On 8 November 2019, the Tax Appeal Tribunal ("TAT" or "the Tribunal"), sitting in Lagos, upheld the applicability of excess dividend tax on franked investment income in the case betweenUAC of Nigeria PLC (UAC or the Company) v Federal Inland Revenue Service (FIRS). The Tribunal held that excess dividend tax under Section 19 of the Companies Income Tax Act (CITA) is applicable whenever the dividend paid out by a company in a year of assessment exceeds its total taxable profit for that year. Thus, the source of the dividend would not matter, provided it exceeds the company's total profit for the year of assessment in which it is paid out.


UAC is a holding company with different subsidiaries operating in Nigeria. It does not carry on any business of its own but derives its income mainly from the dividends it receives from its subsidiaries. Such dividends are considered as franked investment income because they have been subjected to Withholding Tax (WHT) at source before they are transferred to UAC. UAC in turn, deducts and remits WHT from its franked investment income to the FIRS, before redistributing the dividends to its shareholders.

Between 2013 – 2015, UAC paid out dividends from its franked investment income to its shareholders. In 2018, the FIRS, relying on Section 19 of CITA, issued a notice of additional assessment to UAC, subjecting the dividends paid by UAC to its shareholders from 2013 to 2015 to CIT at 30%. The Company objected to the said assessment and subsequently appealed to the TAT.

The main issue for determination before the Tribunal was whether UAC was liable to CIT on dividends paid out from 2013 to 2015 based on the provisions of Section 19 of CITA. The FIRS contended that the Company was liable to CIT on the said dividends because it distributed dividends in excess of its total profits from 2013 – 2015.

The Company countered the FIRS' position on the basis that Section 80 of the CITA exempts dividend received after deduction of tax from further tax. Thus, its dividends should not be subjected to excess dividend tax since they had already been subjected to tax.

The TAT however, ruled in favour of the FIRS, holding that UAC is liable to CIT on the dividends. In reaching its decision, the TAT relied on the previous decisions of the Federal High Court and Court of Appeal in Oando v FIRS and Oando v Federal Board of Inland Revenue (FBIR). Specifically, the TAT held that the entire dividends will be treated as the total profit of UAC for the relevant years of assessment since the dividends paid in each year exceeded the total profits for the said years.


The TAT's decision reiterates the position of the Courts that dividends paid out by a company in excess of its total profits in a given year would be subject to CIT at 30% even if paid from already taxed earnings or franked investment income.

The application of Section 19 of CITA has always resulted in some ambiguity despite the position of the TAT and the Courts on its interpretation. The position adopted by the FIRS and the Courts has also resulted in double taxation which discourages companies from adopting the holding company structure and retaining profits after tax in their retained earnings accounts. Interestingly, the Finance Bill, 2019, which is currently before the National Assembly, seeks to address this issue by amending Section 19 of CITA to clearly exempt retained earnings, franked investments, and other similar income from excess dividend tax.

It is expected that the proposed amendments will be passed into law shortly as this would eliminate the incidence of double taxation which occurs as a result of the current application of the excess dividend tax rule. The passage of the amendments should also boost investors' confidence in the Nigerian business environment and encourage local and foreign investments.

While we await the amendment of Section 19 of CITA, companies are advised to continue to monitor tax and regulatory changes and seek appropriate professional advice in evaluating the potential impacts of legislative and judicial developments on their businesses to avoid undue tax exposure.

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