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Legal Alert – December 2014 – Tax and Pensions – Statute of Limitation

 

Introduction.

 

Taxation is a statutory contract between a government and its citizens, for the citizen’s proportionate financial contributions with which public services that will enhance development and general well-being are provided.

 

Like all contracts, the statute of limitation rule also applies to tax and pension matters.

 

A Statute of Limitation is the time limit or period within which a claim can be asserted or insisted upon. Some of the reasons for the statute of limitation rule include the need for claims to be timely and diligently pursued or presented while the evidence and the witnesses are available, and their memory of the facts and events are fresh.

 

A further reason for the statute of limitation rule is that it brings predictability and finality to claims within a reasonable period of time.

 

Statute of Limitation in Tax Matters.

 

Under the Companies Income Tax Act and the Personal Income Tax Act,the limitation period for asserting tax claims is six (6) years from the date when the final tax assessment became due for payment.

 

The statute of limitation rule will not however apply where the tax payer is guilty of fraud, wilful default or neglect in the settlement of a tax assessment. These very wide exemptions to the limitation period rule continues to be used by the tax authorities to deprive tax payers of claiming relinquishment of “stale” tax assessments under this six (6) years rule.

                                                     

What is Fraud, Wilful Default or Neglect?

 

Fraud is the deliberate misrepresentation or perversion or concealment of the truth with the intention that another person will rely on such misrepresentation, perversion or concealment, to his, or her, or its detriment or prejudice.

                                                                                             

Wilful Default on the other hand is the voluntary and intentional omission to carry out a duty.

 

Neglect is the omission to pay proper attention.

 

Pre–Action Notice and Statute of Limitation

 

By Section 12 (2) of the Education Tax Act, legal actions against the Education Trust Fund, its Board of Trustees and other senior officers of the Education Trust Fund must be commenced within three (3) months after the infringing act, neglect or default has occurred. Where the damage or injury is of a continuing nature, legal action must be commenced within six (6) months after the continuance complained about ceased.

 

To commence a legal action against the Education Trust Fund, a one (1) month pre-action notice must be served on this Fund. And the pre-action notice must disclose the name and place of abode of the complainant, the particulars of the injury, the neglect or default complained about, and the reliefs intended to be claimed as a result.

 

Under the Pension Reform Act 2014, a pre-action notice of thirty (30) days is also required to be served on the National Pension Commission before any law suit can be validly commenced.

 

Conclusion

 

A judicial pronouncement on what amounts to wilful default or neglect in asserting a tax claim that is unpaid six (6) years after the final assessment was issued will be very helpful in reconciling the current practice where the interpretation of what amounts to wilful default or neglect by the tax authorities administratively holds unchallengeably.

 

DISCLAIMER NOTICE

 

This is a free educational material which does not create a Client/Attorney relationship. Readers are advised to always seek professional legal advice to their specific situations from qualified Legal Practitioners. Questions, comments, observations, suggestions, new ideas, contributions, etc. are always welcomed. You can also visit our website www.oseroghoassociates.com for more legal materials.

 

INTELLECTUAL PROPERTY PROTECTED.

 

This material is protected by International Intellectual Property Laws and Regulations. This material can only be re-distributed for non-profit educational purposes only on the strict condition that our authorship is acknowledged, and the Disclaimer Notice is prominently displayed.

SEPTEMBER 2014 - TAX INCENTIVES AND EXPENDITURE ALLOWANCES.

INTRODUCTION

To encourage further and continuing investments, various Tax Incentives and Tax Capital or Expenditure Allowances are embedded in the Statute Books waiting to be taken advantage of by businesses. Some of these investment incentives and expenditure allowances are succinctly highlighted in the following paragraphs.

Note however that only expenditures that are wholly, exclusively, necessarily and reasonably incurred in the trade or business of the tax payer can be claimed as a capital expenditure.

Also note that the depreciation of the assets of a company is not allowed under the Companies Incomes Tax Act in Nigeria. Instead, Capital Allowances are allowed.

