Court Rules That Imported Services Are Taxable In Nigeria – TheNigerialawyer

By Ikechukwu Onuoma Esq

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.

In addition the Lagos Tax Appeal Tribunal (TAT) on 22 July 2019
ruled in the case of United Capital Plc and Federal Inland
Revenue Service (FIRS) that the payment of an assessment does
not result in the forfeiting of a taxpayer’s right to appeal
against the assessment.