INTRODUCTION
The Court of Appeal, sitting in Lagos on the
15th day of February 2017 gave a judgment to the effect that the
Memorandum of Understanding between the Federal Government and Oil Producing
Companies signed in the year 2000 (2000 MOU) was effectively terminated as far back as year 2008. The court held that
Mobil Producing Nigeria Unlimited (Mobil) was not entitled to the Education Tax
(EDT) incentives provided for under the 2000 MOU effective from the 2009 Year
of Assessment thereby upholding the decision of the Federal High Court on this
issue.
SUMMARY OF FACTS
Mobil is a crude oil producing company in
Nigeria and FIRS is a statutory agency with powers to administer the tax laws
of Nigeria. Mobil was a party to an MOU with the Federal Government signed in
the year 2000. One of the fiscal incentives set out in the 2000 MOU is that
Mobil can set off Tertiary Education Tax liability against its PPT profits.
FIRS served Mobil EDT Assessments for 2008
Year of Assessment (YOA) and excluded some EDT off-sets contained in the 2000
MOU. FIRS contended that the off-sets were disallowed because the 2000 MOU was
terminated in 2008. Upon appeal, the Tax Appeal Tribunal (TAT) upheld the
contention of FIRS and ordered Mobil to pay the additional tax assessed. This
judgment was upheld by the Federal High Court; hence, this appeal.
ISSUES
The issues before the Court of Appeal were as
follows:
i.
Whether
the provisions of the 2000 MOU and Petroleum Profits Tax Act (PPTA) provided
any basis for the lower court to hold that a new fiscal regime had been
introduced.
ii.
Whether
the pre-conditions to the termination of the MOU 2000 had been satisfied
iii.
Whether
the lower court properly appraised the concept of legitimate expectation,
accord and satisfaction as they relate to the purported termination of the 2000
MOU
ARGUMENT OF PARTIES
Mobil submitted that by a combined reading of
the 2000 MOU together with Sections 9(2a), 11(1c) and 23(3) of the PPTA, it is
evident that the lower court erred in holding that a new fiscal regime had been
introduced, it contended that the 2000 MOU is statutorily incorporated in the
stated sections of the PPTA and this governed the fiscal regime which is to be
applied to determine its ultimate tax liability. Mobil further argued that the
Educational Tax off-sets are incentives that are statutorily backed and thus
should continue to apply notwithstanding the termination of the agreement until
the government comes up with a replacement fiscal regime after due consultation
with the parties to the MOU as stated in Clause 7.3 thereof. Regarding the new
fiscal regime introduced by virtue of the letter dated 17th January,
2008, Mobil maintained that there was no “due consultation” arguing that the
term due consultation envisages joint consideration which was not the case here
and further argued that a new fiscal regime only commenced by 1st
September 2013 by virtue of the letters dated 19th June, 2013 and 6th
September, 2013.
FIRS submitted that by the combined effect of
Clause 7 of the MOU incentives including the Education Tax Off-sets in the said
MOU not only ceased to exist but also got replaced by another fiscal regime on
17th January, 2008 after due consultation with NNPC and Mobil. It
argued that Mobil’s disagreement with the letter dated 17th January
2008 is of no moment as Clause 7.3 requires “due consultation” and not
agreement. It further posited that the letters of 2013 only made reference to
pricing mechanisms and not Education Tax off-sets and re-iterated that the
letter of 17th January 2008 referred to and replaced the entire
incentives provided under MOU 2000 including the Education Tax off-sets.
DECISION OF THE COURT
The court held that Mobil’s arguments are
based on the misconception that Clause 7.3 of the 2000 MOU requires an
agreement rather than due consultation between the Government and other
parties. The Court, referring to the letters dated 17th January,
2008 and 15th February, 2008 between the OPTS and the government,
further held that the government acting through the Ministry of Petroleum
Resources duly consulted with the Industry Negotiating team which represented
Mobil before providing the new fiscal regime.
The Court agreed with FIRS that the letters
of 2013 only touched on the price mechanisms and categorically stated that the
2000 MOU with its incentives, Education Tax Off sets inclusive had been
replaced by a new fiscal regime vide the letter of 17th January
2008.
On the issue of legitimate expectation, the
Court held that the 2000 MOU was terminated vide the letter dated 17th
January, 2008 and this terminated any legitimate expectation arising from the
2000 MOU and whatever accord arose from the said MOU came to an end and
therefore the idea of satisfaction of the accord no longer arose.
CONCLUSION
Oil producing companies should therefore note
that unless this decision is upturned on appeal, the 2000 MOU was effectively
terminated in the year 2008. Thus, every incentive which accrued to the parties
of the 2000 MOU ceased applicability from the year 2008 and has been replaced
by a new fiscal regime.
However, the only issue with the judgment is
its conclusion that the letters of 2013 only touched on the price mechanisms.
The realizable price that the letters of 2013
provided for as the agreed price mechanism for 2009 – 2010 is a product of the
2000 MOU. If it accepted as held that the 2000 MOU was terminated in 2008,
there would be no basis for the realizable price. The letters of 2013 gave life
to 2000 MOU and by extension the incentives set out under the 2000 MOU.
We look forward to the decision of the
Supreme Court on this issue.
