There are two matters for consideration in determining if this is the case, one of law and one of fact. In any case, the ambiguity in the provision will be resolved in favour of the taxpayer. Examples of such services include administrative services at a corporate level, procurement, research and development, treasury management, manpower supply, mobility services etc. The details of the conditions are specified below: The CITA goes further to give examples of expenses that would typically pass the WREN test such as interest on loan, staff costs, repairs, rent, etc., as well as those that would not e.g. The words are indeed stringent and exacting; compliance with each and every one of them is obligatory if the benefit of the Rule is to be claimed successfully.’, To subscribe to this content, simply call 0800 231 5199. Removing any expense from this general rule would require a specific provision and clearly, section 27(i) does not satisfy this. Disallowable expenses in Nigeria include depreciation, penalties, and fines. The courts have given this phrase a very restrictive and narrow interpretation. Tax deductibility of expenses incurred outside Nigeria: Are days of arbitrary awards over? The law says that in order for an employee to be able to treat a work expenses as an allowable deduction for tax, two conditions must be fulfilled – the employee is obliged to incur and pay it as holder of the employment, and the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment. The maximum number of documents that can be ed at once is 1000. Deductions allowed for tax purposes are expenses wholly, exclusively, necessarily and reasonably incurred for the purpose of upstream petroleum operations. I guess that something has to be wholly for business and necessary for business, and then the client has to be made aware that it should only (exclusively) be used for business (unless they want a proportion of the expense added back). While allowing the respondent company's claim, the learned Tribunal relied on a decision of the Calcutta High Court, in Assam Brooke Ltd. wherein a sum of Rs. By and large, HMRC will accept claims that have been expended wholly and exclusively for the purposes of running a business or fulfilling your employment obligations. Like any business expense, to be an allowable deduction against profits, pension contributions have to be made wholly and exclusively for the purposes of the business. The ‘wholly and exclusively’ test. While the two are only days apart in age they seem to … Over the years, there have been conflicting views on the interpretation of the above provision. It has therefore been common practice for business organisations in Nigeria to seek some of the resources required for their local business operations outside the shores of the country. The expenses in question have been wholly, reasonably, exclusively and necessarily incurred by the appellant for the production of its profits in line with the provisions of Section 24 of CITA. * {{quote-news, year=2012, date=November 20, author=Nina Bernstein, title=Storm Bared a Lack of Options for the Homeless in New York, work=New York Times citation, passage=This week, officials closed all evacuation centers but two on Staten Island. Allowable deductions are expenses incurred wholly, exclusively, necessarily, and reasonably in the production of taxable income Employment expenses NHF contributions, National Health Insurance Scheme contributions, life assurance premiums, national … Did You Know? Consequently, Nigerian companies are increasingly involved in business activities abroad in order to remain competitive in today’s business environment. depreciation, capital expenditure, etc. Expectedly, Federal Inland Revenue Service (FIRS) has consistently adopted the first mentioned interpretation in their increasing attempt to apply the provision of Section 27(i) to offshore costs incurred by Nigerian companies. Thus the provisions of the section will only apply if the taxpayer incurs the expenses for and on behalf of another company. 5,00,000/- was paid by the assessee to a club; Nigerian companies are therefore advised to take note of the principles established in this case and ensure relevant supporting documentary evidence is in place to satisfy the WREN test for tax deductibility of expenses incurred by them in generating business profits. On this arbitrary application, one key question comes to mind – “was Section 27 intended to give FIRS the right to arbitrary deductibility of expenses even if such expenses have been legitimately incurred?”. The new chef was solely responsible for attending the grill. Your email address will not be published. HMRC argues that while it may be a necessary part of your job, there are non-trade gains from staying healthy and fit. Having met the statutory threshold for tax deductibility, therefore, demurrage charges are deductible in the computation of the Appellant’s assessable profits. One needs to be quite clear on whether a deduction has both a business and private element, and how that element is divided. So your request will be limited to the first 1000 documents. Exclusive definition is - excluding or having power to exclude. Necessarily definition, by or of necessity; as a matter of compulsion or requirement: You don't necessarily have to attend. Therefore, the said expenditures were held by the Tribunal to be wholly and exclusively incurred in connection with business. The “wholly, exclusively and necessarily in the performance of the dutiesfoundof thethatemployment test” is strictly applied. TAT ruled in favour