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  • PWC Tax Alert - Deduction of Expenses Incurred Outside Nigeria

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    The Tax Appeal Tribunal (TAT) ruled that expenses incurred outside Nigeria can only be disallowed under Section 27(i) of the Companies Income Tax Act if they were incurred on behalf of another company. The TAT agreed with PwC's argument that Section 27(i) applies only when a company incurs an expense outside Nigeria for another company, not for its own benefit. The Tribunal also reaffirmed the general tax deductibility test of expenses being wholly, reasonably, and necessarily incurred for generating taxable profits. This decision provides clarity around the interpretation of Section 27(i) and goes against the FIRS' long-accepted view.

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    The Tax Appeal Tribunal (TAT) ruled that expenses incurred outside Nigeria can only be disallowed under Section 27(i) of the Companies Income Tax Act if they were incurred on behalf of another company. The TAT agreed with PwC's argument that Section 27(i) applies only when a company incurs an expense outside Nigeria for another company, not for its own benefit. The Tribunal also reaffirmed the general tax deductibility test of expenses being wholly, reasonably, and necessarily incurred for generating taxable profits. This decision provides clarity around the interpretation of Section 27(i) and goes against the FIRS' long-accepted view.

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    © All Rights Reserved
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    6 views1 page

    PWC Tax Alert - Deduction of Expenses Incurred Outside Nigeria

    Uploaded by

    Emmanuel
    The Tax Appeal Tribunal (TAT) ruled that expenses incurred outside Nigeria can only be disallowed under Section 27(i) of the Companies Income Tax Act if they were incurred on behalf of another company. The TAT agreed with PwC's argument that Section 27(i) applies only when a company incurs an expense outside Nigeria for another company, not for its own benefit. The Tribunal also reaffirmed the general tax deductibility test of expenses being wholly, reasonably, and necessarily incurred for generating taxable profits. This decision provides clarity around the interpretation of Section 27(i) and goes against the FIRS' long-accepted view.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 1

    www.pwc.

    com/ng June 2016

    TAT agrees with PwC on


    deductibility of expenses
    incurred outside Nigeria

    On 31 May 2016, the Tax Appeal expenses incurred for another


    Tribunal (TAT) sitting in Lagos company.
    ruled that under the provisions
    of section 27(i) of the Companies The TAT agreed with PwC’s
    Income Tax Act (CITA), an argument and held that section
    expense that is wholly, 27(i) only applies where a
    reasonably, exclusively and company incurs an expense
    necessarily incurred for the outside Nigeria for and on behalf
    generation of taxable profits of a of another company.
    company can only be disallowed
    if the expense was incurred on Put differently, section 27
    The TAT agreed with PwC’s behalf of another company. precludes a company from
    argument and held that taking deductions if expenses
    section 27(i) only applies The Appellant had paid buying incurred were on behalf of
    where a company incurs an commission and handling another company. Therefore, it
    expense outside Nigeria for charges to a related foreign would not apply where the
    and on behalf of another company for the procurement of expenses were incurred by the
    company. goods from outside Nigeria. company for its own benefit.
    While submitting its tax returns
    it took deductions for the buying The Tribunal reaffirmed the
    For a deeper discussion, please commission and handling general test for tax deductibility
    contact any member of our charges. The FIRS disallowed the which is that the expense must
    Dispute Resolution team below deductions relying on section be incurred wholly, reasonably,
    or your usual contact with PwC 27(i) of CITA and raised exclusively and necessarily for
    Nigeria: additional assessments for the generation of taxable profits
    Companies Income Tax and (the WREN test). According to
    Taiwo Oyedele Education Tax. The Appellant the Tribunal, to remove any
    +234 1 271 1700 Ext 50002 objected and appealed to the Tax expense from the ambit of this
    taiwo.oyedele@ng.pwc.com Appeal Tribunal. general rule will require a
    specific provision of the law. In
    Moshood Olajide Section 27(i) of CITA disallows
    “any expense of any description this case, section 27(i) is not that
    +234 1 271 1700 Ext 50005
    moshood.olajide@ng.pwc.com incurred outside Nigeria for and specific provision.
    on behalf of any company except
    Folajimi Olamide Akinla of a nature and to the extent Takeaway
    +234 1 271 1700 Ext 52008 that the Board (“FIRS”) may
    folajimi.akinla@ng.pwc.com consider allowable” This decision provides clarity on
    the interpretation of section 27(i)
    Adeoluwa Akintobi PwC argued on behalf of the of CITA in respect of expenses
    +234 1 271 1700 Ext 50077___ Appellant that section 27(i) does incurred outside Nigeria. This
    adeoluwa.akintobi@ng.pwc.com not apply to an expense that is decision goes against the long-
    incurred for the business of the accepted interpretation adopted
    company but rather applies to by the FIRS.
    expenses incurred on behalf of
    another company. The FIRS Where there is sound legal basis,
    countered by submitting that the taxpayers should not hesitate to
    section applies to expenses challenge the interpretation of
    incurred for the company and tax statutes by tax authorities.

    © 2016 PricewaterhouseCoopers Limited. All rights reserved. In this document, PwC refers to
    PricewaterhouseCoopers Limited (a Nigerian limited liability company), which is a member firm of
    PricewaterhouseCoopers International Limited, each member firm of which is a separate legal
    entity.

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