Akinyosoye Tobiloba & Disu, Damilare O.
INTRODUCTION
Tax, just like most germane legal concepts, suffers from the lack of a universally acceptable definition. In fact, the Nigerian tax laws do not offer a definition of the term. Nonetheless, a general overview of the term as opposed to attempting to offer a precise definition of the term will suffice. Many definitions have been offered, one of the most referred-to definition is Cooley’s definition, where the term was defined in the following words:
“Taxes are the enforced proportional contributions from persons and property,
levied by the state by virtue of its sovereignty for the support of government and
for all public needs.”[1]
Summarily, it is worthy of note to state that all levies or contributions to the government are not taxes. For a levy or contribution to be regarded as a tax, it must satisfy the following requirements; the levy must be a compulsory levy or charge and not a voluntary contribution; the levy must be enforceable by law, that is, it must be statutorily backed; the proceeds or revenue from the levy must be used purely for the benefit of the public; the levy must be assessed and collected in a predetermined and certain manner[2] and; the levy must not be imposed for the purpose of providing specific services to the individual who pays them, that is the benefits from the levy must be enjoyed by the general public and not the individual[3].
Arbitration, on the other hand, is the foremost form of the Alternative Dispute Resolution (ADR) mechanisms. Again, this term has been given different definitions by authors. In lieu of a precise definition here, we shall attempt to provide a general understanding of the term by pinpointing the essential requirement which must be present before a dispute resolution mechanism can be described as arbitration.
ENFORCEMENT OF ARBITRAL JUDGEMENT.
From the above, the natural question which follows is: “how are arbitral judgement (otherwise known as Arbitral award or Arbitration award enforced?” This question stems from the fact that arbitration is a private initiative, and parties to an arbitration agreement often include in the arbitration agreement that the arbitral award shall be “final and binding”[4]. Thus, arbitration awardas opposed to national court judgement is often final and cannot be appealed[5]. Further, arbitral awards are expected to be enforced just as court judgements, even though they are not given by the court[6]. This is usually achieved through the process of Recognition and Enforcement of Arbitration award by a competent court.
ARBITRABILITY OF TAX DISPUTES IN NIGERIA.
The term “Arbitrability” is relatively new. Arbitrability is simply the process of determining whether a dispute can be referred to an arbitral tribunal for resolution. In a similar vein, Professor Loukas Mistelis rightly noted that arbitrability:
“involves the simple question of what types of issues can and cannot
be submitted to arbitration and whether specific classes of disputes are
exempt from arbitration proceedings”[7].
Accordingly, Nigeria, just like other countries, is expected to have a list of subject matters which are arbitrable[8]. Usually, this list of matters is not codified; this is to ensure flexibility and review in determining the matters which could be referred to arbitration for resolution. Consequently, arbitrators and jurists have in recent times further divided the issue of arbitrability into; objective arbitrability and subjective arbitrability- which are two issues that the arbitrators and parties generally must determine before referring their matter to an arbitral panel[9]. Under the former, the arbitrator must determine whether the matter before them is arbitrable. For instance, in most jurisdictions, criminal matters, constitutional issues, matters relating to personal status such as; nationality, amongst others, are in-arbitrable[10]. Subjective arbitrability, on the other hand, is concerned with the status of the parties to the arbitration. Ipso facto, it intends to answer the question “who can and cannot bring an action before an arbitral panel?” This issue stems from the fact that the sole threshold upon which arbitration stands is founded on the respective autonomy of both parties[11]. As such, there can only be arbitral proceedings when there is an arbitration agreement between both parties. This issue mostly arises where a dispute exists between two states or state-owned incorporation[12].
Express law prohibiting the arbitrability of a dispute seems closer to domestic arbitrations, in that parties are automatically subjected to the law of the jurisdiction in which the arbitration seat is situated. It is on the above that domestic tax disputes are non-arbitrable.
ARBITRABILITY OF INTERNATIONAL TAX DISPUTES.
