A Nigerian Court of Appeal sitting at Abuja has upheld the setting aside of part of the $2.5 Billion arbitral award granted in favour of Shell Nigeria Exploration and Production Limited (Shell) and Esso Exploration and Production Limited (Esso) against the Nigerian National Petroleum Corporation (NNPC) in respect of the operation of Erha Deepwater Project oil field (the Project); particularly on issues relating the Petroleum Profit Tax charged by the NNPC. The arbitral award was granted on the allegations made by Shell and Esso that NNPC wrongfully assumed their responsibilities under the PSC governing the Project in determining what should be paid to the Nigerian government as petroleum profit tax (PPT), and in so doing, NNPC over-lifted petroleum products valued at $1,207,500,000 to pay its unilaterally assessed tax on their behalf (Shell and Esso).
However, the Federal Inland Revenue Service (FIRS) based on the arbitral award instituted an action challenging the aspect of the arbitral proceedings relating to tax issues on the grounds that the arbitration tribunal lacked the jurisdiction to hear the dispute relating to tax and that FIRS reserves the exclusive right to determine the PPT payable by the IOCs (what is the meaning of IOCs) under the FIRS Act. This position was upheld at the Federal High Court, the court of first instance and the same position has now been upheld by the Court of Appeal.