PIONEER STATUS

By the Industrial Development (Income Tax Relief) Act, the Nigerian Investment Promotion Commission Act and the Pioneer Status Incentive Regulations 2014, companies engaged in gazetted pioneer industries and products are entitled to apply for Pioneer Status, and when granted, enjoy tax exemption/relief/holidays, for an initial term of three (3) years, starting from the date that the pioneer company commences business. The tax holiday period may be extended for a period of one (1) year, and a further one (1) year term, subject to the level of development and the relative importance at the time of the industry to the development of the country.

To qualify to apply for Pioneer Status however, the Applicant Company must among other things be registered as a corporate entity in Nigeria; and must have incurred qualifying capital expenditure of not less than Ten Million Naira (N10Million) in the pioneer industry concerned. Also, the application for the Pioneer Status must be submitted within one (1) year of the Applicant Company’s commencement of commercial production.

 

SOLID MINERALS

A new company engaged in the mining of solid minerals is entitled to tax exemption for the first three (3) years of its operations.

AGRICULTURAL AND FOREIGN LOANS

Interest payable on loans granted to agricultural trade or businesses, local plant and machinery fabrication, and working capital for any cottage industry, is/are also exempted from tax provided that the moratorium of the loan is not less than eighteen (18) months, and the rate of interest on the loan is not more than the base lending rate at the time the loan was granted.

Also, losses arising from an agriculturally based trade or business are allowed to be carried forward indefinitely.

For foreign loans, interest payable on foreign loans is exempted from tax in the manner prescribed in the Table in the Third Schedule of the Companies Income Tax Act (“CITA”).

HOTELS TOURIST INCOME

Twenty-five per cent (25%) of the income derived by a Hotel, in internationally convertible currencies, from tourists using the services of such a Hotel, are exempted from any form of tax, provided that such income is paid into a domiciliary account Reserve Fund, to be utilised within five (5) years in the building expansion of new Hotels, conference centres and other new facilities which promote tourism development.

RURAL INVESTMENT ALLOWANCE

Where a company provides for the purposes of its trade or business infrastructural facilities like electricity, water or tarred roads, which must be at least twenty (20) kilometres from such facilities provided by the Government, such a company will be entitled to claim both the Initial Allowance on such expenditure, and a further Rural Investment Allowance whose rate is graduated based on the scale of the facilities provided.

Where no public facilities exist, a hundred percent (100%) Rural Investment Allowance will be allowed by the tax authorities on such rural infrastructural expenditure(s).

A Rural Investment Allowance cannot however be carried forward.

RECONSTRUCTION INVESTMENT ALLOWANCE

To compensate businesses that incur expenditures on plant and machinery, CITA allows to such companies a ten per cent (10%) Reconstruction Allowance of the actual expenditure incurred on such plant and equipment. This is in addition to the initial allowance granted on such plant and equipment.

A Reconstruction and a Rural Investment Allowance cannot however be claimed on the same expenditure.

RESEARCH AND DEVELOPMENT (R & D) ALLOWANCE.

Companies and other organisations engaged in Research and Development activities (“R&D”) for commercial purposes, are entitled to claim a twenty per cent (20%) investment tax credit on their R&D qualifying expenditures.

Other companies who undertake R&D activities to promote their trade or business are also entitled to claim the expenses incurred on such R&D provided that the R&D expenditures do not exceed ten per cent (10%) of the company’s total profits in the financial year that the expenditure was incurred.

DEPRECIATION AND CAPITAL ALLOWANCES.

As it does not uphold of transparency and equity, the Companies Income Tax Act (“CITA”) disallows a company depreciating its assets. In place of the depreciation of a company’s assets, CITA makes provision for a transparent capital allowances regime which is encapsulated in CITA’s Second Schedule.

It is however only the qualifying expenditure expended on the assets of a company, which assets are wholly, exclusively, necessarily and reasonably utilised in the company’s trade or business, that are entitled to submit such claims for any kind of tax allowances.

