Introduction

On 4^th November 2020, the Tax Appeal Tribunal (the “Tribunal”) sitting in Lagos delivered judgment in Appeal Number: TAT/LZ/WHT/020/2019 between Mr. Michael Oluwole Oladotun (Liquidator, Nu Metro Retail (Nig.) Ltd) & Anor v The Executive Chairman, Federal Inland Revenue Service & 2 Ors stating the conditions that tax authorities must satisfy before appointing banks as tax collection agents.

The Tribunal held that the Federal Inland Revenue Service (FIRS) cannot appoint a bank or any other person as an agent of a taxpayer for the purpose of recovering unpaid tax unless the following conditions have been fulfilled:

• the appointment of the agent must be writing;
• the agent must have in his custody funds belonging to the taxpayer; and
• the unpaid tax will be or has become payable.
• All conditions for appointing an agent must co-exist
• the appointment of the agent must be writing;
• the agent must have in his custody funds belonging to the taxpayer; and
• the unpaid tax will be or has become payable.
• When does tax become payable?
• a tax assessment has been issued by the tax authority and is accompanied by a demand notice;
• the taxpayer does not object to the tax assessment within the time limited by statute (30 days); and
• the taxpayer does not appeal against the tax assessment within the time limited by statute (30 days).

Facts of the appeal

The 1^st appellant is the liquidator of the 2^nd appellant. The 2^nd respondent (“FIRS”) instructed the 3^rd respondent (the “bank”) to place a restriction on the bank account of the appellants. The FIRS did not serve any notice of assessment on the appellants in respect of any unpaid tax before issuing the freezing instruction to the bank.

The appellants argued that by failing to issue a notice of assessment before instructing the bank to freeze the appellants’ bank account, the FIRS had violated appellant’s right to fair hearing. The appellants maintained that the failure of FIRS to issue a notice of assessment had deprived them of the opportunity to challenge or object to any demand for outstanding tax (if any). Section 49 of the Companies Income Tax Act (CITA) and Section 31 of the FIRS Act state the procedure which the FIRS must observe when appointing an agent for the purpose of recovering unpaid tax. The appellants argued that having failed to adhere to this statutorily laid down procedure, the appointment by the FIRS was null.

Decision of the Tribunal

The Tribunal considered Section 31 of the FIRS Act and Section 49 of the CITA and held that the following conditions must co-exist before the FIRS can validly appoint a bank as an agent to a taxpayer for the purpose recovering any tax which is unpaid by that taxpayer:

Where any of these conditions is not satisfied then the appointment is a nullity. In this appeal, the FIRS satisfied two of the three conditions, namely that the appointment was in writing and that the bank had funds of the appellants in its custody. However, the tax had not become payable therefore the 3^rd condition had not been satisfied.

The Tribunal held that tax becomes payable only when the following events have occurred:

In view of the fact that there was no evidence that the FIRS ever served a tax assessment or demand notice on the appellants, the Tribunal held that the appointment of the bank to serve as the agent of the appellants was premature.

The Tribunal also referred to a decision of the Federal High Court in Ama Etuwewe v FIRS (Suit No.: FHC/WR/CS/17/2019) where it was held that tax authorities can instruct a bank to freeze a customer’s account only for the purpose of seizing the proceeds of tax fraud or tax evasion and that the freezing must be made pursuant to a court order.

Implications

This judgment clarifies the extent of the powers of the FIRS and other tax authorities to appoint banks and other persons as agents of the taxpayer for the purpose of recovering unpaid taxes. Therefore, persons who are appointed as agents for the purpose of recovering unpaid taxes should seek professional advice to satisfy themselves that their duty to act in such capacity has crystallised.