In Nigeria, tax controversies could arise from several scenarios following various interactions between the taxpayer and the relevant tax authority (RTA), which could be either the Federal Inland Revenue Service (FIRS) or the State Internal Revenue Service (SIRS). These instances include the following.

Tax Assessment/Self-Assessment

Under Nigerian law, all taxable persons, including individuals that are not under the Pay-As-You-Earn (PAYE) system (applicable to individuals in employment) and companies, are required to submit a self-assessment to the RTA. Typically, when a taxable person submits their self-assessment along with audited accounts, the tax authority has the following options:

• it can accept the audited accounts and filed return, and then make an assessment based on these documents or other documents requested during an audit; or
• it can reject the return and issue a best-of-judgement assessment to ascertain the taxpayer’s profits, tax position and tax liability.

Additionally, the RTA can conduct a best-of-judgement assessment on a taxable person who has failed to submit a return if it believes that the taxpayer is liable to pay taxes.

Tax controversies typically arise as follows.

Pre-audit stage

The RTA notifies the relevant taxpayer of an impending audit and requests copies of necessary documents in advance.

Field audit or desk review stage

The RTA reviews the received documents. If it is a desk review, the RTA officials can decide based on the documents, without visiting the taxpayer’s office. For field audits, the RTA officials visit the taxpayer’s office, request copies of documents, interview staff members and discuss key issues or findings.

Post-audit

After the field audit or desk review, the RTA will typically issue an audit report summarising its findings and inviting the taxpayer to respond. The taxpayer has the right to respond to those findings and, if found acceptable (following correspondence and meetings), the RTA could (but not in all cases) issue a letter of intent (LOI) to assess the taxpayer to additional taxes. It is at this point that a tax controversy arises.

For assessment of additional tax, a time limitation applies during the assessment year or within six years after the initial year of assessment, if the RTA discovers or believes at any time that a taxpayer has not been assessed to tax or has been assessed to a lesser amount than applicable. This time limitation with respect to additional assessments does not apply in cases of fraud, wilful default or neglect.

Where the taxpayer disputes the RTA’s assessment, the taxpayer can apply to the RTA by way of notice of objection in writing to review or revise the assessment made upon it. A tax dispute arises when the tax authority does not agree with the taxpayer’s objection and issues a notice of refusal to amend (NORA).

Some tax controversies could arise when a taxpayer pre-emptively applies to the court to interpret certain provisions of tax law, especially if they oppose a position taken by the RTA in a circular, guideline or other form of communication.

In the authors’ experience, most tax disputes arise from companies’ income tax (corporate tax) and value-added tax (VAT). This is because these are priority areas for the FIRS during tax audits and usually have the most basis for contention. From an income tax standpoint, most issues involve revenue recognition, deductibility of certain costs and expenditures, and transfer pricing. From a VAT standpoint, most issues involve remittances, the applicability of VAT to certain transactions, and responsibility for VAT. 

The values involved vary from as low as NGN2 million to tens of billions of Naira in some cases, as there are no thresholds that determine the adjudication of tax disputes.

The authors also find that considerably more disputes are arising from decisions of various SIRS with respect to personal income tax and withholding tax (WHT), and see this trend increasing as states move to increase tax revenue.

Tax controversies can be mitigated through the following.

Obtaining Legal and Tax Counsel

The first step to avoiding tax controversies is to obtain guidance on proposed transactions, implementing certain tax planning strategies and business model reviews.

Adopting a Robust Tax Compliance Framework

Proper documentation and following a robust tax compliance framework helps mitigate tax controversies.

Voluntary Disclosures and Remediation

If errors are identified in tax filings and/or remittances, a taxpayer should disclose these voluntarily and agree with the tax authorities on remedial options.

Avoiding Aggressive Tax Planning

As tax authorities are increasing the adoption of substance-over-form doctrines stemming from GAARs, taxpayers should avoid tax-planning schemes that lack commercial substance and are intended solely to obtain a tax benefit.

Monitoring Legislative and Policy Developments

Taxpayers should stay informed about international and domestic legislative and policy developments that could impact them, and factor these into their tax strategy.

Nigeria has consistently aligned its tax system with global best practices. For example, the country has implemented the Organisation for Economic Co-operation and Development’s (OECD) recommendations on Base Erosion and Profit Shifting (BEPS), leading to the introduction of:

• significant economic presence rules;
• transfer pricing regulations;
• controlled foreign company rules (in the proposed tax bill that will become effective later in 2025);
• advance pricing agreements; and
• country-by-country reporting (CbCR) guidelines.

In addition to enhancing tax administration, the authors have found that adherence to the FIRS’ guidelines reduces incidences of additional tax assessments, effectively reducing tax controversies.

Some grey areas have continued to cause controversies – for instance, the obligations of constituent entities of a multinational enterprise (MNE) in relation to certain disclosure requirements under the CbCR guidelines, and disputes over transfer prices, especially in loan relationships.

A taxpayer has 30 days from the receipt of the disputed decision of the RTA to appeal to the Tax Appeal Tribunal (TAT) for redress. In filing the appeal, the taxpayer could encounter certain hurdles, either at the point of filing or at the hearing of the appeal, and these are discussed below.

