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Introduction

The economic potential that the Tourism Industry holds, both internally and externally, especially in diversifying the economy away from a mono crude oil export economy, continues to be magnified as the economy slowly recovers from a recession.

One of the recent attempts to harness the opportunities in the Tourism Industry is the second reading of the Nigerian Tourism Development Corporation (Repeal & Re-enactment) Bill, 2017 at the National Assembly. This Bill has elicited a lot of concern from various stakeholders in the Tourism and Hospitality Industry such that an appraisal of some of its provisions will make for a better informed opinion.

Tourism Development Bill

The Nigerian Tourism Development Corporation Bill, 2017 (“NTDC Bill”) seeks to repeal the Nigerian Tourism Development Corporation Act (“NTDC Act”), and in its place establish the Nigerian Tourism Corporation (“NTC”) to among other things develop, promote, regulate, accredit, grade, classify and supervise every aspect of the Tourism Industry in Nigeria.

The NTC Bill further contemplates the establishment of a Tour Operating Company (“TOC”), with offices in each of the six (6) geo-political zones. TOC is to establish tour services within and outside of Nigeria.

Some of NTC’s funding options includes the levying of a Tourism Visa Fee on all in-bound International Travellers to Nigeria; a Tourism Departure Levy on all out-bound Travellers; a Tourism Development Contribution Levy of 1% per Hotel room rate or such flat fee as maybe fixed by NTC; and a Corporate Tourism Development Levy to be charged on the revenue of Banks, Telecommunications and other corporate entities.

Constitution, Case Law and Tourism

In 2010, the Federal Government of Nigeria (“FGN”) challenged the constitutionality of the following statues enacted by the Lagos State House of Assembly:- (i) The Hotel Licensing Law; (ii) The Hotel Licensing (Amendment) Law; and (iii) The Hotel Occupancy and Restaurant Consumer Law. FGN contended that these legislations usurped and undermined the provisions of Section 4(2)(d) of the Nigerian Tourism Development Act.

The Lagos State Government, in response to FGN’s above legal challenge, contended that under the 1999 Constitution of the Federal Republic of Nigeria, Hospitality and Tourism Enterprises, not being among the items in the Exclusive and Concurrent Legislative Lists, were residual matters in which the States’ Houses of Assembly can legislate. To the extent that some of the provisions of the NTDC Act are inconsistent with the provisions of the 1999 Constitutional regarding Tourism and Hospitality regulation, such inconsistency should be held by the Supreme Court to be null and void, and of no effect whatsoever.

The Supreme Court dismissed FGN’s claims in this suit, and unanimously upheld the above submissions of the Government of Lagos State. This is especially as Nigeria operates a Federal System of Government, with each State in the Nigerian Federation enjoying its separateness and independence from the Federal Government.

The Supreme Court further held that by virtue of the provisions of Section 4(1-3) and item 60(d) of Part 1 of the Second Schedule of the 1999 Constitution, FGN can only exercise jurisdiction over Tourist Traffic; and Tourist Traffic the Supreme Court described to include only the ingress and egress of International Tourists from other countries, via visa controls.

Conclusion.

Until the provisions of the above referred 1999 Constitution, which provisions were followed by the Supreme Court in the above case of Attorney General of the Federation v. Attorney General of Lagos State (2013) 7SC (Pt.1) 10 @ 88 – 90, are amended or repealed, the provisions in the NTC Bill regarding the regulation of the Tourism Industry, will if passed into law, again be held to be invalid, null and void once such provisions are challenged in a Court of Law.

Also, most of the financial provisions in the NTC Bill are inimical to the Tourism and Hospitality Industry which is already burdened by multiple and double taxes, a recessed economy with dilapidated infrastructure nationally, an unskilled 21st century compliant manpower pool, aggressive foreign tourism competition for other destinations, etc. Examples of such injurious provisions include a Tourist Visa Fee, a Tourist Development Levy, a 1% per room hotel Tourism Development Levy and a Corporate Tourism Development Levy.

The Federal Government will do well to concentrate on more essential National issues, than on Tourism and Hospitality Regulation which are better managed by States and Local Governments.

