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A CRITICAL ANALYSIS OF THE EXCESS DIVIDEND RULE IN NIGERIA: OANDO PLC V FIRS (OANDO IV) REVISITED

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A critical Analysis of the Excess Dividend Rule in Nigeria: Oando Plc v FIRS (Oando IV) Revisited

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Abstract

INTRODUCTION

This paper reviews the Excess Dividends Tax (EDT) rule contained in Section 19 of the Nigerian Companies Income Tax Act (CITA)1 as a veritable means of curbing tax avoidance and/or tax evasion in Nigeria, and argues that notwithstanding the weight of argument against the EDT rule, the EDT regime ought to be strengthened, albeit, with sufficient and clear modifications to enable its smooth and efficient administration.2 As presently interpreted in Oando Plc v FIRS (Oando IV),3 the EDT seeks to impose additional corporate tax on retained earnings or the Franked Investment Income (FII)4 of a corporation, and that would amount to, in practical terms, double taxation.
In the end, we shall propose that the Nigerian legislature and the tax policy makers adopt, while retaining the EDT rule as an anti-avoidance rule, one of the three models proposed in this paper:

a. The American Model
Under Section/Regulation 1-316-2(a) of the Income Tax Regulations,5 distributions that are in excess of retained earnings are first treated as recovery of the shareholder’s basis in his stock, with any excess over the basis to be treated as gain from sale or exchange of the stock.6

b. Taiwo Oyedele’s Proposed Pragmatic Amendments to Section 19 EDT Rule7
This seeks to eradicate the ills posed by the present Section 19 EDT clause, with a proposed Dividend Tax Account, which balance would be adjusted by the balances of corporate income that have been subject to tax by other tax regimes.

c. The Canadian Model
The Canadian Model under Section 83(2) of the Income Tax Act of Canada8 which states that, where an income has been earlier subjected to tax, any dividend paid out shall be deemed to be a capital dividend to the extent of the corporation’s capital dividend account immediately before the particular time; and no part of the dividend shall be included in computing the income of any shareholder of the corporation.

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