Background

The Federal Government of Nigeria established the Industrial Training Fund (ITF), to be utilized to promote and encourage the acquisition of skills in industry or commerce in Nigeria with a view to generating a pool of indigenous trained manpower sufficient to meet the needs of the economy. By section 6(1) of the ITF Act, 2011 provides that:

Every employer having either 5 or more employees in its establishment, or having less than 5 employees, but with a turnover of ₦50M and above per annum, shall in respect of each calendar year and or the prescribed date, contribute to the fund one per centum of its annual payroll

AFRICAN REINSURANCE CORPORATION V. INDUSTRIAL TRAINING FUND & ANOR. (COURT OF APPEAL)

The ITF Governing Council had on July 10, 2014 filed an action at the Federal High Court, Lagos claiming over ₦1billion against Africa Reinsurance Corporation (a multinational corporation in Nigeria) over alleged failure of the corporation to pay the contributions pursuant to the ITF Act. The Corporation was represented by a team of lawyers from Aina Blankson, LP led by the Managing Partner, Mr Kehinde Aina. Aina Blankson, LP on behalf of the corporation contended that the corporation being an international organisation was exempt from making the contributions pursuant to the ITF Act by virtue of the Diplomatic Immunities and Privileges Act, Establishment Agreement dated February 24, 1976 and the Headquarters Agreement dated August 10, 1977. The Federal High Court granted the claims of the Council and held that the corporation was liable to make the contributions pursuant to the ITF Act. The corporation represented by Aina Blankson filed an appeal against the judgment of the Federal High Court, Lagos. The Court of Appeal in its judgment upheld the submissions of the corporation and held that:

Having regard to the Establishment Agreement and Headquarters Agreement as well as other legal framework earlier considered, this Court finds and hereby declares that the Appellant is exempted from the statutory contribution sought to be enforced by the Respondents under the ITF fund. The judgment of the Federal High Court … delivered on 9th February, 2016 is hereby set aside.

IMPLICATIONS OF THE DECISION

The decision of the Court of Appeal rooted in a community reading of all relevant Statutes and Agreements aimed at fostering the development of the insurance and reinsurance industry at national and regional levels with a view to promoting the growth of underwriting and retention capacities and support economic development in Africa.

It goes to decide that not minding the description given to a levy or tax, the important consideration for the tax man and indeed the Court would be whether the sum demanded has the characteristics of a tax and not necessarily what name it is called. Having determined that the implication of the ‘contribution’ demanded by ITF was in the nature of a tax, the Court had no reservations interpreting the exemption provisions of the establishment statutes and agreements to find that Africa Re was not one to pay the sum levied by ITF under the ITF Act

Second, the decision of the Court does not exempt Africa Re from taxes which are no more than charges for public utility services rendered by the government to corporations. Consequently, such levies for water supply, waste disposal, electricity supply, etc. do not come under the tax-exempt status of Africa Re as decided by the Court. As such, any payments other than for public utility services rendered to corporations which enjoy tax-exempt status under the relevant statutes cannot be levied on such corporations. It does not matter that such payments are not so described as tax.

Finally, the decision serves to clarify and reiterate the law as it pertains to corporations with tax-exempt status. It draws from the rule of pacta sunt servanda to bring tax agencies to comply with their obligations expressed in the relevant agreements establishing these corporations in Nigeria.

This Newsletter was written by Ositadinma Nwosu and Ifeanyi Nwokolo, engaged in the Dispute Resolution Group of Aina Blankson, LP Aina Blankson LP is a top tier, all services law firm operating from offices in Lagos and Abuja. The firm is known for its bespoke legal services which cut across a wide range of law.