INITIAL AND ANNUAL ALLOWANCES.

CITA allows a company to claim in its first year of use, an Initial Allowance on a capital expenditure expended on a business asset. The rates allowed for each asset group as an Initial Allowance is set out in Table 1 of Schedule 2 of the CITA.

For the following years that the asset is in use, the owner of the asset can claim an Annual Allowance which is the remainder of the Initial Allowance permitted under Table II of the Second Schedule of CITA.

Where a company purchases new plants and machineries in replacement of its old plants and machineries, such a company is allowed a once and for all ninety-five per cent (95%) capital allowance in the first year of the use of the asset. The remainder five per cent (5%) of the value of the asset is required to be retained in the financial books of the company until the asset is disposed off.

BALANCING ALLOWANCES AND BALANCING CHARGES

Balancing Allowances and Balancing Charges are other tax reliefs that a company can claim when it disposes of an asset.

A Balancing Allowance is the difference between the residual value of the asset and its sale value. This difference in an allowable tax deduction which can be written against the profit and loss accounts of the affected company.

Where the value of the asset at the point of its disposal is higher than the residual value of the asset, a Balancing Charge arises with the excess value written back to the profits of the company and taxed accordingly.

Note however that the maximum claim for capital and investment tax allowances that will be granted by the tax authorities is ninety-five per cent (95%) of the total cost of the qualifying asset.

EXPORT INCENTIVES

To promote the indigenous manufacture of products for export, various Export Incentives exist; like the Manufacture-In-Bond Guarantee; Duty Drawback Schemes; etc. Also in existence are Export Processing Zones for oil, gas and none oil and gas enterprises.

Products manufactured in Export Free of Export Processing Zones can only enjoy tax exemption if they are exported to another country, other than Nigeria.

CONCLUSION

In conclusion, fictitious, artificial or none bona-fide expenditures will not qualify to claim any tax allowance or relief.

DISCLAIMER NOTICE

This is a free educational material which does not create a Client/Attorney relationship. Readers are advised to always seek professional legal advice to their specific situations from qualified Legal Practitioners. Questions, comments, criticisms, suggestions, new ideas, contributions, etc. are always welcomed. You can also visit our website www.oseroghoassociates.com for more legal materials.

INTELLECTUAL PROPERTY PROTECTED.

This material is protected by International Intellectual Property Laws and Regulations. This material can only be re-distributed for non-profit educational purposes only on the strict condition that our authorship is acknowledged, and the Disclaimer Notice is prominently displayed.

 

Legal Alert – November 2014 – Joint Ownership of Property

Introduction.

The joint ownership of a property or properties continues to be a more common means of wealth creation. Joint ownership in some other instances serve as a succession plan that reduces estate taxes, Attorney Fees, etc.

As it is common with humans, the joint ownership of a property, either by contract, gift or by inheritance can lead to disputes and litigation between the surviving owner or owners and the deceased owner’s heirs, especially if the joint ownership instrument is not carefully drafted.

Joint Tenancy.

Joint Tenancy is the right to the ownership of a property, by more than one person, such that on the death of any of the joint owners, the deceased owner’s portion of the property passes to the surviving owner or owners of the property. The deceased owner’s estate and heirs under a joint ownership structure will receive absolutely nothing.

Also, subject to whether words of severance or separation are used in the title instrument under which the property is held, an owner to a jointly held property cannot alienate his or her interest in such a property without the express consent of the other co-owner(s) to the property.

Joint Owners and Tenants-in-Common.

The opposite to the above described joint tenancy scenario is the principle known as Tenants-in-Common which arises where the property’s instrument of title have words of severance or separation or distribution of the subject jointly held property. Where words of severance or separation are used, the words of severance or separation entitles the heirs or estate of a deceased owner to assume ownership of the deceased share of the property, with the surviving owner or owners of the property.

Conclusion.

