On 28th February, 2020, the Tax Appeal Tribunal ("TAT" or "the Tribunal"), sitting in Lagos, delivered a ruling in the case of Tetra Pak West Africa Limited ("Tetra Pak" or "the Company") v. Federal Inland Revenue Service ("FIRS") on the tax deductibility of certain items including payments for demurrage, school fees, training and education amongst other things.

The TAT upheld most of the deductions made by the company on the grounds that the expenses were wholly, reasonably, exclusively and necessarily incurred for its business purpose.  However, the TAT disallowed the company's claim to Investment Tax Allowance (ITA) on computers on the basis that computers do not constitute plants and equipment for the purpose of the company's business and therefore does not qualify for ITA.


In 2014, the FIRS conducted a tax audit on Tetra Pak in respect of its tax returns filed for the 2008-2012 years of assessment (YOAs).  Upon conclusion of the tax audit, FIRS disallowed certain items for tax purposes and added them back to the company's income while imposing additional companies income tax and education tax assessments for the 2011 and 2012 YOAs on the company.

The disputed items and allowances in contention were:

  • Unrelieved loss brought forward from previous years;
  • Unutilized Capital Allowance carried over from previous years;
  • Demurrage Payments;
  • School fees paid for expatriate employees' dependants;
  • Training and education expenses;
  • Investment Tax Allowance claim on Computers.

Tetra Pak objected to the additional assessment while the FIRS responded with a notice of refusal to amend (NORA). Dissatisfied with the NORA, Tetra Pak instituted an action at the TAT. The crux of the issues before the TAT was whether the FIRS was right to disallow the disputed items.

The TAT ruled partly in favour of the company upholding the company's deductions while disallowing its claim to ITA on computers on the basis that they do not qualify as plants and equipment with respect to the nature of Tetra Pak's business.

Regarding the carry forward of unrelieved losses and unutilized capital allowance, the TAT held that Section 31 and Paragraph 24 of the Second Schedule to the Companies Income Tax Act allow companies to carry forward unrelieved losses and unutilized capital allowance.  Thus, FIRS was wrong to have disallowed the deductions.

For the deduction of school fees of the expatriates' dependants paid by the company, the Tribunal held that the company was obliged to pay the said school fees under its global requirements and the FIRS should not have disallowed this deduction.  In a similar vein, the TAT held that the FIRS was wrong to have disallowed the deduction of expenses incurred on training and education of staff made by this company as the expenses were wholly, reasonably, exclusively and necessarily incurred for the production of the company's profit (WREN test).

On the issue of deduction of demurrage payments, the Tribunal relied on the definition of demurrage in the Black's Dictionary of Law and other foreign judicial authorities to hold that a demurrage is neither a fine nor a penalty imposed pursuant to any statutory provision but a compensation or a charge payable for failure to load or discharge the ship within an agreed time. The Tribunal concluded that demurrage is a business expense/cost that meets the requirements of the WREN test and therefore a deductible expense under the CITA.


The TAT's Ruling has provided necessary clarification on the deductibility of the highlighted items. Demurrage deductions have particularly resulted in a number of disputes with the FIRS. However, we expect that a number of these disputes should be resolved in line with the TAT's Ruling in this case except where this decision is reversed on appeal.

Beyond demurrage, however, it would appear that the TAT has drawn a fine distinction between fines and penalties imposed by statutory provisions and commercial fines and penalties, which are imposed by virtue of contract or mere levies imposed on a business. 

Based on the TAT's decision, it can be inferred that penalties or fines which are not imposed pursuant to a statutory provision should be treated as business costs which should primarily be subjected to the WREN test to determine deductibility.

On a related note, the Finance Act, 2019 amended Section 27 of the Companies Income Tax Act on "Deductions not allowed" by including "any penalty prescribed by any Act of the National Assembly for violation of any statute". Based on this provision and the TAT decision, it is expected that other forms of commercial fines, penalties or charges which are not provided for under any statute should be deductible once determined to have passed the WREN test under Section 24 of CITA.

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