Introduction
On 5 May 2025, the Federal High Court ("FHC") in Lagos handed down a decision that is potentially disruptive of Nigeria's tax landscape. The case, Federal Inland Revenue Service v. Check Point Software Technologies B.V. Nigeria Ltd (the "Checkpoint case") challenged the validity of the Country-by-Country Reporting ("CbCR") Regulations 2018 ("CbCR Regulations") issued by the Federal Inland Revenue Service ("FIRS") in 2018. This ruling has certain implications for multinational enterprises and taxpayers across Nigeria, nullifying the CbCR Regulations and their associated penalties.
Case Background
The FIRS (the Appellant) appealed against a decision of the Tax Appeal Tribunal ("TAT") dated 17 August 2023, which declared the CbCR Regulations null and void and nullified penalties imposed on Check Point Software Technologies B.V. Nigeria Ltd (the Respondent). The FIRS sought to enforce the CbCR Regulations, claiming authority under the Federal Inland Revenue Service (Establishment) Act, 2007 ("FIRSEA"), to impose penalties for the Respondent's failure to file and late filing of CbCR notifications. The Respondent argued that:
1. The CbCR Regulations were invalid because the FIRS lacked a constituted board (the "Board") in 2018 when the CbCR Regulations were made, as required by Section 61 of the FIRSEA.
2. The penalties in the CbCR Regulations exceeded those stipulated in the FIRSEA, making them unlawful.
3. The CbCR Regulations sought to enforce the Multilateral Competent Authority Agreement on Country-by-Country Reporting ("CbC MCAA"), which had not been domesticated in Nigeria as required by Section 12 of the 1999 Constitution.
The FIRS countered that the CbCR Regulations were valid, the penalties were lawful, and the CbC MCAA did not require domestication as it was not a treaty but an agreement between tax authorities.
Issues for Determination
The court adopted the following issues formulated by the Appellant:
1. Whether the TAT was correct in concluding that the CbCR Regulations were null and void because the FIRS did not have a Board in place at the time.
2. Whether the TAT was right in nullifying the penalties in the CbCR Regulations as being contrary to those in the FIRSEA.
3. Whether the CbCR Regulations are unconstitutional and void due to the nondomestication of the CbC MCAA.
Court's Decision on Each Issue
Issue 1: Validity of CbCR Regulations 2018 (Absence of FIRS Board)
The court held that the CbCR Regulations were not validly made because there was no evidence that a duly constituted FIRS Board existed in 2018, as required by Section 61 of FIRSEA. The court rejected the FIRS' reliance on Paragraph 14 of the Second Schedule of FIRSEA, which protects board proceedings from defects, noting that it applies only when a board exists and meetings are held.
No minutes or evidence of a board meeting were provided. Thus, the CbCR Regulations were invalid, and Issue 1 was resolved against the Appellant.
Issue 2: Legality of Penalties in the CbCR Regulations
The court ruled that the penalties in the CbCR Regulations (ranging from ₦10,000 to ₦10,000,000) were inconsistent with Section 26(3)(b) of the FIRSEA, which caps penalties for non-tax liability issues at ₦25,000 for the first month and ₦10,000 for subsequent months. The court held that subsidiary legislation (CbCR Regulations) cannot exceed the scope of the principal legislation (FIRSEA). The penalties were struck down as unlawful, and Issue 2 was resolved against the Appellant
Issue 3: Constitutionality of CbCR Regulations (Non-Domestication of CbC MCAA)
The court held that the CbC MCAA is a treaty under Section 12 of the 1999 Constitution, requiring domestication by the National Assembly to be enforceable in Nigeria. The CbCR Regulations, which sought to implement the CbC MCAA, were invalid because no evidence of domestication was presented. Issue 3 was resolved against the Appellant. The FHC's reasoning was that the CbC MCAA imposes obligations on Nigeria and affects legislative powers, classifying it as a treaty under Section 3 of the Treaties (Making Procedure) Act and Section 12 of the 1999 Constitution. Without domestication, the CbCR Regulations lacked a legal basis.