The deposit of tax assessed as a condition precedent for lodging an appeal or seeking a judicial review of an additional assessment is not novel in Nigerian tax jurisprudence. Paragraph 15(7)(c) of the Fifth Schedule to the FIRS Act empowers the TAT to require the taxpayer to deposit an amount with the FIRS before the taxpayer’s appeal is heard. This amount should be equal to either the tax charged on the appellant for the previous assessment year or half the tax charged in the current assessment under appeal, whichever is lower. Additionally, the taxpayer must include a sum equal to 10% of this deposit. If the taxpayer fails to comply with this order, the assessment being appealed will be confirmed, and the taxpayer will forfeit any further right to appeal that assessment. The order to deposit the tax assessed is not automatic – the FIRS has to prove to the satisfaction of the TAT that:

• the taxpayer has, for the year of assessment concerned, failed to prepare and deliver returns required to be furnished under the relevant provisions of the tax laws;
• the appeal is frivolous or vexatious, or is an abuse of the appeal process; and
• it is expedient to require the appellant to pay an amount as security for prosecuting the appeal.

In addition, Order III Rule 6(a) of the Tax Appeal Tribunal (Procedure) Rules 2021 (the “TAT Rules”) mandates taxpayers to deposit 50% of the disputed tax amount into an account designated by the TAT as a condition precedent to filing an appeal and adhere to an affidavit of compliance with the requirement. A strict interpretation of the provision has resulted in the TAT registries refusing to accept the filing of appeals not accompanied by an affidavit that the deposit had been made. As an administrative solution, the TAT permitted the filing of appeals without the affidavit but heard preliminary objections by the FIRS’ legal counsel on the matter, often seeking a dismissal of the appeal for non-compliance with the requirement.

In hearing one such preliminary objection in the case of Emenite Limited v FIRS (TAT/SEZ/012/2021), the TAT examined whether the mandatory security deposit requirement under the TAT Rules conflicted with the discretionary requirement under paragraph 15(7) of the FIRS Act, given that the TAT Rules are a subsidiary legislation that derive their validity and force from the FIRS Act. The TAT decided that the provisions of the TAT Rules mandating a 50% security deposit as a condition precedent for lodging an appeal was inconsistent and invalid, and proceeded to hear the appeal on its merit.

In addition, Order V of the Federal High Court (FHC) Tax Appeal Rules 2022 (the “FHC Tax Rules”) requires a taxpayer appealing a TAT decision to the FHC to deposit the judgment sum in an account in the name of the Chief Registrar of the FHC as a condition for prosecuting an appeal. The Chief Judge of the FHC is empowered under Section 254 of the Constitution of the Federal Republic of Nigeria 1999 (as amended) to make rules for the practice and procedure of the FHC. Particularly for tax matters, Section 17(5) of the FIRS Act empowers the Chief Judge of the FHC to make rules of procedure in respect of tax appeals. An appeal under Nigerian law does not operate as an automatic stay of execution of judgment, which means that the judgment creditor is expected to take advantage of the judgment. Hence, a stay of execution of money judgment would usually be granted on the condition that the judgment sum be deposited in an interest-yielding bank account pending the appeal. In this instance, the mandatory security deposit requirement of the judgment sum simply codifies the general principle that the courts would rarely grant an unconditional stay of execution of money judgment. In effect, Order V provides for an automatic conditional stay of execution of the TAT’s judgment being appealed against.

In another case, Joseph Bodunrin Daudu SAN v Federal Inland Revenue Service (FIRS) (Suit No FHC/ABJ/TA/1/2021), the FHC struck down provisions that required taxpayers to pay security deposits before filing appeals at the TAT and the courts. These provisions were deemed to infringe upon taxpayers’ constitutional right to a fair hearing, and were consequently declared null and void.

Tax audits are initiated or could be triggered based on varying factors. While not particularly provided for under the tax statutes, it is typical for the tax authorities to conduct risk profile assessment, industry assessment and compliance status assessment in initiating a tax audit. For instance, companies and taxpayers that have persistently failed to file tax returns or that have reported losses for multiple years without a clear-cut justification would likely trigger the initiation of a tax audit by the tax authorities.

In addition, taxpayers who have not bn audited for a long time are more likely to be audited at some point. The tax authorities are likely to initiate tax audits on companies in certain high-risk industries such as oil and gas, telecommunications (telecoms) and financial services. In recent times, the FIRS has appointed most telecommunications companies and banks as VAT collection agents. There has been a recent rise in the audits of these companies to ensure compliance with VAT collection and remittance.

It is also more likely for a taxpayer with prior compliance issues or ongoing tax disputes to fall under the watchful eyes of the tax authorities.

A tax authority can initiate a tax audit to verify a taxpayer’s compliance with various tax laws such as the Companies Income Tax Act (CITA), VAT Act, Personal Income Tax Act (PITA) and Capital Gains Tax Act (CGTA). A tax audit can be initiated under the following circumstances:

• self-assessment confirmation – a tax audit can be initiated to verify the information provided in the self-assessment return filed by the taxpayer;
• routine audits – a tax authority can conduct a routine tax audit on a taxpayer to determine the extent of its compliance;
• third-party information – the tax authority can act on a credible report of a third party regarding a taxpayer’s compliance with its tax obligation to initiate an audit; and
• risk profiling – a tax authority can initiate an audit if it observes red flags, such as unusual financial transactions, persistent losses being reported, or other non-compliance indicators.

The duration of a tax audit may vary depending on factors such as the complexity of the taxpayer’s operations, adequacy and compliance with the delivery of information required.

