Arbitrability Of Tax Matters In Nigeria

Arbitration is the most initiated method of ADR where parties to a dispute submit to a third party called an arbitrator or arbitral tribunal for the resolution of their dispute. The decision of the arbitrator or arbitral panel called an award, is binding on the parties and enforceable by the courts. Arbitration is regulated by the Arbitration and Conciliation Act (ACA) Laws of the Federation of Nigeria (LFN) 2004 and also regulated by the Lagos State Arbitration Law, 2009.

Party autonomy is the hallmark of arbitration – arbitration is a creature that owes its existence to the will of the parties alone.

The Section 2 of the Petroleum Profit Tax Act defined tax to mean chargeable tax. The FIRS Act defined tax to include any duty, levy or revenue accruable to the Government in full or in part under the Act, the laws listed under the First Schedule to the Act or any other enactment or law.

Prior to the definite pronouncement of the Court of Appeal on the non-arbitrability of tax disputes in Nigeria, it was fairly speculated that tax disputes are not be arbitrable on grounds of public policy given that a tax dispute would likely touch on revenue of the government and the statutory powers of FIRS.

Tax disputes are currently not arbitrable in Nigeria in the light of some of Court of Appeal decisions, while this is arguable. The Section 251 (1) (b) of the 1999 CFRN prescribes the jurisdiction of the Federal High Court as follows – to have and exercise jurisdiction to the exclusion of any other court in civil causes and matters connected with or pertaining to the taxation of companies and other bodies established or carrying on business in Nigeria and all other persons subject to the Federal Taxation.

It is argued that Section 251(1) (b) of the Constitution is broad and confers exclusive jurisdiction on the Federal High Court for resolution of any dispute with a tax element and that this jurisdiction can only be exercised upon exhaustion of statutory remedies provided under Sections 38, 41 and 42 of the Petroleum Profit Tax Act i.e., by first filing an objection to FIRS for review and revision of assessment and appealing to the Appeal Commissioners before ultimately appealing to the Federal High Court

It should be noted that Tax Disputes in Nigeria are primarily resolved by the Tax Appeal Tribunal (TAT) and the Courts, the reason being that the judicial powers are vested in Courts. There exist certain differences in the commencement of disputes over different types of taxes.

  • Personal Income Tax: Disputes relating to Personal Income Tax may be commenced before the Revenue Courts, Customary Courts, Magistrates’ Courts, State High Courts, the TAT or the Federal High Court, depending on the jurisdiction of the Court, the amount of tax involved, and whether the action is against the federal or state tax authority.
  • Corporation Tax: Company Income Tax is a federal tax and all disputes relating to its payment are commenced before the TAT or the Federal High Court.
  • Partnerships: For tax purposes in Nigeria, in partnerships, it is the individual partners that are taxed on their respective shares of the partnership profit. Disputes arising out of taxes on the individual partners may be commenced before Customary Courts, Magistrates’ Courts, State High Courts, the TAT or the Federal High Court, depending on the jurisdiction of the Court, the taxpayer, the amount of tax involved and whether the action is against the federal or state tax authority.
  •  Indirect Taxes: Indirect Taxes in Nigeria include Value-Added Tax (VAT) and customs and excise duties. As with federal taxes, disputes are initiated at the TAT and the Federal High Court. However, where it involves individuals, the commencement procedure for individuals and partnerships as listed above applies.

The Nigerian Court of Appeal has extended the scope of non-arbitrability in Nigeria to tax disputes by virtue of its recent pronouncements in Esso Petroleum and Production Nigeria Ltd& SNEPCO vs. NNPC8 [“Esso”] (UNREPORTED APPEAL NO: CA/A/507/2012 DELIVERED ON 22ND JULY, 2016 and Shell (Nig.) Exploration and Production Ltd & 3 others vs. Federal Inland Revenue Service9 [“Shell”] (UNREPORTED APPEAL NO: CA/208/2012: DELIVERED ON THE 31st AUGUST 2016), The court found that the disputes submitted to arbitration in both cases are tax related and therefore not arbitrable in Nigeria on the basis of the exclusive jurisdiction of the Federal High Court on taxation.

It would be observed that both cases turned on the findings that: (1) Tax disputes fall within the exclusive jurisdiction of the Federal High Court and are therefore not arbitrable; (2) the disputes submitted to arbitration in both cases were tax related; and (3) Sections 38, 41 and 42 of the Petroleum Profit Tax Act, provide a strict mandatory procedure for out of court settlement of tax disputes before having recourse to the Federal High Court which has exclusive jurisdiction over tax disputes. As earlier observed parties in both cases never contested that tax disputes are not arbitrable in Nigeria. The Court of Appeal was specifically invited to determine whether the disputes between the parties were tax disputes or contractual disputes. The court respectively found that the disputes were tax disputes in the garb of contractual disputes.

Best practices and International Framework

The Tax Procedures Act in Kenya provides that an individual taxpayer wishing to contest their tax assessment may apply to the Tax Commissioner. If dissatisfied with the decision, the individual may appeal to the Tax Appeals Tribunal and subsequently to the High Court of Kenya before the Court of Appeal. The unique feature here is that the taxpayer and Commissioner enjoy the authority to opt for resolution through mediation. In furtherance of this process, the revenue authority set out an alternative dispute resolution (ADR) framework. The Kenyan government, through the revenue authority has been able to recover over KES6.5bn (approx. US$60m) in respect of over 140 disputes resolved.

