On 5 May 2025, the Federal High Court, Lagos Division, affirmed the Tax Appeal Tribunal’s decision setting aside administrative penalties imposed by the Federal Inland Revenue Service (FIRS) on Checkpoint Software Technologies B.V Nigeria Ltd. The Court held that the FIRS lacked the legal authority to issue the Country-by-Country Reporting (CbCR) Regulations 2018 in the absence of a duly constituted Board, as required under the FIRS Establishment Act. It further ruled that the Regulations were unconstitutional, having been made pursuant to the OECD Multilateral Competent Authority Agreement, which has not been domesticated by the National Assembly in accordance with Section 12 of the 1999 Constitution (as amended).
The CbCR Regulations were issued on 1st January 2018 by the FIRS with the primary objective of having MNEs provide Tax Authorities with information on global activities, profits, and taxes. Therefore, this decision nullifying the Regulations presents far-reaching implications for foreign and local companies engaged in cross-border activities, particularly those with multinational structures. Outlined below are the key considerations to the decision.
Legal Basis for the Decision
Lack of a valid FIRS Board
At the time of the CbCR Regulations were issued, the FIRS Board was not properly constituted. The Court held that this invalidated the regulatory authority of the FIRS to enact such guidelines, rendering them ultra votes and of no legal effect.
Excessive Penalties
The penalties prescribed under the CbCR Regulations were found to be disproportionate and inconsistent with the enabling tax legislation, specifically the FIRS Establishment Act. These penalties were therefore declared null and void.
Breach of the 1999 Constitution
The CbCR Regulations were anchored on the OECD’s Multilateral Competent Authority Agreement (MCAA), which had not been domesticated by Nigeria’s National Assembly. As a result, the FHC ruled that the Regulation violated Section 12 of the 1999 Constitution and was therefore unconstitutional.
Implications of the Decision for Taxpayers
Immediate Relief from CbCR Penalties
Organizations previously fined under the CbCR Regulations may now have a basis to challenge those penalties or seek refunds or reversals.
Potential Appeal
It remains to be seen whether the FIRS will appeal the FHC decision. In the interim, however, the CbCR Regulations and associated penalties remain invalid and unenforceable.
Conclusion
The Federal High Court’s decision and rationale underscore the importance of constitutional compliance in regulatory activities such as issuing regulations. For MNEs operating in Nigeria, the decision provides relief from CbC reporting but does not eliminate the need for compliance readiness. Now more than ever, such companies must seek expert legal guidance to manage risk and plan for future regulatory shifts.
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