The appeal was dismissed in its entirety for lacking merit, primarily due to the invalidity of the CbCR Regulations, rendering further issues moot, though they were still addressed.
Commentaries
I. On the Correctness of the FHC's Decision
The judgment is legally sound. On procedural invalidity, the Supreme Court in U.N.T.H.M.B. v. Nnoli (1994) 8 NWLR (Pt. 363) 376 held that "the courts have jurisdiction to declare invalid any act of the executive or administrative body not done in accordance with the legislative powers conferred upon it by the statute under which it purportedly acted and this is so whether the order is ultra vires by reason of the contents (patent defects) or by reason of defect in the procedure followed prior to its being made." (P. 412, paras. G-H)" affirming that administrative actions done in breach of a statutory precondition are a nullity. Section 61 of the FIRSEA unambiguously vests the power to issue regulations in the FIRS Board. The absence of such a board is fatal to the CbCR Regulations.
On the penalties, the reasoning in Afolabi v. Gov. of Oyo State (1985) 2 NWLR (Pt. 9) 734 S.C supports the view that a subsidiary instrument cannot contradict or override its enabling statute.
As for the non-domestication of the CbC MCAA, the decision aligns with Abacha v. Fawehinmi (2000) 6 NWLR (Pt. 660) 228, where the Supreme Court held that international treaties do not have domestic application unless enacted into law by the National Assembly
II. Appeal and Stay of Execution
If the FIRS appeals to the Court of Appeal, such an appeal does not automatically operate as a stay of execution. The principle is settled in A.P.C. v. Karfi (2018) 6 NWLR (Pt. 1616) 479 where the Supreme Court held that "Even where an appeal has been lodged against the decision of the High Court to the Court of Appeal, section 17 of the Court of Appeal Act, Cap. C36 of the Laws of the Federation of Nigeria, 2004, categorically warns litigants that an appeal per se shall not operate as stay of execution". This means that an appeal, without more, does not stay the effect of a subsisting judgment. In order for the FIRS to insist on compliance with the CbCR Regulations, the FIRS must file a formal application for a stay of execution or interlocutory injunction pending the appeal, and the court must exercise its discretion in favour of granting it.
II. Applicability Beyond Check Point
While the FHC decision binds only the parties to the suit (see: Awonoyi & Ors vs The Registered Trustees of the Rosicrucian Order, AMORC(NIG) (2000) NSCQR 62), its reasoning is persuasive and capable of being relied upon by other taxpayers in challenging similar enforcement actions. Until overturned, the decision casts significant doubt on the legality of similar penalty impositions by the FIRS under the 2018 CbCR Regulations.
III. Whether the Defect Be Cured by the New Revenue Service Bill
Section 4(2) of the Nigeria Revenue Service (Establishment) Bill (the "NRS Bill") purports to confer on the FIRS (to be renamed Nigerian Revenue Service) the power to issue rules and regulations and impose compliance requirements subject to ministerial approval. The proposed provision seems like an attempt to cure the defect that led to the courts' decision in the Checkpoint case. If enacted, the proposed Section 4(2) cannot be given retroactive effect because retrospective application of laws is generally disallowed in Nigerian jurisprudence unless expressly stated. See Afolabi v. Gov., Oyo State (1985) 2 NWLR (Pt. 9) 734. As presently drafted, the proposed provision does not contain retrospective language. Thus, any regulations issued under the NRS Bill, even if more robust, will likely not cure the past illegality of the 2018 CbCR Regulations.
Moreover, even if retrospective intent were expressed, such retrospective penal provisions would be invalid under Section 36(8) and (12) of the 1999 Constitution (as amended), which prohibit retroactive criminal or penal sanctions.
IV. Implications for Taxpayers
This decision in the Checkpoint case reinforces the principle that tax compliance obligations must be rooted in valid law. Taxpayers may lawfully resist enforcement actions grounded in defective or ultra vires regulations. However, this does not permit outright disregard for filing obligations under other valid penalties and may consider engaging counsel when facing enforcement actions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