According to the United States Agency for International Development’s (USAID) 2013 Report on Leadership in Public Financial Management,[23] 95 per cent of tax disputes in Canada are resolved through ADR, 85 per cent in Australia, and 75 per cent in Brazil. In South Africa, an estimate of 66 per cent and in Kenya, 36 per cent. These countries have considered the vast benefits associated with ADR compared to their court systems, including reduced costs, prompt resolution and the maintaining of confidentiality.[26]

Kenya’s ADR Framework is, however silent on the mode of alternative dispute resolution to be used but it can be gleaned from the guidelines that the framework is leaning towards mediation. This is because the facilitators, who are there to guide parties, are to remain neutral throughout the process but notably, the facilitator cannot impose any decision regarding the dispute’s outcome.[28] The disputes brought before a panel border on tax assessment but exclude matters that require the technical interpretation of law or statute. The timeline for this procedure is up to 90 days.[29]

At an international level, tax disputes which occur between two or more states are governed by the tax treaties that established the relationship between the states. With respect to these disputes, arbitration is encouraged as a means of settlement. The Organisation for Economic Cooperation and Development (OECD) has repeatedly called for the use of arbitration in resolving tax disputes and has gone further to provide a template for arbitration clauses that may be incorporated into tax treaties in its OECD Model Tax Treaty.

Arguments in support of this position by OECD are premised on the principles of public international law, that courts of one country would not waive their sovereignty by adjudicating nor enforcing matters regarding the revenue laws of another state. This means that when it comes to the substantive tax law of a state as against another state in question, arbitrability in that regard fails. However, tax disputes only become arbitrable when a tax treaty that gives rise to such tax transactions.

The writers note that matters such as aviation, maritime and banking, disputes which are also under the exclusive jurisdiction of the Federal High Court such as tax disputes are permitted to be resolved through arbitration. Such contracts usually contain an arbitration clause which has quickly become an industry practice. Interestingly, there is the Maritime Arbitration Association of Nigeria which promotes the arbitration of maritime disputes instead of clogging the Federal High Court.

Taxation differs from aviation, maritime and banking because the PPT Act is clear as to who is to adjudicate or resolve tax disputes through specific mention of the judges and recourse to the Federal High Court for such disputes. Ordinarily, a strict interpretation of Section 251(1)(b) of the Constitution of the Federal Republic of Nigeria 1999 (as amended) should work to oust the Tax Appeal Tribunal (TAT)’s authority as well. However, since the TAT is backed by Federal Inland Revenue Service (Establishment) Act 2007, the body may incorporate the elements of arbitration or mediation into its modus operandi. This can be achieved by collaboration with the Multi-Door Courthouse of various states of the Federation. A resolution guideline can be drafted to guide the procedure of arbitration or mediation by the TAT on tax-related disputes. The burden of appointment and funding of facilitators or arbitrators should fall on both parties.


One thing that is clear from our submissions in the course of this article, is that while the present case law in Nigeria provides that tax matters are non-arbitrable, other jurisdictions hold a different opinion and in fact rely heavily on arbitration whenever a tax-related dispute arises. This goes to point out that arbitrability of tax matters is not an impossibility.

The courts are bombarded with numerous cases that are subject to years of deliberation and delays before they are resolved, and some, more often than not, subsequently go on appeal. Justice delayed is inevitably justice denied, and this is a setback that the adoption of arbitration seeks to resolve. It is essential that Nigeria strives to abide by international best practices. This can be achieved by a review of the current workings of the legal system, especially as it relates to the resolution of tax disputes. Tax disputes are becoming prevalent in Nigeria with the aggressive manner in which the tax authorities, both state and federal, are going after corporate bodies and individuals for non-payment or inadequate payment of tax. The writers suggest that a viable step in this direction is the unimpeded arbitrability of tax-related disputes.


About Emmanuel Ikedinobi & Victor Adegbite

Victor Adegbite is a savvy young legal mind, ardent writer who possess an unbridled passion for law, with keen interest in the dynamics of Law. His interest lies in Legal Technology, Corporate & Commercial Law. Victor is an avid researcher, he is actively involved in legal research with the use of soft ware application and modern techniques of information technology. He has several published and unpublished legal articles in foreign and local journals. He is an associate member of the Chartered Institute of Arbitrators (UK). He works with Crypto Law Africa as a Research Associate. He has a stellar working experience with Top-tier Law firms in Nigeria- Aluko & Oyebode, Banwo & Ighodalo, Olaniwun Ajayi, Omaplex Law firm, Templars and commercially aware company as an Intern and Associate respectively. His driving force and core personal values are anchored on honesty, team spirit, humility, self sacrifice and hard work. He is passionate about leadership, and possesses an unfettered penchant for learning and constantly seek opportunities to develop new skills and deploy them to positively impact his immediate society. He is open for internships, volunteer and open roles in law firms or organizations. Victor Adegbite can be contacted via Emmanuel Ikedinobi can be contacted via