FIRS agrees to refund $2m, other tax overpayments in Arco, GE saga

The Federal Inland Revenue Service (FIRS), has said it will refund the N360million and $2million excess withholding tax (WHT) deducted from Arco Petrochemicals Engineering Company Limited, through its business dealings with General Electric (GE) International Operations Nigeria Limited.This was contained in a letter obtained by The Guardian, dated July 26, 2018, and directed to PricewaterhouseCoopers (PwC) Limited, (tax advisers to GE) with reference number: FIRS/TPAD/GEN/272/V.IX/.

The FIRS said: “In respect of the treatment of excess WHT deducted from Arco and remitted to FIRS, Arco has either of the following two options: To formally apply to FIRS for the refund of the excess WHT deducted so long as there is evidence of remittance to the FIRS account; or to use same to offset its future tax liabilities.”
Arco claimed that GE deducted 10 per cent as withholding tax for a contract between 2006 and 2015, against the five per cent stipulated by Nigerian law.
GE, a multinational company operating in the Nigerian oil and gas sector, had engaged Arco for the supply of local personnel.

The FIRS, in the letter signed by its Executive Chairman, Tunde Fowler, also urged PwC to ensure that GE made available to Arco all outstanding WHT Credit notes in respect of remittances made in its favour.Meanwhile, Arco’s interpretation of the contract of supply is that the applicable WHT rate should be five per cent in line with the FIRS Circular No. 2006/02, dated February 2006.

But GE allegedly insisted that the rate is 10 per cent in line with the contract for technical services in the same circular under reference. However, Section 3.5 of the circular (Lines 8-11) referred to what should be classified as technical services, states: “the use of industrial machinery/equipment to provide a service does not render it to be technical because industry position requires that only arrangements that involve a transfer of technology, should be classified as technical.GE had expressed willingness to liaise with the FIRS on how the excess will be treated in the event the service upholds its position, according to reports.This is based on the fact that the tax had already been deducted and remitted to the FIRS, according to GE, which also believes the FIRS should either refund the excess WHT to Arco or apply it as a credit against Arco’s future tax liability.

In a letter dated March 6, 2018, and signed by Benjamin Omotomiye, its Group Head, Finance and Admin, Arco demanded a refund of the funds deducted within the eight-year period.He wrote: “What we are requesting now, is the refund of 50% of total WHT deducted from Arco’s invoices from the period 2006 to 2015 as earlier communicated to you in our letter dated November 6, 2017, following the FIRS’ clarification as follows:  
“€56,577.61 (Fifty-six thousand, five hundred and seventy-seven Euros, sixty-one cents).
“$2,923,642.36 (Two million, nine hundred and twenty-three thousand, six hundred and forty-two dollars and thirty-six cents).
“N360,482,041.19 (Three hundred and sixty million, four hundred and eighty-two thousand, forty-naira and nineteen kobo).”

The FIRS also said: “The WHT deductible rate on the contract for the supply of personnel, personnel protective equipment and uniforms, office equipment and furniture, vehicles and fuelling as contained in the contract documents submitted to us is five per cent. While the WHT deductible rate for site accommodation/office rent is 10 per cent.”

In this light, tax professional and legal practitioners have asked the FIRS to make a refund of the excess tax deducted from Arco. The tax experts and lawyers maintained that since the said tax overpayments had been remitted to the tax authority (FIRS), it was the responsibility of the FIRS to return the overpayments or net them against future tax liabilities of Arco.

The Group Accountant at Arco, Peter Onwubuya, in a telephone interview, said: “FIRS said if we have all the credit notes, it is willing to pay the excess withholding tax. It wants GE to prove that the payments were made.“We have $3.9million, N410million, and €142,000 outstanding withholding tax from GE. There are no credit notes for these payments yet.“Since FIRS has given GE the directive to forward all credit notes to us, we expect the company to have done that by now. GE has not acted, and it is not even talking to us.”
 
In an email response to The Guardian enquiry, GE spokesperson for sub-Saharan Africa, Segun Obagbemi, said the company is deeply concerned about all the allegations in the media, adding that: “Arco’s dispute has been addressed. GE has remitted all withholding tax deductions, made under the contract with Arco to FIRS. All credits notes for these remittances as received from FIRS have been forwarded to Arco.

“GE operates with the highest standards of compliance and governance in every aspect of its business. GE remains committed to honouring its contractual obligations with all its partners, suppliers and contractors, including Arco.”

Speaking on the impasse, the Managing Partner, The Chancery Associates Solicitors, Lagos, Emeka Okwuosa, said the position of the law on the issue is quite clear, as the excess tax paid to the FIRS could be held as tax advance and/or credit of IFRS on account of Arco. “It is in line with our extant laws.”Conversely, he noted that Arco could push for excess tax refund if the same is amenable to FIRS, because “FIRS is holding unto monies that is not rightfully theirs in law, and in fact, I see no reason why this cannot be satisfactorily resolved in the mutual benefit of both parties; but the problem there is that Arco has no direct contact with FIRS. It can only make recourse against GE.

“Arco cannot lay a direct claim against FIRS. Any direct claim is at the behest of GE against FIRS. The way out is for GE to reach a negotiated resolution with FIRS on behalf of Arco. Either way, Arco has nothing to lose – the money is still theirs for keeps either as tax credit advance and/or if refunded. Parties should hold a parley and resolve accordingly, I advise.”

The Deputy Director, Research and Strategy, Financial Reporting Council of Nigeria (FRCN), Iheanyi Anyahara, said on account of the said overpayments by Arco, it would take a long process to get a refund from the FIRS.  “Ordinarily, the FIRS is supposed to make a refund,” he added. Anyahara explained, “The affected company can apply for a refund. Another approach to this matter is that the tax overpayments could be credited to future transactions as tax advance.”

Also commenting, a Vice President, Chartered Institute of Taxation of Nigeria (CITN), ‘Femi Jegede, said with the nature of the transaction, there must be a refund from the tax authority. Jegede said: “Of course, there should be a refund. Or the tax authority should set the withholding tax overpayments against future tax liabilities of the payer. The tax authority can reduce future tax returns by the overpayments; thus, making the payer to settle the net value.”When The Guardian contacted the FIRS spokesperson, Wahab Gbadamosi, he delayed for two weeks and eventually did not provide the FIRS’ position on the matter. But when he was shown the documents, he said: “The document looks like something from us.”