Global Taxes

Resolving tax disputes via arbitration

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Sharon Juwah

Punuka, Lekki

Ibukunoluwa Adebara

Punuka, Lekki

The Court of Appeal seemed to have set the records straight in its popular 2016 judgment of Esso Petroleum v NNPC[2] on the non-arbitrability of tax related matters, its stance being that tax related matters are not subject to the decision of an arbitrator. A dilemma is however created by the fact that while arbitration as a means of alternative dispute resolution is being embraced for its effectiveness and timely resolution of disputes, the workings of the state seem to exclude an integral part of the economy from benefiting from the arbitration process.

Furthermore, recourse to the Tax Appeal Tribunal in Nigeria as a prelude to the Federal High Court despite the provisions of Section 251(1)(b) of the Constitution of the Federal Republic of Nigeria 1999 (as amended) casts further doubt on the position of the appellate court in the case of Esso Petroleum v NNPC.[3]

This article aims to unravel the rationale behind the non-arbitrability of tax disputes in Nigeria and offer suggestions which may facilitate the speedy resolution of tax-related disputes, considering what takes place in other jurisdictions.

The nature of tax transactions

Tax is a mandatory government levy imposed in accordance with reasonable yardsticks for apportionment on persons and property within the jurisdiction of the tax authority.[4] According to Egwaikhide, tax is a compulsory payment imposed by legislation,[5] which is used to withdraw resources from the private sector of the economy for the government to cover the cost of providing public goods and services, law and order, healthcare and education among others.[6]

Relationship between taxation and arbitration

Arbitration has often been described as an alternative form of dispute resolution where there is a deliberation as to the rights and liabilities of parties determined by a third party instead of having recourse to a court of law.[7] The recourse to arbitration is usually predicated on an agreement between the parties involved, via the inclusion of an arbitration clause in their contracts or the execution of a submission agreement.

The Supreme Court aptly captured the meaning of arbitration in the case of Nigerian National Petroleum Corporation v Lutin Investment Ltd & Anor,[8]when it defined arbitration as ‘the reference of a dispute or difference between not less than two parties for determination after hearing both sides in a judicial manner, by a person or persons other than a court of competent jurisdiction.’

Parties in arbitration determine the person or people to resolve their dispute, that is, parties have autonomy as to the decision maker who would be an experienced person in the area of dispute.

In the case of Kano State Urban Development Board V Fanz Construction Ltd,[9] the Supreme Court specifically stated categories of matters that could not be subject to resolution by arbitration. These included criminal matters, void agreements, divorce and similar disputes. It is worth noting that the decision of the court was silent on the arbitrability of tax disputes yet taxation was still not subject to resolution by arbitration, hinged on speculations that taxation was related to public policy.

The relationship between taxation and arbitration in Nigeria has often been considered a strained one. The suppositions seemed to have been sufficiently put to bed in the landmark cases of Esso Petroleum and Production Nigeria Ltd & SNEPCO v NNPC,[10]and Shell (Nig) Exploration and Production Ltd & Ors v Federal Inland Revenue Service.[11]The outcome of the deliberations of the Court of Appeal in both cases is that where matters relating to taxation are in dispute, such matters are not arbitrable.

Current legal framework of the resolution of tax disputes through arbitration

In Nigeria’s legal system, there seemed to be no particular statute or case law which spelt out disputes that were non-arbitrable until the case of Kano State Urban Development Board v Fanz Construction Limited,[12] where the Supreme Court recognised the following categories of matters as non-arbitrable:

  • indictment for an offence of a public nature;

  • dispute arising out of an illegal contract;

  • disputes arising under agreements void as being by way of gaming or wagering;

  • disputes leading to a change of status such as divorce petition; and

  • any agreement purporting to give an arbitrator the right to give judgment in rem.

Once again, the writers seek to point out that taxation was conspicuously missing from the list. However, the Court made an attempt to lay the guideline to be followed in determining what kind of matters are arbitrable.[13] The test to determine this is whether the dispute is a civil matter and can be compromised lawfully by way of accord and satisfaction.[14]

The Court of Appeal cleared all doubts relating to the arbitrability of tax disputes when it subsequently extended the scope of non-arbitrable matters by virtue of its decision in the case of Esso Petroleum and Production Nigeria Ltd & SNEPCO v NNPC.[15] The court reasoned that taxation was under the exclusive jurisdiction of the Federal High Court and therefore cannot be subject to resolution via alternative dispute resolution, specifically, arbitration. In this case, the Court held that any dispute raised on the basis of tax assessments could only be remedied with recourse to sections 41 and 42 of the Petroleum Profit Tax Act which does not permit arbitrating over tax disputes.

