Tax Appeal Tribunal confirms deductibility of interests on Intercompany loans In Petroleum Profits Tax Assessments

In a ruling handed down on 11 February 2015, the Tax Appeal Tribunal upheld an appeal brought by Phillips Oil Company Nigeria Ltd to the effect that interests incurred on intra-group or related company loans were deductible for tax purposes in Nigeria.

In representations made on its behalf by Templars, Philips Oil argued that the Federal Inland Revenue Service (FIRS) was wrong in disallowing interests incurred by Philips Oil on inter-company loans. Philips Oil further argued that the disallowed interests were tax deductible under the provisions of the Petroleum Profits Tax Act (PPTA) and that the FIRS’ position was based on an older provision of the PPTA which was no longer applicable.

On the strength of the more recent provisions of the PPTA, Templars argued on Philips Oil behalf that, as long as the interests in question passed the arms-length test and other conditions specified in the relevant sections of the PPTA, they should be tax deductible in exactly the same way as interest incurred on loan transactions between unrelated companies.

Agreeing with Philips Oil’s position, the Tribunal set aside tax assessments that had been served on Phillips Oil by the FIRS in relation to the inter-company loans under dispute.

The Templars team on the matter was led by Adewale Atake, Partner and Head of the Dispute Resolution Group and Dipo Komolafe, Partner and Head of the Tax Practice Group, who were assisted by Disputes Partner Godwin Omoaka, Managing Counsel Igonikon Whyte, and Associates Biegbana Jaja and Chidiebere Ejiofor.