In relation to the statute of limitations of a tax audit, the CITA, PITA and CGTA provide that the tax authority can assess a taxpayer for additional tax where it is of the opinion that the taxpayer has not been assessed or has been assessed at a lesser amount than that which ought to have been charged; such additional assessments must be made within the year of assessment or six years after the expiry of the year of assessment. Additional tax assessments typically arise from an audit, which means that the tax authority can only audit the last six years of assessment (excluding the year of the audit for income taxes). For income taxes, the tax authority can only go beyond the six-year rule in the case of fraud, wilful default or negligence, which they must prove exists before extending the audit period beyond six years, as held by the TAT in Delta State Board of Internal Revenue v Ecobank (TAT/SSZ/005/2020).

Limitation periods for taxes must be stated in the legislation; no such periods are stated in the VAT Act and certain laws that impose other levies. The Stamp Duties Act stipulates a limitation period of five years.

Once an audit has been initiated within the six-year period, the limitation period is automatically suspended. This means that it does not matter how long it takes for the audit to be completed; additional assessments arising from the audit will be payable unless they are disputed.

Tax audits under Nigeria’s tax procedure and practice consist of two methods: field audit and desk review.

The field audit is a form of audit where the tax authority conducts an audit on the taxpayer’s business premises. It involves the review and inspection of the physical records, software records and financial systems of the taxpayer to determine the compliance of the taxpayer with its tax obligations. The tax authority officials also interview the taxpayer’s personnel during field audits.

The desk review involves the review of the taxpayer’s information at the tax authority’s office based on the documents submitted by the taxpayer.

Across all levels, the tax authority relies on both physical and electronic records; however, with the increasing digitalisation and automation of companies’ operations and financial records, tax authorities have had to rely on electronic records and can also demand the accounting software of the taxpayer to determine tax compliance.

Some of the key areas and matters for tax auditors’ attention include:

• timeliness of tax filings and payments – ensuring compliance with statutory filings such as CIT, VAT, WHT and PIT within the due dates prescribed under the law;
• accuracy of tax returns and declarations – eliminating misclassification of income, deductions and expenses; and
• maintaining tax-specific documentation – ensuring proper bookkeeping and adequate record-keeping of transactions, including invoices (eg, intra-company-related transactions), agreements, etc.

The authors have not inferred a connection between increased access to financial information by the FIRS and an increase in tax audits in Nigeria. Since signing the Common Reporting Standard-Multilateral Competent Authority Agreement (CRS-MCAA) in August 2017 and publishing the Income Tax (Common Reporting Standards) Regulations in 2019, most reporting financial institutions have complied with their obligations to report certain financial information; the authors therefore expect that the FIRS has had access to significant financial information but cannot assess the extent to which it has utilised that information.

The authors are aware that the FIRS and the UK HMRC have signed a collaboration agreement on capacity development, but are not aware of any joint tax audits conducted by the FIRS and other competent authorities.

From the taxpayer’s perspective, the outcome of every successful audit exercise is dependent on how the taxpayer quickly identifies gaps in its reporting and documentation, possible red flags and remedies for defects. The strategic steps that should be taken include the following.

Pre-Audit Preparation

The taxpayer must always ensure that all tax filings, financial records and relevant documentation are prepared accurately and are readily available. The taxpayer must conduct internal health checks to identify possible risks, discrepancies and areas of non-compliance. In relation to inter-company-related transactions, the taxpayer must ensure that adequate agreements that reflect the nature of services and pricing between related companies are maintained. In addition, supporting documents such as invoices, contracts and tax remittance receipts must be properly stored. In gathering information ahead of audits, it is critical to distinguish information covered by attorney privilege from others, and this could impact the outcome of the audit. For instance, tax planning advice prepared by an attorney is covered by privilege and is not disclosable.

Formal Audit Engagement

The taxpayer is required to engage the services of accountants, tax experts and legal counsel. The taxpayer must always present a consistent position to the tax authorities, maintain transparency, and provide accurate and adequate information to allay suspicion. The taxpayer must comply with statutory deadlines, including timelines, to object to the additional assessment of the tax authority or appeal against the decision of the tax authority.

Handling Potential Tax Disputes

Analysing the position of the tax authority and its consistency with the relevant tax law is key. The taxpayer can object to such an assessment or decision through mutual consultation with the tax authority. Initiating a tax appeal procedure where mutual consultation fails is also important.

The administrative claim phase is a prerequisite for initiating a tax dispute action at the TAT or the Federal High Court. Nigerian tax laws provide for the issuance of an additional assessment notice on the taxpayer, who has a period of 30 days from the date of the notice to object to the assessment raised by the tax authority, stating the grounds for disputing the assessment. The tax authority could either amend, confirm or withdraw the assessment upon review of the objection. The tax authority issues a notice of refusal to amend to the taxpayer where, in its opinion, the taxpayer has failed to provide adequate information to support its position, and deems its assessment subsisting.

Furthermore, the FIRS Act provides that a taxpayer may appeal against the decision of the FIRS where it is dissatisfied with its decision. An appeal to the TAT against the decision of the FIRS is required to be made within 30 days of receiving the decision of the FIRS.

Under Nigerian tax laws, only the VAT Act specifies the timeframe for resolving a taxpayer’s appeal or objection to the FIRS. Specifically, Section 20(3) of the VAT Act states that an appeal to the FIRS must be resolved within 30 days. Other tax laws, such as the CITA, PITA and the FIRS Act, do not specify the timelines within which the FIRS must respond during the administrative objection/appeal process. The TAT has, however, taken the position that a reasonable time must be imposed; as such, it has noted that a refusal by the FIRS to respond for too long to a taxpayer’s objection must be interpreted or deemed as a refusal decision (ie, a tacit negative decision), in which case a taxpayer may proceed to file an appeal against the tax authority’s decision.

