The general deductibility provisions of section 10 Petroleum Profits Tax Act2 (PPTA), Nigeria's primary legislation on the taxation of oil Exploration and Production (E&P) companies, prescribes that deductible expenses must be “wholly, exclusively and necessarily incurred” in respect of “petroleum operations” for the relevant period.
Accordingly, by section 10(1)(f) & (g) PPTA, interest expense is deductible, provided the terms of the underlying loans are competitive, referencing the LIBOR.3 However, section 13 PPTA seeks to provide an exception to the general rule by precluding interest on affiliate loans (notwithstanding their competitiveness), from deductibility.
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