July 11, 2019 / 04:00PM / Deloitte / Header Image Credit: NutraIngredients-USA
The Court of Appeal (CoA), on 24 June 2019, upheld
the decision of the Federal High Court (FHC), in the case between Vodacom
Business Nigeria Limited (‘Vodacom’ or ‘Appellant’) and Federal Inland Revenue
Service (‘FIRS’ or ‘Respondent’). The key issue for determination was whether
value-added tax (VAT) should apply on services rendered outside the shores of
Nigeria by a non-resident company (NRC) to a Nigerian company.
The CoA, after
considering the arguments of both parties, held that the supply of satellite
bandwidth capacities to Vodacom by New Skies Satellites (NSS), a
Netherlands-based company, is liable to VAT, irrespective of whether the NRC
included VAT on its invoice or whether it was physically present in Nigeria to
render the services.
was required to account for the VAT on the transaction and remit same to FIRS.
The following issues
were considered and resolved by CoA:
- Whether the FHC is right in holding that the
transaction is VATable
- The CoA held
that since transmission goes to and fro the satellite by signals using the
Appellant’s transponders which are located in Nigeria, it is reasonable to
conclude that service has been rendered in Nigeria even though NSS was not
physically present in Nigeria. Consequently, NSS was considered to have carried
on business in Nigeria within the meaning of Section 10 of the VAT Act (VATA).
- Therefore, the
service rendered by NSS was subject to Nigerian VAT as it is not specifically
exempt from VAT in VATA.
- Whether the FHC is right when it held that the
Appellant is liable to pay VAT even though conditions precedent were not
- The CoA resolved
that FIRS is empowered to recover outstanding VAT on the transaction from
Vodacom. The responsibility of Vodacom to remit VAT on the transaction remained
sacrosanct, irrespective of whether or not, NSS registered for VAT in Nigeria,
or included VAT on its invoice.
- Whether the FHC is correct in applying the
principles of ‘reverse charge’ and ‘destination principle’, without any legal
basis for them in Nigeria’s tax laws
- According to the CoA,
FHC may have been wrong in alluding to “reverse charge” in deciding the case as
this principle is not specifically mentioned in VATA. However, the requirement
for recipients of services or goods supplied by NRCs to remit VAT on such
transactions to FIRS is similar to the principle of “reverse charge”.
- Further, the CoA held that while the
‘destination principle’ may not be applicable as noted by the FHC, it does not
impact the FHC’s decision that the transaction is VATable and Vodacom is
obliged to self-account for the applicable VAT and remit same to FIRS.
- While this ruling reinforces the FHC’s
decision that VAT will apply on any services rendered by a NRC to a person in
Nigeria irrespective of whether the NRC is present in Nigeria or not, the
application of this ruling, in practice, may have far-reaching effect on the
cost of doing business in Nigeria.
- However, in the meantime, Nigerian
companies are required to self-account for VAT on services rendered by NRCs,
and remit same to FIRS, pending an appeal and possible overturn of the
judgement by the Supreme Court.