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Nigeria: Court rules imported services VATable in Nigeria

NIGERIA: Court rules that imported services are taxable in Nigeria

The Court of Appeal in the Lagos Judicial Division, in its decision on 24 June 2019 in the case of Vodacom Business Nigeria Limited (Vodacom) v. Federal Inland Revenue Service (FIRS) (CA/l/556/2018), ruled that the destination principle and reverse charge are implied in the VAT Act.

In the case at hand, New Skies Satellites (NSS), a non-resident company based in the Netherlands, supplied bandwidth capacities to be used in Nigeria to Vodacom. The bandwidth capacities were transmitted by NSS to its satellite in orbit and received in Nigeria by Vodacom via its earth station. NSS did not charge value added tax (VAT) on its invoice to Vodacom for the service rendered and similarly, Vodacom did not remit VAT for the transaction to the FIRS.

The FIRS assessed Vodacom to VAT on this transaction and Vodacom objected to the assessment on the basis that it had no obligation to remit VAT as the receiver of the service. Vodacom appealed to the Tax Appeal Tribunal (TAT), which ruled in favour of the FIRS. When the Federal High Court also ruled in favour of FIRS, Vodacom appealed to the Court of Appeal.

The Court of Appeal considered (1) whether the transaction qualifies as a supply and consumption of services in Nigeria within the context of the provision of the VAT Act and is, therefore, liable to VAT; (2) whether the obligation of consumers of services in Nigeria to remit VAT from the service is separate, distinct and independent of the obligation of the non-resident supplier of the services to register for VAT and include VAT in its invoice; and (3) whether the lower court had done substantial justice by applying the destination principle and reverse charge  in upholding the judgment of the TAT, or whether the destination and reverse charge principles of tax laws the lower court alluded to in upholding the judgment of the TAT are provided for in the VAT Act.

The Court of Appeal held that, in so far as the bandwidth capacities are supplied in Nigeria, the foreign company is deemed to carry on business in Nigeria, as its services (the bandwidth capacities of the satellite in orbit) are being utilised in Nigeria and, accordingly, the transaction is liable for VAT in Nigeria.

In addition, since NSS did not issue a VAT invoice, the duty on Vodacom to remit the VAT on the transaction remained sacrosanct and the decision of the lower court affirming that the destination principle and reverse charge are implied in the VAT Act was upheld.

The Court of Appeal in the Lagos Judicial Division, in its decision on 24 June 2019 in the case of Vodacom Business Nigeria Limited (Vodacom) v. Federal Inland Revenue Service (FIRS) (CA/l/556/2018), ruled that the destination principle and reverse charge are implied in the VAT Act.

In the case at hand, New Skies Satellites (NSS), a non-resident company based in the Netherlands, supplied bandwidth capacities to be used in Nigeria to Vodacom. The bandwidth capacities were transmitted by NSS to its satellite in orbit and received in Nigeria by Vodacom via its earth station. NSS did not charge value added tax (VAT) on its invoice to Vodacom for the service rendered and similarly, Vodacom did not remit VAT for the transaction to the FIRS.

The FIRS assessed Vodacom to VAT on this transaction and Vodacom objected to the assessment on the basis that it had no obligation to remit VAT as the receiver of the service. Vodacom appealed to the Tax Appeal Tribunal (TAT), which ruled in favour of the FIRS. When the Federal High Court also ruled in favour of FIRS, Vodacom appealed to the Court of Appeal.

The Court of Appeal considered (1) whether the transaction qualifies as a supply and consumption of services in Nigeria within the context of the provision of the VAT Act and is, therefore, liable to VAT; (2) whether the obligation of consumers of services in Nigeria to remit VAT from the service is separate, distinct and independent of the obligation of the non-resident supplier of the services to register for VAT and include VAT in its invoice; and (3) whether the lower court had done substantial justice by applying the destination principle and reverse charge  in upholding the judgment of the TAT, or whether the destination and reverse charge principles of tax laws the lower court alluded to in upholding the judgment of the TAT are provided for in the VAT Act.

The Court of Appeal held that, in so far as the bandwidth capacities are supplied in Nigeria, the foreign company is deemed to carry on business in Nigeria, as its services (the bandwidth capacities of the satellite in orbit) are being utilised in Nigeria and, accordingly, the transaction is liable for VAT in Nigeria.

In addition, since NSS did not issue a VAT invoice, the duty on Vodacom to remit the VAT on the transaction remained sacrosanct and the decision of the lower court affirming that the destination principle and reverse charge are implied in the VAT Act was upheld.