Lastly, the above cited Supreme Court decision centered solely on who has the Constitutional authority to legislate on the Regulation, Registration, Classification and Grading of Hospitality and Tourism Businesses in Nigeria. Arguments and a final decision on whether or not the Lagos State Hotel Occupancy and Restaurant Consumption Law can be administered concomitantly or at the same time with the Value Added Tax Act in Lagos State were not made in this case.

The continued application of the Value Added Tax Act and the Hotel Occupancy and Restaurant Consumption Law on the Hospitality Industry needs to be determined by a superior Court of Record as the application of both taxes on the same tax base increases the cost of consumption and jeopardises the growth of the Hospitality Industry. A preferred option will be for the 1999 Constitution to be amended and the Value Added Tax Act to be repealed with States and Local Governments allowed to administer any form of consumption tax in their jurisdiction.

Disclaimer

This is a free educational material. It does not serve as a source of solicitation, advertisement or the offering of legal services or advice of any kind. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek from qualified Legal Practitioners, competent legal counselling to their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore only be reproduced or re-distributed for non-profit educational purposes under the strict condition that our Authorship of this material is explicitly acknowledged, and our above Disclaimer Notice is prominently displayed.

Introduction

The Directors of a company play a very important role - especially in performing oversight functions - in the success or failure of a company. A challenge to Good Corporate Governance Practices however, is in ensuring that only individuals that are competent and experienced in the company’s specific industry are appointed, retained and reasonably remunerated for the services that they render to the company.

What constitutes a reasonable, fair and adequate remuneration to pay to the Directors of a company, for the services that they render to the company, remains a challenge.

Directors’ Remuneration – Corporate Law

The Companies and Allied Matters Act (“CAMA”) describes a Director as a person duly appointed by the Shareholders of a company, to assist in directing and managing the affairs of the company. The remuneration for the services that a Director renders, which are usually in the form of sitting allowances for attending Shareholders, Board and Committee Meetings, is determined by the Shareholders of the company at a Shareholders’ General Meeting (“GM”). The remuneration of the Managing Director of any company is required by CAMA to be determined by the Board of Directors of the company.

The Directors of a company are also entitled to be paid travel, hotel and other out-of-pocket expenses that they properly incur in attending and returning from Board, Shareholders and Committee Meetings. It is however unlawful for any incorporated company to pay to its Directors any remuneration, whether in cash or in kind, free from any applicable Income Tax provisions.

Lastly, every incorporated company must keep a register of all the financial interests that its Directors hold in the company. Examples of such financial interests include the number of shares held, debenture or loan interests, emoluments, compensation and any contract or proposed contract of the company in which a Director has a personal interest. These financial interests are also required to be disclosed in the company’s annual audited Financial Statements and Reports.

The Remuneration Committee Option

In 2016, the Financial Reporting Council (“FRC”) published various Codes on Corporate Governance, some of whose provisions were very controversial. The FRC National Code of Corporate Governance 2016, attempted to “…harmonise and unify all the existing sectoral Codes of Corporate Governance in Nigeria”. Examples of such sectoral codes are the ones for the banking and other financial services, telecommunications, stock market, pensions and insurance operators.

Though the FRC National Code of Corporate Governance is still suspended, one of its recommendations regarding Directors’ remuneration is for every company to establish a Remuneration Committee, which Committee should be composed of a majority of the company’s Non-Executive and Independent Directors.

As CAMA is now about three (3) decades in existence, with no robust statutory protective oversight criteria for determining the remuneration that the Directors of a company should be paid; and with multiple codes of corporate governance for different sectors of the economy; voluntarily creating a consultative Remuneration Committee of which non-executive Directors are in the majority, is in line with present day best corporate governance practice.

Conclusion

Numerous studies have remained inconclusive in providing some standard minimum criteria for determining the quantum of the remuneration to be paid to the Directors of a company, for the services that such Directors render to a company. Also, how the returns on such remuneration should be measured in terms of the Directors’ performance of their duties to the company is also inconclusive.

There is however a consensus that the remuneration for the services that the Directors of a company render to the company must be relative to the company’s size or  turnover, affordability and profitability, the company’s industry specific corporate culture on this subject, the complexity of its operations, etc.

