On 18 July 2014 the Tax Appeal Tribunal (Tribunal) in the case of Oando PLC v the Federal Inland Revenue Service (FIRS) decided in favour of the FIRS regarding the application of Section 19 of the Companies Income Tax Act on "excess dividends" tax.
In essence, under Section 19 any dividend paid in the instances set out in the section will be treated as taxable profits subject to tax at the rate of 30%. If applied without measure, this invariably means an effective corporate income tax rate of 60% where previously taxed retained earnings are distributed, and at least 30% in all other cases including exempt income and gains taxable exclusively under the Capital Gains Tax legislation.
The decision creates more uncertainty on the issue of excess dividends tax more so since the Tribunal did not apply certain deductions and inferences from an earlier decision of the Federal High Court between the same parties and on almost identical facts.
For details please see below my article published in the Guardian today on pg 26 and our tax alert.
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