In two consolidated appeals argued by a team from Aluko & Oyebode led by Chukwuka Ikwuazom, a tax partner in the firm, the Tax Appeal Tribunal (the “Tribunal”) on 12 February 2015 set aside assessments of additional Petroleum Profits Tax (PPT) and Education Tax (EDT) in the cumulative sum of US$166.1 Million which had been issued by the Federal Inland Revenue Service (“FIRS) on an international oil company (the “Appellant”) on the alleged basis that the Appellant wrongly calculated the balancing charge due on the disposal of its undivided participating interests in certain oil mining leases (“OMLs”).
Under the Petroleum Profits Tax Act (the “PPTA”), a company that has incurred qualifying expenditure wholly, exclusively and necessarily for the purposes of petroleum operations that it carries on is entitled to claim an annual allowance and a petroleum investment allowance (“PIA”) (together, “capital allowance”) at the rates provided in the PPTA.
Where a company disposes of an asset on which it has claimed capital allowance, the PPTA requires that company to determine the “balancing charge” due on the disposal and include it as part of the company’s income for the accounting year in which the disposal is made.
A balancing charge is calculated as the excess of the value of an asset (on which capital allowance has been claimed) at the date of its disposal over the “residue” of the qualifying expenditure incurred on the asset as determined also at the date of disposal.
The “residue” of qualifying expenditure is defined under paragraph 10 of the Second Schedule to the PPTA as the total qualifying expenditure incurred on an asset less the total of annual allowances due to the owner of the asset as of a given date.
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