Ensuring that the title document under which a property that is jointly owned is carefully drafted to achieve the estate plan of the owners of the property is strongly recommended. Where the joint owner or owners do not want their heirs to inherit any portion of the property on their demise, then no words of severance or separation should be used when drafting the instrument of ownership. Where the intention is for the heirs to inherit, then words of severance, separation or distribution should be used when drafting the instrument of ownership.

DISCLAIMER NOTICE

This is a free educational material which does not create a Client/Attorney relationship. Readers are advised to always seek professional legal advice to their specific situations from qualified Legal Practitioners. Questions, comments, observations, suggestions, new ideas, contributions, etc. are always welcomed. You can also visit our website www.oseroghoassociates.com for more legal materials.

INTELLECTUAL PROPERTY PROTECTED.

This material is protected by International Intellectual Property Laws and Regulations. This material can only be re-distributed for non-profit educational purposes only on the strict condition that our authorship is acknowledged, and the Disclaimer Notice is prominently displayed.

Introduction

A common global money laundering preventative measure is for Banks and other Designated Non-Financial Institutions (“DNFIs”) like Professional Practice Firms, Hotels, Casinos and the like, who perform fiduciary duties to always ensure that before and during the period of rendering these fiduciary services, they obtain and retain updated verifiable identification and location documentation on their customers or clients.

One of the know-your-customer (“KYC”) requirement is for the Institution concerned to request and obtain from all its customers, a third-party reference indicative of the good standing of the Customer to enjoy the fiduciary services of the Institution, Firm or Corporation concerned.

Unfortunately, many third parties who sign Reference Forms are not aware, and where they are aware, they are not mindful of the money laundering risks, which are criminal in nature, of signing Reference Forms in favour of persons whose character they are not very familiar with and cannot therefore vouch for.

Some of the money laundering risks of signing a Reference Form or forms is considered in the following paragraphs.     

Money Laundering and KYC

The Money Laundering (Prohibition) Act as amended in 2012, requires all Financial and DNFIs to always ensure that they undertake due diligence investigation when establishing and maintaining a business relationship with a customer.

Such due diligence investigation must authenticate the identity of the customer, the nature of the customer’s business, sources of funds and ascertain a money laundering risk profile for each customer or client.

Some of the verifiable means of identifying a customer includes obtaining the customer’s proof of identification – i.e. international passport or national identity card or driver’s license, etc; and proof of residence – i.e. utility bills; and third-party recommendation – i.e. signed Reference Form by an individual or Institution, Anti-Money Laundering EFCC/SCUML Registration Certificate; Tax Identification Number (“TIN”); etc.

As a result of a Credit Bureau System that is still at its elementary stage of development, cases of the identity of a customer of a financial Institution or a DNFI, when a financial crime is committed, usually exposes the Referee(s) to criminal investigation, with possible police detention and avoidable Attorney fees.

Anti-Money Laundering/Combating Financing of Terrorism Regulation

The Anti-Money Laundering/Combating Financing of Terrorism Regulations (“AML/CFT Regulations”) provides some guidance to financial institutions under the regulatory purview of the Central Bank of Nigeria (“CBN”) regarding compliance with the Laws on money laundering, terrorism, trafficking in human beings and the sexual exploitation of children, etc.

Thus, financial institutions should not establish any business relationship with a customer until all the relevant parties to the transaction are independently identifiable, and the nature of the business that the customer intends to conduct are ascertainable.

The AML/CFT Regulations requires financial institutions to regularly conduct customer due diligence, which for individuals will include confirming the Customer or Client correct legal names, permanent physical and or residential address, telephone numbers and email address, nationality, etc. The customer providing the Bank with his or her or its personal and other Bank References is also a legal requirement.

Some of the sanctions for non-compliance with the above due-diligence requirements include the imposition of a penalty not exceeding N2,000,000 (Two Million Naira) for each infringement, from the first to the fifth infringement. On the sixth infringement, the CBN shall set up an investigation panel to forensically examine the infringements and recommend more punitive punishment for the offenders.