In instances where the disputes arise in the area of double taxation between countries with double taxation treaties, a major problem before now that had to be settled was the problem of lex fori since both governments are ultimately sovereign. The above stresses the suitability of arbitration in resolving international tax disputes because of its inherent advantage of neutrality. In recognising this fact, the Organisation for Economic Cooperation and Development in 2015 issued 15 Action Plans on Base Erosion and Profit Shifting to tackle the incidence of double taxation; prevent tax evasion and double non-taxation; assignment of the primary taxing right to one country; and creation of reciprocal assistance in administering and enforcing tax laws between countries[13]. Particularly, Action 14 deals with making dispute resolution mechanisms more effective[14] in this regard. In a bid to achieve this, it provides for the inclusion of a mandatory arbitration clause in resolving disputes from double taxation treaties in addition to the Mutual Agreement Procedures (MAP) provided for in the double taxation treaties.
Currently, Nigeria has ratified Double Taxation Treaties with thirteen countries[15]; 5 countries, namely; Belgium, Canada, France, the Netherlands and the United Kingdom from these thirteen countries have ratified Action 14. Presently, China, the Czech Republic, Pakistan, Romania and South Africa are silent on whether they would adopt arbitration. Slovakia has expressly rejected Action 14, and the Philippines, to date, is yet to submit its position as of 2020. However, by virtue Czech Republic, Romania and Slovakia being European Union state members, they have ratified arbitration as the compulsory dispute resolution mechanism for tax disputes which by extension covers double taxation disputes[16].
ARBITRABILITY OF TAX DISPUTES IN NIGERIA: A STEP IN THE RIGHT DIRECTION OR A BRIDGE TOO FAR?
From the above, we have evaluated the stance of the Nigerian legal system as it relates to the question of arbitrability of both international and domestic tax disputes in Nigeria. In this section, we intend to deduce possible arguments which can be adduced for and against the push for arbitrability.
The first argument, which can possibly be deduced in favour of the non-arbitrability of domestic tax disputes, lies in the fact that the government has already established a Tax Appeal Tribunal[17], which is to hear tax appeals and make decisions. While this is a step in the right direction, there are still certain challenges hampering the desired end. The most conspicuous challenge is the issue of the traditional court system being slow in dispensing justice. This is because domestic tax disputes must still go through the slow and sometimes painful process of litigation in Nigeria before an Appeal can be brought before the tribunal. Further, there is also the paucity of these tribunals, and there are only eight tribunals to preside over tax matters for the entire federation. This indeed stresses the point that disputes are not carried out expeditiously.
Secondly, some experts believe that since taxes are imposed and collected by the government, it is a public issue and so must be left within the scope of public law and public institutions. This is true only to the extent of public law but arguable to the extent of the latter. The reason for this assertion lies in the fact that since tax is a very delicate subject, it requires a lot of expertise when dealt with. However, this requirement of expertise is something that the government has continued to ignore. The only time where the requirement of expertise seems to be met is in the appointment of the Chairman for the Tax Appeal Tribunal, who is required to be a legal practitioner who has been so qualified to practice for a period of not less than 15 years with cognate experience in tax legislation and tax matters[18]. From this provision, it appears that the requirement to be met purely relates to litigation while soliciting is left out. In the United Kingdom, where there is also a Tribunal for tax matters, the Chairman is expected to be experienced both in litigation and soliciting- this ensures that he is a well-rounded expert. Under Arbitration, Arbitrators are usually experts in that field and do not necessarily need to be lawyers. This ensures that a fairer and more equitable decision is reached at all material times as opposed to when non-experts (judges inclusive) preside.
Thirdly, it is generally believed that the government being a public institution, must not submit itself to an arbitral panel to resolve tax disputes between it and the government of another state, hence the non-arbitrability of international tax disputes. However, it is an axiom that arbitration clause is quite common in most international commercial contracts. The Nigerian government is not left out in entering these types of contracts. In fact, an arbitral award was recently awarded against the government in the recently concluded P&ID V The Federal Government of Nigeria. Thus, submitting itself to the mandatory arbitration in resolving double taxation disputes will not be entirely alien to the government. This ensures the certainty of tax laws, which is one of the most important features of a tax system, and also it encourages foreign direct investment, as investors will be aware of how disputes will be resolved.