Judicial tax litigation is initiated at the TAT, which is the first forum for redressing tax disputes. The TAT Rules provide for an appeal before the TAT to be filed within a period of 30 days from the date on which the action, decision, assessment or demand notice that is being appealed against was made by the tax authority. An appeal to the TAT is made by filing a notice of appeal along with a disposition.

A taxpayer may also lodge a suit at the High Court in the first instance where the suit involves the interpretation of the tax laws or the Constitution and not in respect of a decision or assessment by the tax authority.

Under Nigerian tax dispute procedure and practice, the tax dispute resolution process is typically initiated when the taxpayer files an objection with the FIRS within 30 days of receipt of a tax assessment or a detrimental decision.

If the objection is denied, the taxpayer may file an appeal with the TAT within another 30 days. The TAT’s ruling can be appealed to the FHC within 30 days. If dissatisfied, the taxpayer or the tax authority can further appeal to the Court of Appeal and, ultimately, to the Supreme Court, whose decision is final. Notably, while the dispute is ongoing, the tax authority may still enforce the assessed tax unless the taxpayer obtains a stay of execution of judgment.

At the TAT stage, documentary evidence is critical and primarily relied on as tax disputes are largely determined by the relevant documentation, such as the financial records, tax returns and correspondence between the taxpayer and tax authorities. Supporting documents are required to be submitted with the notice of appeal by the appellant. The respondent is required to file a reply. Parties are typically said to have joined issues when the appellant files a reply to the respondent’s reply, which finalises the exchange of pleadings.

Witness evidence is also relevant, especially where factual issues are contested. However, such evidence is in writing, filed along with the notice of appeal. In addition, witnesses, such as tax consultants or company representatives, may be cross-examined during hearings to clarify tax treatments, transactions or compliance efforts. The TAT primarily relies on documentary evidence over oral testimony. The TAT Rules provide that the TAT is an administrative court. Therefore, the strict rules under the Evidence Act do not apply. In practice, the core principles of evidence still apply, but the technical aspects, such as the admissibility of evidence, the forms of evidence, etc, do not apply.

If the FHC sits in its capacity as an appellate court regarding decisions from the TAT, the scope of evidence that can be heard at that level is limited, as appellate courts only review evidence taken at the trial stage and only permit the introduction of new evidence in limited circumstances.

Where the FHC sits as a court of first instance, the same procedures in civil proceedings apply. Witnesses adopt their written statements as evidence, are led to tender documents, and are cross-examined on the evidence given. The rules on admissibility of evidence, how they are tendered, hearsay, etc, apply.

In a civil tax litigation proceeding, the burden of proof typically rests on the asserting party. Hence, if a taxpayer appeals against the additional assessment raised by the tax authority, the burden of proof is on the taxpayer to prove that the assessment is excessive. If the RTA files the appeal to recover the tax owed, the burden of proof rests on the RTA. While the legal burden remains fixed, the evidentiary burden sometimes shifts during proceedings.

In a criminal tax litigation proceeding, the burden of proof always rests on the prosecution.

The strategy differs depending on the issues involved, the situation of the taxpayer, the strength or otherwise of their case, etc. For instance, in anticipation of an additional tax assessment, a taxpayer may approach the High Court to interpret certain provisions of the law and may also seek an injunction barring the tax authorities from issuing an assessment pending the determination of the suit.

In some cases, it may be helpful for a taxpayer to file a suit, put their best arguments forward, and at the same time initiate settlement talks with the tax authorities if they find some weakness in their case.

If the matter has cross-border elements, is highly technical or has been adjudicated in other common law jurisdictions, it may be helpful to engage expert witnesses in the suit.

In some cases, the authors have found that initiating a mutual agreement procedure (MAP) (as provided for in the various avoidance-of-double-taxation agreements while a suit is pending) has been helpful.

In cases involving international tax issues related to double taxation treaties (DTTs), transfer pricing and cross-border transactions, the TAT and the courts often consider decisions of other foreign courts, common law principles and doctrine, international law principles and jurisprudence, and international guidelines as persuasive, though not binding. They rely on guidance and commentaries on the OECD Model Tax Convention, the UN Model Tax Convention, OECD BEPS reports and similar sources.

For other kinds of disputes, the authors have seen the TAT and courts rely on books, articles, etc.

The Nigerian tax dispute resolution system includes the following:

• the Tax Appeal Tribunal (TAT);
• the Federal High Court (FHC);
• the Court of Appeal; and
• the Supreme Court.

When a party is dissatisfied with a decision regarding a tax dispute, they can appeal through various levels of judicial review. Depending on the specifics of the dispute, appeals may be made to higher courts regarding procedural issues or rulings from interlocutory applications made by lower courts. Ultimately, the Supreme Court serves as the final authority. A tax dispute is more likely to undergo multiple appeals when the contested tax liability is of high value.

An appeal may only be submitted once in respect of a specific issue or assessment, although parties may amend their appeal if they have justifiable reasons to do so. Filing multiple suits in respect of the same subject matter, whether in the same court or multiple courts, is considered an abuse of the court process and is strongly discouraged.

The different stages of the tax appeal procedure are as follows.

• TAT: the first forum for contesting tax assessments and decisions by the tax authorities.
• FHC: if dissatisfied with the TAT’s ruling, a taxpayer can appeal to the FHC, which has exclusive jurisdiction over tax matters under Section 251 of the Nigerian Constitution. Appeals to the FHC are solely on points of law and not facts.
• Court of Appeal: an aggrieved party can further challenge an FHC judgment at the Court of Appeal if there are substantial legal grounds.
• Supreme Court: this is the final stage of the tax appeal procedure.