Disclaimer

This is a free educational material. It does not serve as a source of solicitation, advertisement or the offering of legal services or advice of any kind. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek from qualified Legal Practitioners, competent legal counselling to their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore only be reproduced or re-distributed for non-profit educational purposes under the strict condition that our Authorship of this material is explicitly acknowledged, and our above Disclaimer Notice is prominently displayed.

Introduction

The number of commercial transactions that are now denominated in foreign easily convertible currencies, especially the United States Dollars, astronomically increased in the last decade, mostly due to the benefit of retaining earnings in US Dollars, as opposed to the Naira, which is the national currency in Nigeria.

The fall in crude oil prices, which resulted in recession and in the devaluation of the Naira, has however adversely affected US Dollar based transactions most of which are/were sourced and are required to be retired at higher parallel market exchange rates.

Businesses with transactions denominated in foreign currency must therefore familiarise themselves with the minimum tax principles which will impact on such transactions; and in the process, manage the associated Foreign Exchange (“FX”) risks arising thereform.

Taxation of FX Profits

Elementarily, it is the profits of a company, from all its trade or business, and not its revenue or turnover, that is taxed on a preceding year basis. And tax assessments and payments must be in the currency of the transaction.

To earn a profit, a company must deplore resources and incur expenses. However, only the expenses of a company which are wholly, exclusively, necessarily and reasonable incurred in the production or acquisition of such profits enjoy a tax deduction from the company’s revenue before the profits of such a company are taxed. Examples of such expenses include business loans and interest paid on such business loans, business premises rent, office maintenance and repairs, plants and machineries, bad and doubtful debts, salaries wages and emoluments, pensions, research and developments, charitable donations, etc.

Advance earnings however suffer or bear an advance withholding tax at the tax rate of ten per cent (“10%”) for corporate entities; and five per cent (“5%”) for individuals. Receipts or certificates obtained after such withheld tax are usually subsequently used by the earning party to net-off its final tax at the end of the subject financial year of tax assessment.

FX Taxation

The taxation of profits accruing from foreign exchange denominated transactions is usually not contentious as can be deciphered from the above. The same cannot be said of FX losses where the tax authority traditionally and cautionarily is quick to discourage a tax deduction for FX related losses, which losses usually arise from FX rates fluctuations.

A good example of such a contentious situation can be found in the Supreme Court decision in Shell Petroleum Development Company v. Federal Board of Inland Revenue (Shell v. FBIR), which decision was delivered on 27th September 1996. The Supreme Court held in this case that the FX losses that the Appellant suffered were equitably, and following the doctrine of Accord and Satisfaction, tax deductible expenses which were wholly, necessarily and incidentally incurred in the cause of the Appellant abiding with the Agreements it entered into with the Federal Government of Nigeria (“FGN”) in order for the Appellant to continue to undertake its petroleum operations in Nigeria.

The Supreme Court observed in Shell v. FBIR that if the Petroleum Profits Tax (“PPT”) due were paid by the Appellant in Naira, as the Petroleum Profits Tax Act applicable at the time required, the Appellant would not have incurred any foreign exchange losses. The latter would have also occurred if the Respondent’s principal, who is the FGN, had received the PPT in Naira only to suffer FX losses when converting the Naira to British Pounds Sterling.

Accounting Treatment of FX

The International Financial Reporting Standards (“IFRS”) IAS 21 requires a foreign currency transaction to be recorded, on its initial recognition, in the functional or national currency of the concerned company, applying the spot FX rate at the date of the transaction.

IFRS IAS 20 goes further to require that at the end of each reporting accounting year-end, the foreign currency monetary items are required to be converted into the functional or national currency using the closing FX rate for the currency of the transaction.

Any resulting exchange rate difference – the FX rate at the date of the transaction and the FX rate at the closing of the transaction - whether a profit or a loss, are required to be recognised in the Accounting Books of the company at the date when they each arise. Where the transaction is a continuing one, IFRS requires such investment to be initially recognised under Other Comprehensive Income and reclassified to a profit or loss position on the disposal or completion of the transaction or investment.

