The Tax Appeal Tribunal has declared as illegal, null and void the decision of EcoBank Nigeria Limited to pay N5, 545, 000,000 as dividends to its shareholders in 2016.
That year, Ecobank had claimed it made no taxable profit and rather declared losses from its banking operations.
A statement from the Federal Inland Revenue Service (FIRS) said the tribunal reached this decision in its judgment dated February 20, 2020.
Consequently, EcoBank must now pay at least N1, 663, 500, 000 to the FIRS as Company Income Tax for the year in dispute – 2016.
EcoBank had dragged the FIRS to court over the insistence of the service that the bank must pay in full its excess dividend tax liability of N2, 079, 375, 000, inclusive of interest and penalty for the Year of Assessment (YOA) 2016.
But Ecobank argued that the dividend it paid out was tax exempt as N4,372,244,556 out of the total sum was “profit from bonds and treasury bills”, which was not taxable based on the provisions of the Company Income Tax (Exemption of Bonds and Short-Term Government Securities) Order, 2011.
The court averred that “if the tax exemption granted by the order (Company Income Tax (Exemption of Bonds and Short-Term Government Securities) Order, 2011) creates an excess dividend situation”
EcoBank or any other company “should be liable to pay excess dividend tax on the same income that otherwise would have been exempted from tax.”
The tribunal stressed that “a liability to pay excess dividend tax arises where a company that seeks to pay dividend has no taxable profit as in the instant case but has distributable profit that is higher than the taxable profit.”