The formation/composition of the courts or tribunals in the Nigerian tax system’s appeals procedure is as follows.

TAT

• Composition: a panel of five commissioners, including a chairman.
• Appointment: members are appointed by the Minister of Finance based on recommendations from relevant stakeholders.
• Decision-making: the panel decides cases collectively, often by majority vote.

FHC

• Composition: a single judge hears and decides tax appeals.
• Appointment: judges are appointed by the President of Nigeria on the recommendation of the National Judicial Council (NJC). In the case of the Chief Judge of the FHC, the approval of the Senate would be required.
• Panel formation: cases are heard individually by one judge.

Court of Appeal

• Composition: a panel of three justices decides tax appeals.
• Appointment: justices are appointed by the President on the NJC’s recommendation and approval of the Senate.
• Panel formation: appeals are heard by three justices, ensuring a broader legal perspective.

Supreme Court

• Composition: a panel of five or seven justices hears tax appeals, depending on case significance.
• Appointment: justices are appointed by the President of Nigeria, based on the NJC’s recommendation and Senate confirmation.
• Panel formation: a minimum of five justices sits for tax appeals, increasing to seven for constitutional issues.

Tax disputes in Nigeria are primarily resolved through litigation, as outlined in the country’s tax law and practice. However, while alternative dispute resolution (ADR) mechanisms for domestic tax disputes have not yet been formally established, they are becoming increasingly common. For instance, tax audits and investigations conducted by the tax authorities often facilitate mutual consultation and negotiation between taxpayers and the authorities. This allows both parties to negotiate and potentially prevent the dispute from escalating, which can save time and reduce costs. It is worth noting that the period between the administrative claims process and the appeals process at the TAT can exceed nine months, providing plenty of opportunity for consultation and negotiation.

ADR in international tax disputes, especially in relation to a tax dispute between the Nigerian tax authority and a taxpayer in a DTT country, is recognised through the MAP. The MAP Guidelines issued by the FIRS provide a tailored and comprehensive framework for resolving tax disputes, particularly those related to double taxation, transfer pricing adjustments and interpretation of treaties. The MAP serves as an ADR mechanism designed to amicably settle international tax disputes between the taxpayer, their country’s tax authority, and the tax authority in Nigeria.

Tax matters are not arbitrable in Nigeria.

In domestic tax disputes, there is no formal procedure for negotiation or consultation between the taxpayer and the tax authority to settle the dispute amicably. However, both parties can establish communication to find common ground during the administrative claim and objection period (ie, during tax audits or investigations).

Under the MAP for international tax disputes, the time limit to initiate a MAP is specified in the DTT between the taxpayer’s country and Nigeria. If no time limit is provided in the DTT, the taxpayer has three years from the date of the dispute to initiate the process. The taxpayer can submit a formal written application to either the Nigerian tax authority or their own country’s tax authority to commence the MAP. The tax authority that receives the MAP application request reviews the validity of such request in line with the applicable DTT provisions and, upon approval, issues a written notice to the other tax authority. The Nigerian tax authority requires that the taxpayer agree to the suspension of remedies if a MAP is requested, although invoking a MAP will not deprive a person of their right of appeal under relevant Nigerian tax laws, and domestic remedies are still available. After a mutual agreement is reached on a case, the Nigerian tax authority shall reassess the taxpayer within not later than six months, with a view to reflecting or giving effect to the MAP agreement. In the case of a refund of a whole or part of the tax already paid by the taxpayer, the refund will be made not later than 90 days after the date of presentation of the MAP agreement.

A mutual consultation between the taxpayer and the tax authority can potentially lead to a reduction in the assessed taxes, as well as any interest and penalties. It is common for the tax authority to waive penalties for taxpayers who demonstrate a willingness to co-operate and resolve tax disputes. In such cases, the tax authority will revise its assessment and issue a demand notice for the revised sum which the taxpayer pays. The payment of the revised sum settles the dispute.

If a tax matter is already pending before a court and parties reach a settlement, the parties will usually file terms of the settlement with the court or TAT. The TAT or court will then enter the terms of settlement as a consent judgment in the matter.

Taxpayers can proactively engage the relevant tax authority to provide an advanced tax ruling (ATR) on potential transactions and arrangements. Under an ATR mechanism, the tax authority formally interprets or clarifies the tax treatment of specific transactions or arrangements. An ATR provides certainty and can significantly reduce the risk of future tax disputes. ATRs are effective and binding with respect to the specific transaction if they have not been obtained by falsification of information, fraud or deceit.

Nigerian courts have, however, held that ATRs are not binding on the tax authority and, where there is a conflict between the tax authority’s position in an ATR and the law, such ATR cannot be relied upon; in such cases, the doctrine of legitimate expectation in relation to the reliance of a party on the opinion of a public authority will not apply.

The Nigerian domestic tax dispute resolution framework does not have a formal ADR mechanism; as such, this does not apply.

In domestic tax disputes, there is no formal ADR procedure for the settlement of tax disputes, including transfer pricing disputes. However, a taxpayer can negotiate or consult with the tax authority during a transfer pricing audit to settle the dispute amicably.

Transfer pricing disputes between the Nigerian tax authority and a taxpayer resident in a country with a DTT with Nigeria can be settled under the MAP mechanism. The procedure and time limit for initiating a MAP are specified in the DTT between the taxpayer’s country and Nigeria and in the MAP Guidelines issued by the FIRS.