In summary, assets and liabilities are required to be translated and booked at the FX rate, at the end of the accounting period of each transaction. Income and expenses are required to be translated at the FX rate existing on the dates of each of these events. And lastly, FX rate differences are recognised under Other Comprehensive Income and subsequently reclassified to the Profit and Loss Account on the disposal or completion of the FX related transaction.

Conclusion

In an article by Jenny Bourne Wahl, published in the National Tax Journal, this writer while considering the United States of America Tax Reform Act 1986, was of the opinion that the timing of the recognition of FX gains and losses directly influence the effective tax rate that will apply to foreign assets and liabilities. This writer concluded that legislation which allows FX gains or losses to be taxed on the realisation of the gain or loss, as opposed to when the loss or gain accrues, or comes into existence, is a much stronger tax incentive to promoting transactions in the FX market.

The opinion of the above writer is tandem with IFRS IAS 21 as summarised above for your compliance.

Disclaimer

This is a free educational material. It does not serve as a source of solicitation, advertisement or the offering of legal services or advice of any kind. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek from qualified Legal Practitioners, competent legal counselling to their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore only be reproduced or re-distributed for non-profit educational purposes under the strict condition that our Authorship of this material is explicitly acknowledged, and our above Disclaimer Notice is prominently displayed.

Introduction

Globalisation and Technological Advancements are encouraging more Nigerian Businesses to diversify their spheres of businesses, into other countries; especially West and South African countries.

As commendable as the expansionist agenda of these Nigerian companies may be, there are Nigerian and the foreign country specific tax obligations that should be carefully considered before valuable human and financial resources are expended, or continue to be expended on such ventures.

Basis of Companies Income Tax Applications

The underlining basis for imposing Companies Income Tax on the profits of a Nigerian incorporated or registered company are as follows; Companies Income Tax is imposed on All the world-wide Profits of a Nigerian Company, from All its Sources of Income or Profits, on such Profits that accrue in, are derived from, or are brought into, or are received in Nigeria.

The Companies Income Tax Rate in Nigeria is Thirty Per Cent (30%); and this corporate tax must be paid in the currency in which the Profit or Income is earned.

Mandatory Filing of Tax Returns

All Companies, whether resident or non-resident, whether tax exempt or not tax-exempt, are mandatorily required to file a Self-Assessment Tax Return disclosing all the sources of their income and profits earned, not later than six (6) months after the end of such a Company’s prior financial year end. Stiff Punitive Fines apply if any company is found guilty of any infraction in failing to file a Self-Assessment Tax Return within the timeline provided.

Minimum Tax Provisions

The Companies Income Tax Act (as amended) (“CITA”) also provides that where any Company, in any year of tax assessment, declares a loss or no taxable income from all its business sources, having carried on business for four (4) or more years, the Tax Authority is empowered to impose on such a Company, a Minimum Tax assessed at the rate of 0.25% of the Company’s turnover where such turnover is less than N500,000; plus an additional 0.125% of such a Company’s turnover that is in excess of the initial N500,00.00 (Five Hundred Thousand Naira).

Companies that are exempted from the Minimum Tax provisions include those carrying on agricultural trade or business; companies with at least 25% imported equity capital; and companies that have carried on business for less than four (4) years.

Best Judgment - Arm’s Length/Artificial Transactions & Transfer Pricing Regulations

On the sensible assumption that a Company may not likely disclose all its world-wide income, from all sources, in such a Company’s Self-Assessment Tax Returns; or where the declared profits do not match the minimum industry returns for the subject period; the Tax Authority is empowered by CITA to, using its best judgment, impose a fair and reasonable tax assessment on the Company’s turnover for the period under tax assessment.

There are also now Transfer Pricing Regulations (“TPR”), which compliment the provisions of CITA regarding the taxation of arm’s length, fictitious or artificial transactions. Tax and TPR rules empower the Tax Authority to make necessary tax adjustments on income transactions that are reasonably presumed to be artificial, or fictitious, or not at arm’s length basis; i.e. transactions between associated companies devoid of independence or neutrality; or where the control of one or other entities is exerted by another or other entities.

