“FIRS VAT claim on NRC services may impact cost of doing business in Nigeria”
Experts have reacted to the ruling of the Court of Appeal that affirmed the suitability of value-added tax (VAT) charged on services rendered by the non-resident companies to companies operating in Nigeria, reckoned that the application of the judgment, in practice, may have a far-reaching effect on the cost of doing business in Nigeria.
Recently, the Court of Appeal, CoA, in a case between Vodacom Business Nigeria Limited, VBNL, against Federal Inland Revenues Services (FIRS) acknowledged that VAT is due from services rendered by a non-resident company, NRC, that supplies goods or services to companies operating in Nigeria.
The Appeal Court upheld the decision of the Federal High Court (FHC), in the said case. However, Deloitte Nigeria in reacting to the judgement remarked that this may far-reaching effect on the cost of doing business in Nigeria.
It would be recalled that the Tax Appeal Tribunal (TAT) had, on 12 February 2016, in an appeal by VBNL on the assessment made by the FIRS for the payment of VAT on services received from New Skies Satellites (NSS).
The Tribunal held that the transaction between VBNL and NSS for the provision of bandwidth services was subject to VAT and as such, VBNL was liable to pay the VAT due on the transaction. The decision didn’t go down well with VBNL and was referred to Federal High Court.
On 19 December 2017, Nigeria’s FHC also upheld the judgment of the Lagos Division of the Tax Appeal Tribunal in the case of VBNL against FIRS on the imposition of value-added tax (VAT) on services rendered by NRC. VBNL however was not satisfied with the Federal Court, an appeal was made.
But again, the Appeal Court, after considering the arguments of both parties, held that the supply of satellite bandwidth capacities to 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.
Deloitte Nigeria in its note stated that the key issue for determination was whether VAT should apply on services rendered outside the shores of Nigeria by NRC to a Nigerian company.
Vodacom was required to account for the VAT on the transaction and remit the same to FIRS. In reaching the conclusion, the Appeal Court considered whether the FHC is right in holding that the transaction is VATable.
Appeal Court held that since transmission goes to and fro the satellite by signals using Vodacom’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.
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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.
The Appeal Court also considered whether the FHC is right when it held that the Appellant is liable to pay VAT even though conditions precedents were not fulfilled.
On that, The Appeal Court 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.
In addition, Appeal Court then considered 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 Appeal Court, 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 Appeal Court 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 an 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 a far-reaching effect on the cost of doing business in Nigeria, Deloitte Nigeria stated.
Deloitte stated that, 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 judgment by the Supreme Court.
Also, PricewaterhouseCoopers, PwC, is of the view that the basis for concluding that VAT is applicable in this case can still be contested.
“FIRS VAT claim on NRC services may impact the cost of doing business in Nigeria”.
Court of Appeal: in a case between Vodacom Business Nigeria Limited, VBNL, against Federal Inland Revenues Services (FIRS) acknowledged that VAT is due from services rendered by a non-resident company, NRC, that supplies goods or services to companies operating in Nigeria.
“FIRS VAT claim on NRC services may impact cost of doing business in Nigeria”