The position of the Court of Appeal in both cases was hinged on the following:

  • The Federal High Court has exclusive jurisdiction on civil matters relating to the revenue of the government and pertaining to the taxation of persons subject to federal tax.[16]

  • The laws guiding arbitration and conciliation are subject to other laws which prohibit certain matters from being submitted to arbitration.[17]

  • Arbitral awards are subject to the court’s discretion and may be set aside on the application of a party who shows the decision was based on a non-arbitrable matter beyond their scope.[18]

Case studies

Esso Petroleum and Production Nigeria Ltd & SNEPCO v NNPC[19]

Esso being contractors filed a claim to an arbitration panel against Nigerian National Petroleum Corporation (NNPC) (the Corporation) for acting contrary to the terms of the Petroleum Sharing Contract (PSC) between them. Their contention was that NNPC unilaterally lifted more cargoes of available crude oil amounting to US$1,584,500,000, as against the allocation for lifting which was prepared by the contractors. The corporation consequently filed unauthorised Petroleum Profit Tax (PPT) returns to the Federal Inland Revenue Service (FIRS) as opposed to what was forwarded to them by the contractors for filing, contrary to the terms of the PSC.

The contentions of the contractors before the panel were that the excess lifting was in breach of their agreement. Another contention was that the corporation could not unilaterally submit its own PPT returns, nor modify what was forwarded to them by the contractors.

The panel gave an award in favour of the contractors, but the corporation appealed to the Federal High Court to set aside the award of the panel on the basis of lack of jurisdiction. On 22 May 2012, the Federal High Court set aside the award on the grounds that the arbitrators had misconducted themselves and acted beyond their scope of power when they issued an award on a tax related matter. On further appeal, on 22 July 2016 the Court of Appeal agreed with the Federal High Court stating that tax related matters are not arbitrable, citing Section 251(1)(b) of the Constitution. This however excludes other elements of the transaction such as contractual claims. The Court of Appeal ordered a restoration of the panel’s award with respect to the preparation of PPT returns and lifting allocation. These grounds were deemed contractual claims that can be severed from tax claims.

Shell Nigeria Exploration and Production Ltd & 3 Ors v Federal Inland Revenue Service

The decision in Esso’s case was reinforced in this case where the FIRS intervened in the arbitral proceedings claiming that the panel lacked jurisdiction. The Court of Appeal held that the intervention of the FIRS was valid, as matters relating to the assessment, computation and payment of taxes are within the remit of the Federal High Court,[20] citing Section 251(1)(b) of the Constitution in support of this.

What is clear from both cases is the position of the Court of Appeal that when tax related matters are in contention, arbitral panels lack jurisdiction. While contractual claims emanating from the transaction between both parties may be severed and decided over by the panel, any claim relating to tax would fall outside the scope of powers of such an arbitral tribunal. Under section 42, the Petroleum Profits Tax Act (PPTA) makes specific reference to the Federal High Court for appeals against an assessment. Section 42(8) goes on to state that ‘the judge may confirm, reduce, increase or annul the assessment or make an order as he may deem fit.’ A thorough reading of all the statutory provisions cited, coupled with the twin pronouncements of the Court of Appeal referred to will form the legal bedrock of the non-arbitrability of taxation disputes in Nigeria.

Best practices and international framework

The Tax Procedures Act in Kenya provides that an individual taxpayer wishing to contest their tax assessment may apply to the Tax Commissioner. If dissatisfied with the decision, the individual may appeal to the Tax Appeals Tribunal and subsequently to the High Court of Kenya before the Court of Appeal. The unique feature here is that the taxpayer and Commissioner enjoy the authority to opt for resolution through mediation.[21] In furtherance of this process, the revenue authority set out an alternative dispute resolution (ADR) framework. The Kenyan government,[22] through the revenue authority has been able to recover over KES6.5bn (approx. US$60m) in respect of over 140 disputes resolved.

