The Tax Appeal Tribunal sitting in Lagos today, 5 July 2019, delivered its judgment in a case concerning whether under the “excess dividends tax” rules, there is an income tax liability for dividends declared and paid out of prior tax profits when the company recorded no profits for the tax year.
The case is: Actis Africa (Nigeria) Ltd. v. Federal Inland Revenue Service
The case specifically concerned Section 19 of the Companies Income Tax Act and its application to dividends paid from retained earnings. The company recorded no profits for 2014, but declared and paid dividends from its 2013 post-tax profits.
The appellate tribunal held that the “excess dividend tax” is applicable when the dividend paid in a year of assessment exceeds the total profits declared in that year. The tribunal also found that Section 19 only considers the year of assessment when the dividend is paid and the total profits of the company in that year. Therefore, when the dividend paid is more than the total profits in a year, the excess of that dividend over the total profit becomes liable to (subject to) additional income tax.
Read a July 2019 report [PDF 140 KB] prepared by the KPMG member firm in Nigeria
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.