The tax laws always include penalties and fines for non-compliance. These penalties apply to outstanding tax liabilities, in addition to interest on the tax debt. When issuing an additional assessment, the tax authorities always include penalties and interest which become payable if/when the TAT upholds the assessment (either wholly or partly).

The tax laws provide for administrative and criminal liabilities of a defaulting taxpayer’s officers and directors, but it is rare for tax authorities to commence personal actions against officials of a defaulting corporate taxpayer, especially where the taxpayer pays the additional tax assessment following a decision of the court.

Typically, criminal tax litigation closely relates to the administrative infringement in relation to civil tax assessment, because it arises from an allegation that the taxpayer owes taxes, for one or several reasons. It must first be determined that the taxpayer is in default (ie, owes taxes) before criminal actions or other administrative actions can commence.

However, the authors have seen cases (though scarce) where actions were commenced in various courts against a company for tax evasion, recovery of outstanding taxes and personal liabilities of directors and officials.

In Nigeria, the process for addressing tax administrative infringements usually begins with an audit or investigation being conducted by the tax authority. If a taxpayer is found to be non-compliant, the tax authority will issue an assessment or penalty notice. In some cases, this administrative process can escalate into a criminal tax case if the tax authority uncovers evidence of tax evasion, falsification of records or similar offences during the audit. Although this transition is not common, in instances of large-scale tax evasion or corporate fraud, tax authorities are more likely to pursue criminal action against the taxpayer if there is substantial evidence of criminal wrongdoing.

Nigeria’s tax administrative infringement process typically begins with a tax audit or investigation by the tax authority. If a taxpayer is found to be non-compliant, the tax authority will issue an assessment or penalty notice, which the taxpayer may challenge by a notice of objection in writing within a 30-day period. If unresolved, either of the parties can appeal to the TAT, and further to the FHC and through to the Supreme Court.

In contrast, a tax criminal case arises when, after an investigation or audit is conducted, there is evidence of fraud, tax evasion or wilful non-compliance. Such cases are prosecuted in the FHC or the state high courts, which have jurisdiction over tax-related criminal offences. The FHC or state high court treats criminal tax cases separately from civil tax disputes. This means that the procedure for reviewing the legality of a tax assessment (such as the TAT and FHC during appeals) is different from the procedure for reviewing court criminal tax matters.

The TAT does not have jurisdiction over criminal matters.

In practice, the tax authority offers concessions to co-operative taxpayers who are willing to resolve tax disputes promptly. By engaging in mutual consultation and negotiation, both the taxpayer and the tax authority can arrive at an amicable settlement. This settlement may involve waiving applicable penalties or reducing potential fines associated with the relevant tax offence.

A taxpayer may pay the assessed tax, including interest and penalties, after an agreement has been reached with the tax authorities or the public prosecutor to prevent the commencement of criminal action against the taxpayer. The FIRS has the discretion to reach a settlement agreement with taxpayers to resolve disputes administratively, which may prevent a criminal case.

However, in cases involving fraud, deliberate tax evasion or falsification of records, the public prosecutor may proceed with a criminal trial unless a plea bargain is negotiated under Section 270 of the Administration of Criminal Justice Act 2015 (ACJA). A plea bargain allows the accused to plead guilty to a lesser charge or agree to a reduced penalty in exchange for co-operation or full tax repayment. This approach is often used to expedite resolution and recover public funds while avoiding prolonged trials. A plea bargain can be entered on the following conditions:

• the evidence of the prosecution is insufficient to prove the offence charged beyond a reasonable doubt;
• the defendant (taxpayer) has agreed to return the proceeds of the crime or make restitution to the tax authority;
• the taxpayer in a case of conspiracy has fully co-operated with the investigation and prosecution of the crime by providing relevant information for the successful prosecution of other offenders; and
• the prosecutor is of the view that the offer or acceptance of a plea bargain is in the interest of justice, public interest and public policy, and there is an exigent need to prevent the abuse of legal process.

In Nigeria, an appeal against a criminal tax offence decided by the FHC or state high court (the court of first instance) follows a three-stage appeal process. The taxpayer can appeal to the Court of Appeal, which reviews both factual and legal issues. If dissatisfied, a further appeal can be made to the Supreme Court, which serves as the final appellate body and only considers issues of law.

In Nigeria, transactions and operations challenged under GAAR, SAAR and transfer pricing regulations have primarily led to administrative tax cases rather than criminal prosecutions. The FIRS typically addresses such issues through tax audits, assessments and adjustments, focusing on recovering unpaid taxes, interest and penalties. For instance, in transfer pricing disputes, the FIRS may adjust the pricing of related-party transactions to reflect arm’s length standards, resulting in additional tax liabilities for the taxpayer.       

In Nigeria, when a double taxation issue arises due to an additional tax assessment or adjustment in cross-border scenarios, domestic litigation is more commonly used to challenge such administrative decisions. Although MAPs are available, they are not frequently utilised compared to domestic litigation, even in cross-border cases. Additionally, tax disputes are currently non-arbitrable in Nigeria. As a result, parties are not allowed to resort to arbitration for the settlement of tax disputes.

Nigeria adopted the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (MLI) on 17 August 2017. However, the MLI is yet to be ratified in Nigeria. When this does occur, such ratification/local domestication process in Nigeria will ensure that the MLI and the changes introduced by the MLI to the relevant DTTs become binding and enforceable in Nigeria. 