According to the United States Agency for International Development’s (USAID) 2013 Report on Leadership in Public Financial Management,[23] 95 per cent of tax disputes in Canada are resolved through ADR,[24] 85 per cent in Australia, and 75 per cent in Brazil. In South Africa, an estimate of 66 per cent and in Kenya, 36 per cent. These countries have considered the vast benefits[25] associated with ADR compared to their court systems, including reduced costs, prompt resolution and the maintaining of confidentiality.[26]

Kenya’s ADR Framework[27] is, however silent on the mode of alternative dispute resolution to be used but it can be gleaned from the guidelines that the framework is leaning towards mediation. This is because the facilitators, who are there to guide parties, are to remain neutral throughout the process but notably, the facilitator cannot impose any decision regarding the dispute’s outcome.[28] The disputes brought before a panel border on tax assessment but exclude matters that require the technical interpretation of law or statute. The timeline for this procedure is up to 90 days.[29]

At an international level, tax disputes which occur between two or more states are governed by the tax treaties that established the relationship between the states. With respect to these disputes, arbitration is encouraged as a means of settlement.[30] The Organisation for Economic Cooperation and Development (OECD) has repeatedly called for the use of arbitration in resolving tax disputes and has gone further to provide a template for arbitration clauses that may be incorporated into tax treaties in its OECD Model Tax Treaty.

Arguments in support of this position by OECD are premised on the principles of public international law,[31] that courts of one country would not waive their sovereignty by adjudicating nor enforcing matters regarding the revenue laws of another state.[32] This means that when it comes to the substantive tax law of a state as against another state in question, arbitrability in that regard fails.[33] However, tax disputes only become arbitrable when a tax treaty that gives rise to such tax transactions.[34]

The writers note that matters such as aviation,[35] maritime[36] and banking,[37] disputes which are also under the exclusive jurisdiction of the Federal High Court such as tax disputes are permitted to be resolved through arbitration. Such contracts usually contain an arbitration clause which has quickly become an industry practice. Interestingly, there is the Maritime Arbitration Association of Nigeria which promotes the arbitration of maritime disputes instead of clogging the Federal High Court.

Taxation differs from aviation, maritime and banking because the PPT Act is clear as to who is to adjudicate or resolve tax disputes through specific mention of the judges and recourse to the Federal High Court for such disputes. Ordinarily, a strict interpretation of Section 251(1)(b) of the Constitution of the Federal Republic of Nigeria 1999 (as amended) should work to oust the Tax Appeal Tribunal (TAT)’s authority as well. However, since the TAT is backed by Federal Inland Revenue Service (Establishment) Act 2007,[38] the body may incorporate the elements of arbitration or mediation into its modus operandi. This can be achieved by collaboration with the Multi-Door Courthouse of various states of the Federation. A resolution guideline can be drafted to guide the procedure of arbitration or mediation by the TAT on tax-related disputes. The burden of appointment and funding of facilitators or arbitrators should fall on both parties.[39]


One thing that is clear from our submissions in the course of this article, is that while the present case law in Nigeria provides that tax matters are non-arbitrable, other jurisdictions hold a different opinion and in fact rely heavily on arbitration whenever a tax-related dispute arises. This goes to point out that arbitrability of tax matters is not an impossibility.

The courts are bombarded with numerous cases that are subject to years of deliberation and delays before they are resolved and some, more often than not subsequently go on to appeal. Justice delayed is inevitably justice denied, and this is a setback that the adoption of arbitration seeks to resolve. It is essential that Nigeria strives to abide by international best practices. This can be achieved by a review of the current workings of the legal system especially as it relates to the resolution of tax disputes. Tax disputes are becoming prevalent in Nigeria with the aggressive manner in which the tax authorities, both state and federal, are going after corporate bodies and individuals for non-payment or inadequate payment of tax. The writers suggest that a viable step in this direction is the unimpeded arbitrability of tax-related disputes.


[1]Unreported Appeal No CA/A/507/2012 delivered 22 July 2016.

[2]Unreported Appeal No CA/A/507/2012 delivered 22 July 2016.


[4]Ade Ipaye, Nigerian Tax Law and Administration: A Critical Review, (1st edn, Prime, London, 2014), p 2.

[5]C Whitehouse, Revenue Law Principles and Practice, (17th edn, Butterworths, London, 1999), pp 5-6.

[6]Festus O Egwaikhide, ‘Taxation and State Building in a Democratic System’ [2010] Nigerian Taxation 11 (1).

[7]Halsbury’s Laws of England, (4th edn, vol 2, Reissue, 1991) p 32.

[8](2006) 2 NWLR (Pt 965) 506 at 542, para H.

[9](1990) 4 NWLR (Pt 142) 1 at 33 paras A–B.

[10]Unreported Appeal No CA/A/507/2012, delivered on 22nd July 2016.

