Nigeria: Investment tax credit, production-sharing contracts and oil prospecting license (appeals court decision)
Nigeria: Investment tax credit
The Court of Appeal (Lagos Division) reversed a judgement of the Federal High Court in a case concerning the investment tax credit and production-sharing contracts executed after 1 July 1998.
The appellate court held that incentives provided under the applicable legislation were tied to the production-sharing contract—and not to oil prospecting license granted to the taxpayer.
The case is: Federal Inland Revenue Service v. South Atlantic Petroleum Corp.
The taxpayer on 19 March 1998 signed a “farm-in” agreement with oil and gas entities for the joint exploration and production of oil under an oil prospecting license. The agreement (executed before legislative changes effective beginning 1 July 1998) qualified for the then-available investment tax credit.
In 2005, Nigeria’s government under 2003 “back-in rights” regulations acquired a 50% participating interest through the Nigerian National Petroleum Corporation (NNPC). Consequently, the 50% interest held by NNPC was covered by a production-sharing agreement while the remaining 50% held by the taxpayer and the oil and gas entities were subject to a different production-sharing contract agreement. Following the execution of the agreement in 2005, the taxpayer filed a request with the tax authority in 2009, seeking clarification as to whether qualifying capital expenditure incurred would qualify for an investment tax credit or investment tax allowance.
The tax authority replied in July 2009, confirming that an investment tax credit was applicable. The tax authority, however, subsequently in June 2012 revised its position and concluded that the applicable fiscal incentive for the 2005 production-sharing contract would be an investment tax allowance (and not an investment tax credit).
The taxpayer sought judicial review, and the Federal High Court held for the tax authority. The taxpayer appealed. The Court of Appeal reversed and held that the incentives provided were tied to the production-service contract—and not to the oil prospecting license.
Read a February 2021 report [PDF 1.74 MB] prepared by the KPMG member firm in Nigeria
© 2022 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained 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.