The authors have seen the FIRS try to adopt GAARs and SAARs in assessing taxpayers to additional taxes. This approach has consistently been resisted by taxpayers as it conflicts with the provisions of DTTs. Local tax laws also recognise the superiority of DTTs over domestic laws when determining the taxation of entities under a DTT. This notwithstanding, in New Skies Satellites BV v FIRS (Appeal No TAT/LZ/CIT/067/2021), the TAT did not strictly follow the provisions of the Netherlands-Nigeria DTT in making a determination that New Skies BV had a permanent establishment (PE) in Nigeria. The TAT held that, in the absence of any positive evidence to the contrary, New Skies BV acquired a PE in Nigeria through SNL and CWG, as SNL and CWG were integral parties to the contract, representing its interest in Nigeria. It did not matter that CWG was an independent contractor. This case shows that the TAT may consider GAARs in making determinations as to tax liabilities.

With the introduction of the principal purpose test (PPT) under the MLI and the amendment of DTT preambles, the authors expect the Nigerian tax authorities to have stronger tools for challenging treaty shopping and other tax avoidance strategies in cross-border transactions. The PPT focuses on whether the principal purpose of a transaction is to obtain treaty benefits, thus helping tax authorities effectively combat BEPS.

It is likely that when the MLI becomes effective in Nigeria taxpayers may adopt more cautious tax-planning strategies to comply with the new rules, while courts will be required to interpret and apply these provisions, potentially leading to more complex and nuanced decisions. However, the full impact will depend on the practical implementation of the MLI in Nigeria, and there is still limited experience with how these measures are being enforced in local cases.

In Nigeria, international transfer pricing adjustments have been challenged primarily through the domestic TAT, as seen in the case of Prime Plastichem Nigeria Limited v FIRS (Appeal No TAT/LZ/CIT/015/2017) and under the domestic transfer pricing regulations in Nigeria, as well as in the applicable principles in the United Nations Practical Manual on Transfer Pricing for Developing Countries and the OECD Transfer Pricing Guidelines.

The EU Directive is not directly applicable in Nigeria, as the country is not part of the EU. While Nigeria has existing DTTs that provide mechanisms for resolving transfer pricing disputes using the MAP, the focus has been on domestic legal channels rather than international frameworks.

Nigeria issued its first-ever Guidelines on Advance Pricing Agreements (APAs) on 27 November 2024, providing guidance on the procedure, conditions and administration of APAs. These guidelines allow taxpayers and the FIRS to set transfer pricing criteria for controlled transactions in advance, in line with the arm’s length principle, for a maximum period of three years. The use of APAs is new, and taxpayers have yet to adopt them to resolve transfer pricing disputes. 

The APA Guidelines were issued on the backdrop of Regulation 9 of the Income Tax (Transfer Pricing) Regulations 2018, which provides the legal basis for a taxpayer to request an APA, and suspends the operation of APAs in Nigeria pending the publication by the FIRS of relevant notices and guidelines on APAs. Since the FIRS has now issued the APA Guidelines, the authors expect to see taxpayers adopting APAs (subject to stipulated thresholds) to agree with the FIRS on the price of controlled transactions, in order to avoid any potential disputes between such taxpayers and the FIRS.

The APA process has the following distinct stages:

• stage one – pre-filing meeting;
• stage two – formal application;
• stage three – analysis and evaluation;
• stage four – negotiations and agreement; and
• stage five – drafting, execution and monitoring.

In Nigeria, cross-border taxation disputes in relation to companies often arise around the issues of PE/taxable presence. Courts and tribunals have to determine whether a non-resident company (NRC) has a PE or taxable presence in Nigeria before addressing its tax liability, unless in the case of passive income. Foreign companies operating in Nigeria often face disputes over whether their activities qualify as a PE under Nigerian tax laws and relevant tax treaties. The determination of a PE is crucial as it dictates whether a foreign entity is subject to companies income tax in Nigeria. Disagreements on this matter can lead to lengthy and costly litigation.

For high net worth individuals, disputes emerge over the determination of tax residency. This includes cases where individuals try to avoid being taxed in Nigeria by claiming residency in another jurisdiction, leading to conflicts over which country has the right to tax their income. The authors have not seen many of these kinds of cases in Nigeria.

To mitigate such disputes and promote tax certainty, information circulars, guidelines and other memoranda by the FIRS should be clear, and complex and intricate transaction issues across a range of sectors and taxpayers should be anticipated so that taxpayers have sufficient guidance. Another potential solution is to make ATRs binding on the tax authorities, subject to certain guidelines, as applicable in other jurisdictions.

Finally, tax should be arbitrable in Nigeria, as seen in other jurisdictions – again, subject to certain guidelines.

No information is available on this topic.

No information is available on this topic.

No information is available on this topic.

No information is available on this topic.

Nigerian courts have consistently held that tax disputes fall outside the purview of arbitration and other binding ADR mechanisms. This position is rooted in the belief that taxation pertains to public policy and sovereign rights, making it inappropriate for resolution through arbitration. Nigeria did not opt into the mandatory binding arbitration provisions of the MLI. This decision aligns with Nigeria’s domestic stance on the non-arbitrability of tax disputes and reflects a cautious approach towards ceding tax dispute resolution to international arbitration mechanisms.

The existing policy in Nigeria is that tax disputes are non-arbitrable. As a result, arbitration is not an available avenue for resolving such disputes in Nigeria, and the traditional methods of dispute resolution – such as domestic courts or administrative processes – remain the primary recourse.