of the appellant, stating that the handling charges and buying commission incurred by the company outside Nigeria, and payable to an affiliate entity are tax-deductible. Deductions allowed now In principle at least, all cases failing the “wholly and exclusively” test should be referred by the local tax inspector for investigation. As a result, this case turned on whether the accommodation and travel expenses were wholly and exclusively incurred by Taylor for the purposes of his trade. While a school of thought believes that the section seeks to preclude the deductibility of expenses incurred outside Nigeria for tax purpose (except the Board thinks otherwise), another school has argued that the section only seeks to prohibit the deduction of expenses incurred outside Nigeria by a company on behalf another company. It is not the test for a property business. What is mind bugging though, is the provision of Section 27(i) of CITA, which provides that “…no deduction shall be allowed for the purpose of ascertaining the profits of any company in respect of any expense of any description incurred outside Nigeria for and on behalf of any company except of a nature and to the extent as the Board may consider allowable”. Wholly and exclusively ― the basic principles The ‘wholly and exclusively’ test can only be satisfied if the sole reason for incurring the expenditure is for the purposes of the trade in question. My accountant always told me that for an expense to qualify, it must be incurred ‘wholly, necessarily and exclusively’ in the course of doing business. That caveat aside, advisers can only welcome the Revenue's intentions to give clarity in what is meant by the phrase “wholly and exclusively”, and the updated guidance goes some way in doing that, by giving practical examples of how the legislation - and the principles underpinning it - … Section 27(i) refers to expenses incurred for and on behalf of any company by the taxable company. See more. Basically, this means that the contribution should be at … Practical Payroll and Benefits – Bradford, 11-105 Wholly, exclusively and necessarily. 454-050 Wholly, exclusively and necessarily – overview 454-050 Wholly, exclusively and necessarily – overview For expenses to be deductible under ITEPA 2003, s. 336, they must be incurred wholly, exclusively and necessarily in the performance of the duties of the employment. PROCUREMENT: ensured that vendors were pre-qualified and maintained. Your email address will not be published. Nigeria is yet to attain the status of an industrialised nation or developed economy where most business resources, technical expertise and advanced technological infrastructure are available locally. (i) the liability for which was incurred during that period wholly, exclusively, necessarily and reasonably for the purposes of such trade or business and which is … When you think about it, the wholly, exclusively and necessary rule is … (ii) Penalties and fines that are avoidable; not dictated by business end or incidental to business cannot be held to be wholly, reasonably, exclusively and necessarily incurred in the making of profits and therefore tax deductible. Of course, in the best traditions of the taxman’s rules, HMRC refuses to provide an absolute definition of what ‘reasonable care’ might be. A case in point is that of Nigerian Breweries Plc (NB) vs FIRS, which was presented before the Tax Appeal Tribunal (TAT), where the revenue authority insisted that the buying commission and handling charges incurred outside Nigeria by the appellant (NB) and payable to an affiliate entity, are not deductible despite the fact that they passed the WREN test as indicated in Section 24 of CITA. ... -traders, particularly in the entertainment industry need to stay in shape for work. To be deductible from the earnings of an employment an expense must be incurred wholly and exclusively in the performance of the duties of the employment. In essence, the expense must be wholly, reasonably, exclusively and necessarily incurred during that period for the purpose of generating the profits of the business. This helps to enhance economies of scale, operational flexibility and competitiveness. The appellant argued that Section 24 is the relevant section to determine the deductibility of the expenses in question while section 27(i) only speaks to expenses incurred outside Nigeria on behalf of another company. Necessarily does not come in to it. The details of the conditions are specified below: Wholly – the entire expense amount must be incurred in … (i) the liability for which was incurred during that period wholly, exclusively, necessarily and reasonably for the purposes of such trade or business and which is not specifically referable to any other period or periods, or FUND MANAGEMENT: I ensured that programs funds are judiciously utilized following cost principles of wholly for the purpose of achieving program objectives, reasonably, exclusively and necessarily (WREN)are strictly adhered. See more. Allowable expenses include expenses that are wholly, reasonably, exclusively, and … Wholly definition, entirely; totally; altogether; quite. The basis of TAT’s decision are provided below: The TAT ruling is a judicial breakthrough and a welcome relief to lots of companies who incur a substantial portion of their expenses outside Nigeria. This means that companies in Nigeria earn income and/or incur costs outside Nigeria. In practice, FIRS often disregard the WREN test when determining the tax deductibility of expenses incurred outside Nigeria. memberships and education. The