Nigeria | What Do I Need to Know about Taxation of Recovered Funds in Nigeria?
Contributed by CJP Ogugbara, CJP Ogugbara & Co (Sui Generis Avocats), Nigeria.
Under Section 9 (1)(a-g) of the Company Income Tax Act, taxes apply to the profits of all the incomes accruing in, derived from, brought into, or received in Nigeria in respect of any trade or business, rent or any premium, dividends, interests, royalties, discounts, charges or annuities, annual profits, any amount deemed to be income or profits, fees or dues or allowances (wherever paid) for services rendered, any amount of profits or gains arising from acquisition and disposal of short-term money instruments. It is evident that any fund recovered from any debtor must necessarily fall under moneys derived from the Nigerian territory. Kindly refer to Paragraphs (a, d, e and f) of the above section. If this becomes the case, it therefore means that proceeds of a debt recovery are taxable.
However, the Double Taxation Treaty between Nigeria and China intervenes to bring some respite. Article 7(1) of the AGREEMENT BETWEEN THE GOVERNMENT OF THE FEDERAL REPUBLIC OF NIGERIA AND THE GOVERNMENT OF THE PEOPLE’S REPUBLIC OF CHINA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME, 2008, states that “the profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State, but only so much of them as is attributable to that permanent establishment.” Meanwhile Article 5 of the Treaty defines a permanent establishment to mean a fixed place of business through which the business of an enterprise is wholly or partly carried on.
The obvious contemplation of this Agreement is to avoid any incident of double taxation for Nigerians and Chinese in the course of their business relationships. It is our opinion that, presumably the debtor had paid the input VAT or other relevant taxes on the items which is the subject of the trade and the attendant debt. The said moneys so recovered cannot be treated as being derived from Nigeria since the Creditor has no business (permanent establishment) in Nigeria. It is also assumed that the creditor had paid VAT or relevant taxes on the supplies he made to the debtor in China, it is therefore arguable that the recovered funds are not subject to taxes in the light of the above arguments supported by the treaty against double taxation. It is important to note that everything largely depends on the way and manner the recoveries were made and skills deployed to achieve the recoveries by the legal team employed. If the moneys are not treated as supposed, it is possible that taxes may apply, defending the propriety of otherwise by the tax agencies is a different issue.
Contributor: CJP Ogugbara
Agency/Firm: CJP Ogugbara & Co (Sui Generis Avocats)(English)
Position/Title: Founding Partner
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This post is a contribution from CJP Ogugbara & Co (Sui Generis Avocats). Established in 2014 as a Partnership Firm in Nigeria, CJP Ogugbara & Co has been working along and engaging in dispute management, litigation and arbitration, commercial practice: real estate and investment advisory, tax practice and energy consultancy. Apart from the core practice areas, they also facilitate and extend practice to the development of clients’ businesses and corporate interests, especially as they apply to the Nigerian economy and investment circle.
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