HALLIBURTON WEST AFRICA LIMITED v. FEDERAL BOARD OF INLAND REVENUE
SUPREME COURT OF NIGERIA
(OGUNWUMIJU; AGIM; NWOSU-IHEME; TSAMMANI; ABIRU, JJ.SC)
FACTS
Halliburton West Africa Limited (the Appellant) was a company incorporated in the Cayman Islands. It operated in Nigeria through its subsidiary, Halliburton Energy Services Nigeria Limited. By an agreement dated 1st January 1994, the subsidiary was engaged to provide various support services for the appellant, including the installation and maintenance of equipment, liaison with Nigerian companies, handling of customs clearance, warehousing, invoicing, collections, and other incidental services. In consideration of these services, the appellant reimbursed the subsidiary for all expenses incurred, together with an additional four percent of billed revenue. Pursuant to this arrangement, several contracts were secured in Nigeria, with the subsidiary executing tripartite agreements on behalf of the appellant. Although the appellant paid tax on its Nigerian income, it failed to file its annual audited accounts as required by law. Instead, it submitted self-assessment returns based on turnover, which the Federal Board of Inland Revenue (the Respondent), accepted. However, a tax audit carried out in respect of the years 1996 to 1999 revealed certain omissions in the self-assessment returns. First, it uncovered unreported contract income amounting to US$1,747,805, which the appellant acknowledged and agreed to pay tax on. Secondly, it identified sums described as “recharges,” being amounts refunded to the subsidiary by the appellant as reimbursement for expenses.
In 2002, the respondent issued additional tax assessments to the appellant in respect of these recharges. The appellant challenged the assessments before the Body of Appeal Commissioners, contending that no further assessments could validly be made on matters forming the basis of earlier assessments. It further argued that recharges did not form part of turnover under the applicable tax law, that the respondent’s established practice and official circulars excluded recharges from turnover, and that the respondent was estopped from departing from this position. The Body of Appeal Commissioners rejected these arguments, dismissed the appeal, and ordered the appellant to pay the sum of US$6,686,381.
Dissatisfied with this decision, the appellant appealed to the Federal High Court. The court held that subjecting the appellant to tax on contract sums inclusive of recharges, while the subsidiary was also taxed on the reimbursements it received, amounted to double taxation. It accordingly set aside the decision of the Body of Appeal Commissioners, declared the additional assessments null and void, and ordered a refund of the US$6,686,381 to the appellant. The respondent, aggrieved by this outcome, appealed to the Court of Appeal, which allowed the appeal, reinstated the decision of the Body of Appeal Commissioners, and dismissed the appellant’s cross-appeal.
Still dissatisfied, the Appellant further appealed to the Supreme Court. Among the issues submitted for determination was: Whether the Court of Appeal was right to have held that the appellant was liable to additional taxation on the ground of undeclared income.
ARGUMENTS
In arguing the appeal, learned Senior Counsel for the appellant contended that the additional tax assessments raised by the respondent were both incompetent and invalid. He maintained that the respondent, having previously accepted the appellant’s self-assessment returns for the relevant years, was precluded in law from reopening those assessments on the same set of facts. Counsel emphasised that once an assessment becomes final and conclusive, the taxing authority is divested of jurisdiction to raise further assessments, except where fresh facts have been discovered. In the present case, he argued, no such new fact was shown to exist. The sums described as “recharges” were, according to him, well within the knowledge of the respondent at the material time, and therefore could not justify the issuance of additional assessments.
Counsel further argued that the recharges in question, being reimbursements made to Halliburton Energy Services Nigeria Limited (HESNL) for operational expenses together with a four percent management fee, could not, in law, be treated as part of the appellant’s turnover for tax purposes. He explained that turnover represents the gross receipts of a business before deductions, while recharges, by their very nature, are expenses and therefore fall outside the scope of turnover. To include such reimbursements as turnover, he submitted, would be both legally incorrect and practically unjust. Counsel submitted that such a position would, in effect, subject the appellant to double taxation, since the appellant would be assessed on contract sums inclusive of recharges, while its Nigerian subsidiary, HESNL, would also be taxed on the same reimbursements it received.
In response, learned counsel for the Respondent argued that the additional tax assessments were both proper and lawful. He submitted that the appellant’s self-assessment returns for the relevant years had omitted substantial sums in the form of recharges, and that this omission amounted to undisclosed income. Counsel pointed out that under section 26 of the Companies Income Tax Act (CITA), the Board is empowered to assess and charge a company on such fair and reasonable percentage of turnover attributable to its Nigerian operations where the true amount of assessable profits cannot readily be ascertained. He maintained that the recharges fell squarely within the appellant’s turnover and that the additional assessments were rightly imposed on the undeclared sums.
On the meaning of turnover, counsel urged the Court to adopt the ordinary commercial understanding of the term, namely, the gross revenue or total receipts of a business before any deductions for expenses. He argued that, since Halliburton Energy Services Nigeria Limited (HESNL) acted merely as the appellant’s agent and subsidiary in Nigeria, the reimbursements and management fees paid to it were in reality part of the appellant’s own Nigerian income. He further dismissed the plea of double taxation as misconceived, contending that there was no evidence that HESNL had actually been assessed to tax on the same sums. According to him, the additional assessment was directed solely at the undeclared portion of the appellant’s Nigerian income and did not in any way amount to taxing the same income twice.
DECISION OF COURT
In resolving the issue, the Supreme Court held that:
A foreign company which is not registered in Nigeria but derives income from transactions carried out in Nigeria through an affiliate or subsidiary cannot dispute liability to tax on the profits arising from such transactions. Specifically, the Court reasoned that the appellant could not avoid assessment on the portion of its Nigerian income which it remitted to its subsidiary as reimbursements or fees. It rejected the appellant’s argument of double taxation, making it clear that what was assessed was the undeclared portion of the appellant’s own Nigerian income, and not sums that had already been subjected to tax.
The Court further observed that the appellant had failed to file audited accounts from which its actual assessable profits could have been determined. In such circumstances, the correct basis of assessment was the company’s turnover, understood in its ordinary sense as the total revenue or gross receipts from business before the deduction of expenses. Turnover, the Court emphasised, is distinct from net profit and necessarily includes the recharges and fees paid to the Nigerian subsidiary in the course of carrying on business operations. On this footing, the Court held that the additional assessments raised by the respondent were both lawful and reasonable. The claim of double taxation, in its view, was misconceived and therefore without merit.
Issue resolved in favour of the Respondent.
L.A.O Akande, SAN with O. O. Olaitan, Esq. and A.Z.U. Bello, Esq., for the Appellant
Ikoro N. A. Ikoro, Esq. with him, Chinazam S. Kelechi [Mrs.], Esq., for the Respondent
This summary is fully reported at (2025) 8 CLRN in association with ALP NG & Co.
See www.clrndirect.com ; www.alp.company.