Conclusion

It is strongly recommended that you heed the warning in the Reference Form provided by financial institutions and DFNIs which warning usually states that “CAUTION: it is dangerous to introduce any individual not well known to you”.

DISCLAIMER NOTICE

This is a free educational material which does not create a Client/Attorney relationship. Readers are advised to always seek professional legal advice to their specific situations from qualified Legal Practitioners. Questions, comments, criticisms, suggestions, new ideas, contributions, etc. are always welcomed. You can also visit our website www.oseroghoassociates.com for more legal materials.

INTELLECTUAL PROPERTY PROTECTED.

This material is protected by International Intellectual Property Laws and Regulations. This material can only be re-distributed for non-profit educational purposes only on the strict condition that our authorship is acknowledged, and the Disclaimer Notice is prominently displayed.

TAX INCENTIVES AND EXPENDITURE ALLOWANCES - SEPTEMBER 2014
 
INTRODUCTION
To encourage further and continuing investments, various Tax Incentives and Tax Capital or Expenditure Allowances are embedded in the Statute Books waiting to be taken advantage of by businesses. Some of these investment incentives and expenditure allowances are succinctly highlighted in the following paragraphs.

Note however that only expenditures that are wholly, exclusively, necessarily and reasonably incurred in the trade or business of the tax payer can be claimed as a capital expenditure.

Also note that the depreciation of the assets of a company is not allowed under the Companies Incomes Tax Act in Nigeria. Instead, Capital Allowances are allowed.

PIONEER STATUS
By the Industrial Development (Income Tax Relief) Act, the Nigerian Investment Promotion Commission Act and the Pioneer Status Incentive Regulations 2014, companies engaged in gazetted pioneer industries and products are entitled to apply for Pioneer Status, and when granted, enjoy tax exemption/relief/holidays, for an initial term of three (3) years, starting from the date that the pioneer company commences business. The tax holiday period may be extended for a period of one (1) year, and a further one (1) year term, subject to the level of development and the relative importance at the time of the industry to the development of the country.

To qualify to apply for Pioneer Status however, the Applicant Company must among other things be registered as a corporate entity in Nigeria; and must have incurred qualifying capital expenditure of not less than Ten Million Naira (N10Million) in the pioneer industry concerned. Also, the application for the Pioneer Status must be submitted within one (1) year of the Applicant Company's commencement of commercial production.

SOLID MINERALS
A new company engaged in the mining of solid minerals is entitled to tax exemption for the first three (3) years of its operations.

AGRICULTURAL AND FOREIGN LOANS
Interest payable on loans granted to agricultural trade or businesses, local plant and machinery fabrication, and working capital for any cottage industry, is/are also exempted from tax provided that the moratorium of the loan is not less than eighteen (18) months, and the rate of interest on the loan is not more than the base lending rate at the time the loan was granted.
Also, losses arising from an agriculturally based trade or business are allowed to be carried forward indefinitely.
For foreign loans, interest payable on foreign loans is exempted from tax in the manner prescribed in the Table in the Third Schedule of the Companies Income Tax Act ("CITA").

HOTELS TOURIST INCOME
Twenty-five per cent (25%) of the income derived by a Hotel, in internationally convertible currencies, from tourists using the services of such a Hotel, are exempted from any form of tax, provided that such income is paid into a domiciliary account Reserve Fund, to be utilised within five (5) years in the building expansion of new Hotels, conference centres and other new facilities which promote tourism development.

RURAL INVESTMENT ALLOWANCE
Where a company provides for the purposes of its trade or business infrastructural facilities like electricity, water or tarred roads, which must be at least twenty (20) kilometres from such facilities provided by the Government, such a company will be entitled to claim both the Initial Allowance on such expenditure, and a further Rural Investment Allowance whose rate is graduated based on the scale of the facilities provided.

Where no public facilities exist, a hundred percent (100%) Rural Investment Allowance will be allowed by the tax authorities on such rural infrastructural expenditure(s).