[11]Unreported Appeal No CA/A/208/2012, delivered on 31st August 2016.

[12](1990) 4 NWLR (Pt 142) 1 at 33 paras A–B.

[13]Ade Ipaye, Nigerian Tax Law and Administration: A Critical Review, (1st edn, Prime, London, 2014), p 2.

[14](2006) 2 NWLR (Pt 965) 506 at 542, para H.

[15]Lawrence Ochulor, The Dialectics of the Court of Appeal Pronouncements on Non-Arbitrability of Tax Disputes in Nigeria: Drawing a Distinction between Tax and Contractual Disputes in Nigeria, available at:, last accessed 1 May 2020.

[16]Section 251(1)(a)–(b) of the Constitution of the Federal Republic of Nigeria 1999 (as amended).

[17]Section 35 of the Arbitration and Conciliation Act.

[18]29(2) Arbitration and conciliation act. this is further emphasised by Sections 48(b)(ii) and 52(2)(b)(ii)

[19]Appeal No CA/A/507/2012.

[20]In accordance with the Petroleum Profits Tax Act.

[21]Miller Advocates, ‘An Overview of Alternative Tax Dispute Resolution Framework’, available at:, last accessed 1 May 2020.

[22]The Tax Procedures Act, No 29 of 2015 (TPA), provides for an elaborate Internal Dispute Resolution Mechanism (IDRM).

[23]Chris Jaglowitz, Mediation in Federal Income Tax Disputes, (1999), available at:, last accessed 23 April 2020.

[24]Karen Dawn Stilwell, Mediation of Canadian Tax Disputes, Master of Laws thesis, Faculty of Law, University of Toronto, 2014, available at:, last accessed 21 April 2020.

[25]United States Agency for International Development (USAID), 2013 report on Leadership in Public Financial Management.

[26]Kenyan Revenue Authority, ‘Disputes Appropriate for Arbitration’, available at:, last accessed 20 April 2020.

[27]Kenyan Revenue Authority, ‘The Alternative Dispute Resolution (ADR) Framework’, 17 June 2015, revised 27 June 2019, available at:, last accessed 1 May 2020.


[29]Section 55, Tax Procedure Act (TPA).

[30]Thomas W Welde and George Ndi, ‘Stabilizing International Investment Commitments: International Law Versus Contract Interpretation’, [1996] 1 Tex Int’l LJ 215, p 427.

[31]Furthermore, in most jurisdictions, when disputes touch on the sovereignty or the authority of a sovereign, such disputes are mostly not arbitrable.

[32]CMV Clarkson and Jonathan Hill, The Conflict of Laws (4th edn, Oxford University Press, New York, 2011), p 49.

[33]Lauren Waveney Brazier, The Arbitrability of Investor-State Taxation Disputes in International Commercial Arbitration, 2013, LLB (Honours) Degree thesis, Victoria University of Wellington, available at:, accessed on 1 May 2020, p 34.See Computer Sciences Corp v Iran (Award) (1986) 10 Iran-US CT Rep 269 at 257, where the Tribunal drew the distinction between contractual claims which are arbitrable and non-contractual claims which are not arbitrable. The Tribunal went on to state that it had no jurisdiction over claims relating to the application of tax laws of Iran.

[34]In Occidental Exploration and Petroleum Company v Ecuador (Award) (2004) 12 ICSID Rep 59, based on refunds of VAT, the Tribunal found that the transaction between the parties was based on the Ecuador-US Bilateral Investment Treaty which gave the tribunal jurisdiction in the event of a dispute. Although tax-related, the matter was held to be arbitrable.

[35]Babalakin & Co, ‘Aviation in Nigeria’, Lexology, 31 May 2019, available at:, last accessed on 29 April 2020.

[36]Adedoyin Rhodes-Vivour, ‘Arbitration in the Resolution of Maritime Disputes’, paper delivered at the 11th Maritime Seminar for Judges, Sheraton Hotels and Towers, Abuja, Nigeria, 1–3 June 2010.

[37]Oluwole Akinyeye and Olisa Agbakoba, ‘Nigeria: Arbitration of Banking and Finance Disputes in Nigeria’, Mondaq, 28 November 2018, available at:, last accessed on 19 April 2020.

[38]Section 59(1) Federal Inland Revenue Service (Establishment) Act 2007.

[39]Each party chooses an arbitrator or facilitator and the selected persons elect a third person, forming a three-person panel. Sessions should be funded on a 50:50 ratio between the parties.

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