Addendum – ‘Withholding Tax: The A-Z of Grossing-Up’


In my 2010 ‘Taxspectives’ article, ‘Withholding Tax: The A-Z of Grossing Up’,[1] (the Article), I argued that gross-up clauses in commercial transactions were, subject to proper structuring, perfectly legal and could continue to be used, in the absence of any mandatory prohibition in Nigerian tax law. The controversial bent of the Article was exemplified by respective robust rejoinders (the Rejoinders) from two erudite learned friends: Drs. Obayemi and Oyetunde;[2]forcefully contending that my position was wrong. Incidentally, and with the greatest respect, I remain unshaken in my views, even after considering their very persuasive contrary arguments, which – I must concede – clearly enriched discourse on the issue.

The Article, the Rejoinders and other relevant commentary[3] provide background to the current effort of this writer: to answer the question whether and to what extent has subsequent developments, particularly tax amendments vide the two Finance Acts 2020 (FA1 and 2 2020 or FAs 2020) changed the position on gross-up? Asked in another manner, the pertinent questions are: given the amendments, can parties still gross-up or otherwise? What new issues should taxpayers be mindful of regarding grossing up in the new dispensation? We will attempt to answer these questions without repeating discussions in the Article and Rejoinders.

Tax Gross-Up in Nigeria: Has FA1 and FA2 2020 Moved the Goalpost?

Despite its topical nature, there does not appear – to the best of this writer’s knowledge – to have been any changes – statutory or case law – to the Nigerian gross-up framework since the publication of the Article, until the enactment of FA1 2020 in January 2020.[4] Also, from caselaw viewpoint, the locus classicus and 2003 Court of Appeal decision, Total v Akinpelu,[5] is still the binding judicial authority on gross-ups, as it has not yet been reversed.

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Section 11 FA1 2020 amended section 27(1) Companies Income Tax Act[6] (CITA) by inserting a new 27(1)(1)(l), viz: “any tax or penalty borne by a company on behalf of another person”, expressly disallowing same.[7] It is noteworthy that unlike some other amendments introduced by FA1 2020, FA2 2020 did not amend this provision in any shape or form.[8]

FA1 2020 now only further discouraged gross-ups, because previously as I stated in the Article, “at best, the ‘penalty’ against grossing-up in Regulation 2 is that the Revenue may add back the WHT amount to the taxable profits of the payer; but this regulatory response (of disallowed WHT ‘expense’), does not make grossing-up illegal.”[9] It is now clear how gross-ups will henceforth be treated; they will be added back or disallowed for purposes of computing taxable profits with the clear intent that such will be a disincentive to grossing up. At the risk of repeating earlier arguments in the Article, gross-ups have not been made illegal, consequently taxpayers may still go ahead and contract accordingly, once they are willing to bear the financial consequences.[10]

It is hornbook law (almost requiring no authority), that tax is statutory. It therefore bears repetition that if the legislature had intended to proscribe gross-up, they would have done so expressly, whilst enacting the gross-up impacting provisions of FA1 2020. Even more telling is the fact that FA2 2020 (which even further amended some of the erstwhile new provisions introduced by FA1 2020),[11] did not deem it fit to so do, regarding gross-ups.[12] This suggests that the legislature still believes that the practice should be a matter of party autonomy, regardless of arguments that the legislator’s presumed preference is against grossing-up. Nonetheless, what is clear is that on the current state of the law, there is no express prohibition against gross-ups.

However, it is conceded that the FA1 2020 provisions will effectively strengthen the argument of a payer that wants to resist gross-up; this could likely tilt the scale where the two counterparties are evenly matched on the negotiating scale. In that regard, FA1 2020 has at least moved the needle, albeit very slightly.


In the meantime payees can continue to argue that “we will cross the bridge when we get there”, that is if and when the legislator eventually decides to bite the bullet by proscribing gross-up. Even in that eventuality, payees can still achieve gross-up effects without grossing up; it is by communicating a higher pricing (subject to competitiveness), for goods/services, such that after deduction from the price, the payee is still in a good place.[13] Since there is no reference whatsoever to grossing-up (even if it happens ‘at the backend’ (not ‘visible’ to counterparty and the Revenue, per footnote 13 illustration herein), there is nothing to argue about. Ultimately, it will all boil down to applying creativity to validly achieve desired commercial results, without exposure to undue regulatory scrutiny or challenge.

LeLaw Disclaimer: Thank you for reading this article. Although we hope you find it informative, please note that same is not legal advice and must not be cons trued as such. However, if you have any enquiries, please contact the author at: or email:

Afolabi Elebiju

Afolabi Elebiju is Founding Principal at LeLaw Barristers & Solicitors. A multidisciplinary commercial lawyer of almost 3 decades, he holds two LLMs from University of Lagos and Harvard Law School. He is an ardent contributor to Nigerian legal business regulatory discourse. More »

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