A Rural Investment Allowance cannot however be carried forward.

RECONSTRUCTION INVESTMENT ALLOWANCE
To compensate businesses that incur expenditures on plant and machinery, CITA allows to such companies a ten per cent (10%) Reconstruction Allowance of the actual expenditure incurred on such plant and equipment. This is in addition to the initial allowance granted on such plant and equipment.

A Reconstruction and a Rural Investment Allowance cannot however be claimed on the same expenditure.

RESEARCH AND DEVELOPMENT (R & D) ALLOWANCE.
Companies and other organisations engaged in Research and Development activities ("R&D") for commercial purposes, are entitled to claim a twenty per cent (20%) investment tax credit on their R&D qualifying expenditures.
Other companies who undertake R&D activities to promote their trade or business are also entitled to claim the expenses incurred on such R&D provided that the R&D expenditures do not exceed ten per cent (10%) of the company's total profits in the financial year that the expenditure was incurred.

DEPRECIATION AND CAPITAL ALLOWANCES.
As it does not uphold of transparency and equity, the Companies Income Tax Act ("CITA") disallows a company depreciating its assets. In place of the depreciation of a company's assets, CITA makes provision for a transparent capital allowances regime which is encapsulated in CITA's Second Schedule.

It is however only the qualifying expenditure expended on the assets of a company, which assets are wholly, exclusively, necessarily and reasonably utilised in the company's trade or business, that are entitled to submit such claims for any kind of tax allowances.

INITIAL AND ANNUAL ALLOWANCES.
CITA allows a company to claim in its first year of use, an Initial Allowance on a capital expenditure expended on a business asset. The rates allowed for each asset group as an Initial Allowance is set out in Table 1 of Schedule 2 of the CITA.

For the following years that the asset is in use, the owner of the asset can claim an Annual Allowance which is the remainder of the Initial Allowance permitted under Table II of the Second Schedule of CITA.

Where a company purchases new plants and machineries in replacement of its old plants and machineries, such a company is allowed a once and for all ninety-five per cent (95%) capital allowance in the first year of the use of the asset. The remainder five per cent (5%) of the value of the asset is required to be retained in the financial books of the company until the asset is disposed off.

BALANCING ALLOWANCES AND BALANCING CHARGES
Balancing Allowances and Balancing Charges are other tax reliefs that a company can claim when it disposes of an asset.
A Balancing Allowance is the difference between the residual value of the asset and its sale value. This difference in an allowable tax deduction which can be written against the profit and loss accounts of the affected company.

Where the value of the asset at the point of its disposal is higher than the residual value of the asset, a Balancing Charge arises with the excess value written back to the profits of the company and taxed accordingly.

Note however that the maximum claim for capital and investment tax allowances that will be granted by the tax authorities is ninety-five per cent (95%) of the total cost of the qualifying asset.

EXPORT INCENTIVES
To promote the indigenous manufacture of products for export, various Export Incentives exist; like the Manufacture-In-Bond Guarantee; Duty Drawback Schemes; etc. Also in existence are Export Processing Zones for oil, gas and none oil and gas enterprises.
Products manufactured in Export Free of Export Processing Zones can only enjoy tax exemption if they are exported to another country, other than Nigeria.

CONCLUSION
In conclusion, fictitious, artificial or none bona-fide expenditures will not qualify to claim any tax allowance or relief.

DISCLAIMER NOTICE
This is a free educational material which does not create a Client/Attorney relationship. Readers are advised to always seek professional legal advice to their specific situations from qualified Legal Practitioners. Questions, comments, criticisms, suggestions, new ideas, contributions, etc. are always welcomed. You can also visit our website www.oseroghoassociates.com for more legal materials.

INTELLECTUAL PROPERTY PROTECTED.
This material is protected by International Intellectual Property Laws and Regulations. This material can only be re-distributed for non-profit educational purposes only on the strict condition that our authorship is acknowledged, and the Disclaimer Notice is prominently displayed.