation periods, with exceptions for proven cases of fraud, willful default, or neglect.

2. Clear Documentation of Delegations: When delegating tax investigation duties, tax authorities must ensure clear and valid documentation to uphold the legitimacy of the process.

3. Binding Nature of Settlement Agreements: To avoid disputes, any settlement agreements between taxpayers and tax authorities should be formally documented and possibly entered as consent judgments with the Tax Appeal Tribunal.

4. Ongoing Vigilance and Legal Preparedness: Businesses should remain vigilant in their tax compliance and be prepared for potential disputes, ensuring they understand their rights and obligations under Nigerian tax laws.

Based on the above factors, the business and tax administration have the ability to manage the tax assessment and keep the tax environment of the nation transparent and fair.