The Tax Appeal Tribunal, Lagos, addressed what was the appropriate pricing mechanism for determining the value of crude oil for purposes of the petroleum profits tax when there had been a memorandum of understanding (MOU) between Nigeria’s federal government and international oil companies.
The MOU was agreed to in 2000, and it provided a pricing mechanism that was to be used in determining the value of crude oil for a minimum of three years. The MOU expired in 2002. There was no new agreement on the price of crude oil.
A subsequent agreement, however, provided a realisable price to be adopted between 2008 and 2010. However, the Federal Inland Revenue Service took the position that, absent a new regime, the provisions of the Petroleum Profits Tax Act were to apply and that the price posted in section 23 of that law was the value to be used.
The taxpayer in this case computed its petroleum profits tax for 2007 and 2008 using the agreed realisable price. The tax authorities issued deficiency notices.
The Tax Appeal Tribunal concluded that the MOU was still valid in 2007, and that the agreed realisable price was valid and was the applicable pricing methodology for 2008.
Read a February 2016 report [PDF 1.8 MB] prepared by the KPMG member firm in Nigeria: Valuation of Crude Oil for Petroleum Profits Tax Purpose in 2007 and 2008 tax years
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in 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.