[1] Thomas M. Cooley, ‘The Law of Taxation’ in Clark A. Nichols (ed.) 4th ed. 1924.
[2] This essentially means that taxes cannot be collected or assessed without an operating Tax system. Hence, tax is an end; the means to this end being the operational and effective tax system. There are majorly three forms of tax system namely; Regressive tax system, Progressive tax system and Proportional tax system. A Regressive tax system is a form of tax system where tax payers are assessed lesser taxes as the value of taxable property increases; contrarily, a progressive tax system is one in which tax payers are accessed higher taxes as the value of taxable property increases. A proportional tax system on the other hand is a tax system which is characterized by proportional tax burden on all tax payers. Thus, all tax payers pay the same ratio of taxes regardless of their respective earnings.
[3]Craig West, ‘Introduction to Tax Policy’ in Pasquale Pistone, Jennifer Roeleveld, Johann Hattingh and João Félix Pinto Nogueira (eds.) Fundamentals of Taxation: An Introduction to Tax Policy, Tax Law and Tax Administration (IBFD 2019)
[4] James Hope, ‘Awards: Form, Content, Effect’ in J William Rowley QC, Emmanuel Gaillard and Gordon E Kaiser (eds.), The Guide to Challenging and Enforcing Arbitration Awards (LBRL 2019)
[5] Ibid.
[6] Article 35 of the United Nations Commission on International Trade Law (UNICTRAL) Model Law provides that: “An Arbitral award irrespective of the country in which it was made shall be recognized as binding and, upon application in writing to the competent court, shall be enforced subject to the provisions of this article and of Article 36”. See also Section 56 (3) of the Lagos State Arbitration Law State of 2009.
[7] Loukas A Mistelis and Stavros L Brekoulakis (eds.), ‘Arbitrability: International and Comparative
Perspectives’, International Arbitration Law Library, Volume 19 [Mistelis and Brekoulakis], pp. 3 and 4,
paras. 1 to 6.
[8] Alan Redfren and Martin Hunter, Law and Practice of International Arbitration (2nd edn. Sweet & Maxwell 1991) 138.
[9] Elie Kleiman and Claire Pauly, ‘Arbitrability and Public Policy Challenges’ in in J William Rowley QC, Emmanuel Gaillard and Gordon E Kaiser (eds.), The Guide to Challenging and Enforcing Arbitration Awards (LBRL 2019)
[10] Ibid.
[11]Lawrence Ochulor, The Dialectics of the Court of Appeal Pronouncements on Nonarbitrability of Tax Disputes in Nigeria: Drawing a Distinction Between Tax and Contractual Disputes in Nigeria < https://www.lca.org.ng/wp-content/uploads/2018/01/Arbitrability-of-Tax-Disputes-in-Nigeria-LCA-YAN-BLOG.pdf > (last accessed on the 30th of June 2021).
[12] Ibid at 37.
[13]Oladejo Adeyemi and Ikechi Chukwu, ‘A Review of the Nigerian Double Taxation Treaty Framework’ (Andersen, 2019) < https://ng.andersen.com/a-review-of-the-nigerian-double-taxation-treaty-framework/ > last accessed July 1, 2021
[14]OECD (2013), Action Plan on Base Erosion and Profit Shifting, OECD Publishing. < http://dx.doi.org/10.1787/9789264202719-en > last accessed July 1, 2021
[15] Akintola Williams, ‘Improved Double Tax Arrangements in Nigeria: Any reason for delay?’ (Deloitte) < https://www2.deloitte.com/ng/en/pages/tax/articles/inside-tax-articles/improved-double-tax-arrangements-in-nigeria.html > last accessed July 1, 2021.
[16] Ibid.
[17] This tribunal was established in 2009 pursuant to Section 59(1) of the Federal Inland Revenue Service (Establishment) Act 2007. The Tax Appeal Tribunal (TAT) replaces the former Body of Appeal Commissioners (BAC) and Value Added Tax Tribunals. < https://tat.gov.ng/executive-brief/ > (last accessed July 3, 2021).
[18] See Section 2(2) of the Fifth Schedule to the Federal Inland Revenue Service (Establishment) Act 2007.