Tax Reliefs for Nigerian Foreign Businesses

The Companies Income Tax Act (as amended) provides that any dividend, interest, rent or royalty derived by a Nigerian Company from any country outside of Nigeria, which income is brought into or received in Nigeria through formal licensed financial institutions, is exempted from Companies Income Tax in Nigeria.

It is envisaged that before the above mentioned tax exemption can apply, the Nigerian company will have disclosed to the Tax Authority via its mandatory Annual Self-Assessment Tax Returns, its undertaking in a foreign company that is outside of Nigeria.

It is also envisaged that as with foreign investments made in Nigeria, whose Investors are required to import their capital and obtain Capital Importation Certificates before they can in future repatriate their earnings through formal financial institutions, Nigerian Companies may also be required to provide necessary paperwork of the export of their capital from Nigeria to the foreign country before any return on such foreign investment can enjoy tax exemption in Nigeria.

Relief from Double Taxation is another tax relief to consider. Where a Nigerian Company earns dividend or other income from outside of Nigeria from which it cannot claim the above mentioned tax exemption, such dividend or other income where it originates from a Commonwealth country with whom Nigeria has a gazetted Double Taxation Treaty (“DTT”), could enjoy a tax relief at the tax rate provided for in the DTT.

Some of the countries with whom Nigeria currently has DTT with include Belgium, Canada, China, Czech Republic, France, Netherlands, Pakistan, Philippines, Romania, Slovakia, South Africa and the United Kingdom.

Though Article 40(5) of the Economic Community of West African States (“ECOWAS”) Revised Treaty enjoins Member States to avoid cases of Double Taxation between Community Citizens of Member States, and to grant assistance in combating International Tax Evasion through the execution of a Double Taxation and Assistance Convention, there is presently no record of such a Convention ratified by ECOWAS Member States.

Conclusion

Though Nigeria is a Member of many international economic organisations, such as ECOWAS, the African Union, the Commonwealth, etc, Nigeria does not have DTTs with very many of these Member countries. This failure has impeded free trade, as well as promoting double taxation and tax evasion in the process.

Disclaimer

This is a free educational material. It does not serve as a source of solicitation, advertisement or the offering of legal services or advice of any kind. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek from qualified Legal Practitioners, competent legal counselling to their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore only be reproduced or re-distributed for non-profit educational purposes under the strict condition that our Authorship of this material is explicitly acknowledged, and our above Disclaimer Notice is prominently displayed.

Introduction

Allegations of arbitrary, unauthorised and unfair trade practices in the financial services industry continue to be a matter of much contention and acrimony. Also rife are reports of the imposition of charges that are not transparent and communicated in advance to customers. These incidents and the hedged perception of the formal financial services industry have increased the number of people who avoid this industry wherever possible.

To bring some clarity regarding the applicable banking terms, increase transparency and competition, and align the financial services charges with the current economic realities, the Central Bank of Nigeria (“CBN”) in furtherance of its powers under the CBN Act (as amended) and the Banks and Other Financial Institutions Act (as amended) (“BOFIA”), recently on 21 April 2017, published a Circular which serves to guide all Banks and Other Financial Institutions (“BOFI”) on the permissible parameters for imposing charges for the Services that these Institutions render to their customers.

Licenced BOFI that the above Circular applies to include Banks, Micro-finance Banks, Primary Mortgage Institutions, Finance Companies, Mobile Phone Operators, etc.

2017 CBN Guide on Financial Charges

The effective take-off date of the 2017 CBN Guide on Financial Charges is 1st May 2017. The 2017 CBN Guide on the charges approved for financial services rendered is however not exhaustive as all new products and services not covered in the Guide, require the prior written approval of the CBN, before such new charges are introduced and implemented.

Interest rates on deposits – Current Accounts, Term Deposits, Domiciliary Accounts, and Collateral Deposits – and lending rates are now mostly negotiable between the BOFI and their Customers. For Savings Accounts balances, the minimum CBN approved interest rate is 30 M.P.R (Monetary Policy Rate) per annum subject to the Customer not making more than four (4) withdrawals in each month.