Given the non-arbitrability of tax disputes in Nigeria, Nigeria neither applies the baseball arbitration nor the independent opinion procedure to resolve tax disputes. Tax disputes are mostly resolved through domestic litigation and administrative frameworks rather than international arbitration mechanisms.

Currently, there is no publicly available information indicating that Nigeria has initiated or concluded any tax dispute cases under the frameworks provided by the MLI. This may be attributed to several factors, including the need for domestic ratification of the MLI, which is a prerequisite for its provisions to take effect.

Not being an EU member state, Nigeria is not subject to EU legal instruments.

Nigeria has expressed reservations regarding the OECD’s Pillars One and Two, primarily due to concerns that the thresholds set by these frameworks are too high to effectively tax MNEs operating within its borders. Consequently, Nigeria has opted not to adopt these pillars and has instead implemented domestic measures to address the taxation of MNEs.

However, the Nigeria Tax Bill, which seeks to amend the existing tax laws in Nigeria, introduces a minimum top-up tax mechanism to ensure that MNEs pay a tax equivalent to an effective minimum tax rate of 15% where they earn an aggregate turnover of NGN20 billion (about USD13 million) or more or are a constituent entity of an MNE group. This minimum effective tax rate seems to be in line with the OECD Pillar Two proposal, which sets out global minimum tax rules designed to ensure that large multinational businesses pay a minimum effective rate of tax of 15% on profits in all countries where they earn income.

Given the non-arbitrability of tax disputes in Nigeria, the provisions of the MLI relating to the confidentiality of arbitration proceedings (Article 21), do not apply in Nigeria.

In Nigeria, the predominant methods for resolving tax disputes are through the domestic judicial system, particularly the TAT and the FHC. The reliance on these fora is due to their established legal frameworks and procedures tailored to the Nigerian context. While DTTs provide avenues such as MAPs for cross-border tax disputes, their utilisation depends on the specific provisions of each treaty and the willingness of competent authorities to engage in mutual agreements. Additionally, with Nigeria not being a member of the EU, it is not subject to EU-specific tax dispute resolution mechanisms.

Tax disputes are not arbitrable in Nigeria; as a result, taxpayers do not hire professionals to initiate or handle arbitration proceedings for tax disputes on behalf of taxpayers.

In addition to minimal filing fees, taxpayers typically incur costs for professional services required to address the dispute. These services may include fees for lawyers, accountants or other specialists who assist in navigating the administrative process. The amount of these fees can vary significantly depending on factors such as the complexity of the case, the professionals involved and the duration of the administrative process.

In Nigeria, the process of litigating tax disputes involves several judicial levels, each with its own fee structure and payment protocols. Tax disputes may be commenced at the TAT or the FHC, depending on the nature of the matter. To initiate a tax dispute, filing fees are required, whether at the TAT or the FHC as the court of first instance. Other fees may include oath fees, fees for filing of exhibits, fees for service of documents and processes within and out of jurisdiction, etc. Appeals lie from the TAT to the FHC, from the FHC to the Court of Appeal, and from the Court of Appeal to the Supreme Court. Tax appeal cases require the payment of additional filing fees and fees for compiling the records. The exact amounts are specified in the fee schedule of the rules of the various courts and may vary based on the specifics of the case and the relief sought.

The party initiating the legal action or the appeal – be it the taxpayer or the tax authority – is responsible for paying the requisite filing fees at the commencement of each stage of litigation. The other party is also required to pay filing fees when filing a response.

The filing fees are typically paid at the beginning of the proceedings. Payment is a prerequisite for the court to accept and process the case.

In addition to the filing fees, the TAT also requires a taxpayer who is aggrieved by an assessment or demand notice of the tax authority and who intends to appeal to the TAT to pay 50% of the disputed amount into a designated account before hearing, as security for prosecuting the appeal. The same provision exists in the FHC tax appeals rules for appeals against TAT decisions to the FHC. See 1.5 Additional Tax Assessments for further discussion of the court’s position with respect to this requirement.

In Nigeria, if a court determines that an additional tax assessment is null and void, the taxpayer may seek indemnity and request a refund of any amounts that were wrongfully collected based on the invalid assessment. In addition to this, the taxpayer may also request reimbursement for the legal costs, professional fees and other expenses incurred during the dispute. However, the granting of reimbursement for costs and fees is at the court’s discretion.

Tax disputes are not arbitrable in Nigeria; as a result, taxpayers do not incur any ADR costs.

Specific statistics on the number of tax court cases currently pending in each instance, their value, and the average number of cases attributed to a first-instance judge are not readily available in the public domain.

Specific statistics on cases initiated and terminated each year, regarding different taxes and their value, are not readily available in the public domain.

Specific statistics detailing the success rates of tax authorities versus taxpayers in Nigerian tax litigation are not readily available in the public domain.

One of the key strategies is to maintain accurate and comprehensive tax records. Proper documentation of financial transactions, tax returns and correspondence with tax authorities can serve as vital evidence in a dispute. Taxpayers should ensure that their records align with regulatory requirements and can be readily presented to support their claims.

Taxpayers must be familiar with the provisions of Nigeria’s tax laws, including applicable DTTs. Engaging a knowledgeable tax consultant or lawyer can be essential in interpreting complex tax laws and identifying possible areas of defence.

Before escalating a dispute to litigation, taxpayers should explore negotiation with tax authorities; this can often lead to a more efficient and cost-effective resolution compared to lengthy and expensive litigation. 

Taxpayers must adhere to statutory deadlines for filing objections and appeals. Missing deadlines can weaken a taxpayer’s case or result in the loss of the right to challenge an assessment.