draftsmen of the Companies Income Tax Act (CITA) seems to have pre-empted the current wave of globalisation and included a provision to subject income earned abroad by a Nigerian company to tax in Nigeria (Section 8). We can create a package that’s catered to your individual needs. Request a non-obligation demo to find out! For emphasis, the relevant portion of the judgment is reproduced below: Adverb (-) Alone; exclusively. incurred wholly, exclusively and necessarily in the carrying on of an office or employment As explained in Chapter 2.2, professional membership fees are only deductible under section 114 TCA 1997 where those fees are incurred wholly, exclusively and necessarily by an individual in the performance of the duties of his or her employment. It should lay to rest the view held by some that Section 27(i) precludes the tax deductibility of expenses incurred outside Nigeria except where the ruling of the TAT is set aside by a superior court upon appeal by FIRS. "‘wholly, exclusively and necessarily’" published on 01 Jan 2012 by Edward Elgar Publishing Limited. expenses incurred wholly, exclusively and necessarily in the performance of the role, in accordance with the University’s Expenses Policy and providing the expenditure was incurred within the previous 6 months. In essence, the expense must be wholly, reasonably, exclusively and necessarily incurred during that period for the purpose of generating the profits of the business. The increased pace of globalisation has not left Nigeria and Nigerian companies out. In Nigeria, the general test for tax deductibility of expenses by companies, other than those involved in petroleum exploration and production, is that any expense incurred in generating the profits of a company must satisfy all the four major conditions stated in the CITA, usually referred to as the WREN test. As one judge expressed it in the case of Lomax (HMIT) v Newton (1953) 34 TC 558: Required fields are marked *, Taxation of Insurance Business – Restating the case for legislative review, IFRS 15 New Revenue Model: Spotlight on Power. To make your more manageable, we have automatically split your selection into separate batches of up to 25 documents. Only those expenses relating to, and incurred by the external examiner, as described in this document, are eligible for reimbursement. Specifically, the dispute was whether expenses, such as demurrage, training and education expenses etc., incurred by the taxpayer are legitimate business expenses which were wholly, reasonably, exclusively and necessarily (WREN) incurred in generating the company’s profits, and therefore, should be allowed for tax purposes. The test is whether the expenditure has been incurred wholly and exclusively for the purpose of the business. Or book a demo to see this product in action. Besides the local availability of required resources, Multinational Enterprises (MNEs) adopt various strategies aimed at optimising costs and by tapping into the synergies that exist within. Rather, it simply makes reference to Section 27(i) and upholds its own interpretation that since such expenses were incurred outside Nigeria, they should be disallowed irrespective of whether they pass the WREN test or not. Facts of the case "10.302 Expenses wholly, exclusively and necessarily incurred" published on by Bloomsbury Professional. Wholly and exclusively The title of this posting describes an important concept when considering claims for expenditure to reduce our tax bills. One of the non-tax deductible expenses cited under CITA is the issue of expenses incurred outside Nigeria as provided in Section 27(i). As one judge expressed it in the case of Lomax (HMIT) v Newton (1953) 34 TC 558: ‘An expenditure may be ‘necessary’ for the holder of an office without being necessary to him in the performance of the duties of that office; it may be necessary in the performance of those duties without being exclusively referable to those duties; it may perhaps be both necessarily and exclusively, but still not wholly so referable. The ruling of the TAT provides further clarity on this subject. Based on the foregoing, it is imperative to analyse the tax consequence of expenses incurred by companies outside Nigeria, as this could influence their cost optimisation policies and efforts to remain competitive. It also contains provisions that seek to subject income earned in Nigeria by non-Nigerian companies to tax (sections 8 and 10). 11-105 Wholly, exclusively and necessarily 11-105 Wholly, exclusively and necessarily The courts have given this phrase a very restrictive and narrow interpretation. Dividing Costs – Mental Models for Business Expenses. British English: wholly ADVERB You use wholly to emphasize the extent or degree to which something is the case. Wholly and exclusively Broadly, under ITTOIA 2005 s 34, when calculating trading profits no deduction is allowed for expenses not incurred wholly and exclusively for the purposes of the trade. One of such strategies is to centralise some strategic functions to be performed on behalf of all the entities within their group at a particular location. The introduction of “reasonability” as one of the conditions will lead to more subjectivity in dealings with the tax authorities. According to the TAT, demurrage payments incurred by the Appellant were wholly, exclusively, necessarily and reasonably incurred for its business operations. In most cases, the cost incurred on these services is apportioned among the MNE’s affiliated entities across the globe. 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