For foreign exchange (“Forex”) transaction commissions and charges, regular CBN communication on the applicable rates or charges are to apply. Domiciliary Accounts withdrawals now attract a charge of 0.05% of the transaction value or $10 or whichever of the latter two is lower.

Financial Institutions are also now mandatorily required to notify their Customers, at least ten (10) working days in advance, of any changes to any pre-agreed or existing interest rate and charges. This requirement compliments the existing BOFI display of their daily interest and foreign exchange rates, at all their offices and branches.

Current Account Maintenance Fees (“CAMF”) now only apply to Customers induced debit transactions on current accounts. CAMF does not apply to Savings Account transactions. CAMF are negotiable subject to a maximum of N1 per mille.

Monthly Statements of Account are also now required to be delivered to all Customers of Financial Services, at no charge. Where a Customer however makes a special request for a bank statement, outside of the free mandatory monthly statement, the charge shall not exceed N20 (Twenty Naira) for each page of such Statement of Account.

Monthly Card Maintenance Fee for Naira Denominated Cards is N50 (Fifty Naira). N65 is charged for all ATM withdraws from third party ATMs that are not managed by the Customer’s financial institution.

CBN Consumer Protection Protocol

The CBN has a Consumer Complaints Department where complaints against licenced Financial Institutions, regulated by the CBN, can be lodged. The first line to lodging a formal written complaint against any Financial Institution is with the Financial Institution itself. Most Financial Institutions are required to have a Help Desk for the speedy resolution of all Customers’ complaints.

Where a Customer’s Complaint’s is not resolved after two (2) weeks of the lodgment of such a complaint with the Financial Institution concerned, the Customer can escalate the complaint to the CBN Consumer Protection Department for resolution.

Contractual Relationship – Customers & BOFI

The underlying basis for any Banker/Customer relationship is always contractual in nature. Where any charge or interest rate however contravenes the existing CBN Circular regulating interest rates and or charges, the Courts have consistently held that the CBN Guidelines regulating interest rates and charges shall prevail and be applied.

Where a dispute over charges or interest rates results in a litigation, the onus is always on the Customer to prove that the charge or interest rate imposed on the Customer by the Financial Institution is in contravention of the existing CBN Guideline Circular, applicable at the time the charge or interest rate was imposed. This is especially as charges and interest rates are not static.

N50 Stamp Duty Charge on Deposits

Based on a 2009 Gazette on Financial Regulations, and Circulars issued subsequently by the CBN, Financial Institutions now charge a N50 (Fifty Naira) stamp duties charge on all deposits made to current and savings accounts. This is despite a 2016 Court of Appeal decision in the matter of Standard Chartered Bank Limited v. Kasmal International Services Limited where it was held that based on the provisions of the Stamp Duties Act, there is no provision authorising the deduction and remittance of this N50 stamp duty on deposits. This appeal against the decision of the Federal High Court on the same subject was upheld.

We do not currently have any information about a stay of execution of the above mentioned decision of the Court of Appeal; or of a further appeal to the Supreme Court.

Conclusion

Concerns over Financial Services Charges and Interest Rates, especially those charged by Banks, will remain a global problem for a long time. Customers will need to increase their financial education by ensuring that they diligently review all transaction documents, especially before executing such documents; and ask questions when in doubt from as many qualified sources as possible. Regularly reviewing monthly financial statements, emails and text messages; and contacting your Financial Institution when in doubt is a more proactive preventative measure.

Financial Institutions must also respect and elevate the quality of the Customer Service that they provide to Customers by among other things, training their front-end employees to be more courteous and knowledgeable about the offerings or services rendered by the Financial Institutions.

Compulsory Regulatory financial education of the members of the public, about the benefits of using Financial Institutions, needs to be a continuous exercise. Infractions and fines should be more prominently published to serve as a deterrent to the offending BOFI, and to protecting the general economy.

Disclaimer

This is a free educational material. It does not serve as a source of solicitation, advertisement or the offering of legal services or advice of any kind. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek from qualified Legal Practitioners, competent legal counselling to their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore only be reproduced or re-distributed for non-profit educational purposes under the strict condition that our Authorship of this material is explicitly acknowledged, and our above Disclaimer Notice is prominently displayed.