Shed­ding light on VAT on ser­vices in Nige­ria

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Celia Becker

THE Abuja Tax Ap­peal Tri­bunal on 10 June 2015 ruled in the case of Gazprom Oil & Gas Nige­ria Lim­ited vs Fed­eral In­land Rev­enue Ser­vice (FIRS) that ser­vices ren­dered to Nige­rian en­ti­ties by non-res­i­dent com­pa­nies are not li­able to Nige­rian value added tax (VAT), ex­cept if such ser­vices were per­formed in Nige­ria. Fur­ther­more, a Nige­rian com­pany is only re­quired to ac­count for and re­mit VAT on such ser­vices once it has re­ceived a VAT in­voice from the for­eign ser­vice provider.

In terms of sec­tion 10 of the Nige­rian VAT Act, a non-res­i­dent com­pany that “car­ries on busi­ness in Nige­ria” shall register for VAT and in­clude VAT in its in­voice and the per­son to whom the goods or ser­vices are supplied in Nige­ria shall re­mit the VAT in the cur­rency of the trans­ac­tion. The act does not de­fine the “car­ry­ing on of busi­ness in Nige­ria” and nu­mer­ous dis­putes have arisen with the rev­enue ser­vice re­gard­ing this as­pect.

Gazprom had en­gaged for­eign ser­vice providers to ren­der cer­tain con­sul­tancy and lo­gis­tic ser­vices. The ser­vices were per­formed out­side of Nige­ria and the ser­vice providers had no em­ploy­ees, rep­re­sen­ta­tives, agents or as­sets in Nige­ria. The ser­vice providers in­voiced Gazprom with­out charg­ing Nige­rian VAT.

On the ba­sis that the nonres­i­dent ser­vice providers were not car­ry­ing on busi­ness in Nige­ria, Gazprom set­tled the in­voices with­out charge or pay­ment of VAT to the rev­enue ser­vice. The rev­enue ser­vice is­sued VAT re­assess­ment no­tices and de­nied Gazprom’s sub­se­quent ob­jec­tion to such assess­ments on the ba­sis that, even though the for­eign com­pa­nies did not send em­ploy­ees to Nige­ria, the ser­vices were im­ported into Nige­ria un­der con­trac­tual agree­ment be­tween the par­ties and Gazprom con­sumed and en­joyed the ben­e­fit of the ser­vices in Nige­ria.

Con­se­quently, the for­eign com­pa­nies were deemed to carry on busi­ness in Nige­ria and they should there­fore register for and charge VAT. The rev­enue ser­vice has stated this view in an ear­lier VAT cir­cu­lar, not­ing that “VAT is payable on ser­vices re­ceived from out­side Nige­ria if such ser­vices are supplied to a Nige­rian cus­tomer”. In prac­tice, the rev­enue ser­vice has ap­plied the ap­proach that once a for­eign ser­vice provider en­ters into a con­tract with a Nige­rian com­pany, it is obliged to register for and charge Nige­rian VAT. Fail­ing to do so, the Nige­rian com­pany is re­quired to charge and re­mit the VAT un­der the “re­verse charge” mech­a­nism.

Gazprom filed an ap­peal at the tax ap­peal tri­bunal, which sum­marised the ar­eas of dis­pute as: (i) Whether the pro­vi­sions of the VAT Act im­pose VAT on the ba­sis of the “des­ti­na­tion prin­ci­ple”, in terms of which VAT is levied on goods and ser­vices in the coun­try of con­sump­tion rather than the coun­try of pro­duc­tion; (ii) Whether car­ry­ing on busi­ness in Nige­ria im­poses a duty to register for and charge VAT on a nonres­i­dent com­pany; and (iii) Whether the re­ceipt of a VAT in­voice is a pre-con­di­tion to re­mit­tance of VAT from a nonres­i­dent com­pany.

In re­spect of the first is­sue the tri­bunal re­ferred to a num­ber of other cases which de­fined “car­ry­ing on busi­ness” to mean con­duct­ing, pros­e­cut­ing or to con­tinue a par­tic­u­lar vo­ca­tion or busi­ness as a con­tin­u­ous op­er­a­tion or per­ma­nent oc­cu­pa­tion. The rep­e­ti­tion of acts may be suf­fi­cient. It also means to hold one­self out to oth­ers as en­gaged in the selling of goods or ser­vices. Ac­cord­ing to the tri­bunal it is not in doubt that the non-res­i­dent com­pa­nies carry on busi­ness; how­ever, what is in doubt is whether that busi­ness is car­ried on in Nige­ria. In con­clu­sion it was held that, while a care­ful in­ter­pre­ta­tion of sec­tion 10 of the VAT Act an­tic­i­pates the des­ti­na­tion prin­ci­ple as ba­sis for im­pos­ing VAT in Nige­ria, the same is not ap­pli­ca­ble in this case, which con­tention is strength­ened by the un­con­tro­verted ev­i­dence that the non-res­i­dent com­pa­nies are not car­ry­ing on busi­ness in Nige­ria and the ser­vices were pro­vided out­side of Nige­ria. The non-res­i­dent com­pany is there­fore not re­quired to register for and charge VAT and con­se­quently, the Nige­rian com­pany has no obli­ga­tion to re­mit VAT to the rev­enue ser­vice.

Re­gard­ing the sec­ond is­sue, the tri­bunal held that a non-res­i­dent com­pany that car­ries on busi­ness in Nige­ria is, in terms of sec­tion 10 of the VAT Act, obliged to register for VAT pur­poses and it can­not legally carry on busi­ness in Nige­ria with­out such reg­is­tra­tion. The ad­dress of the per­son with whom it has a sub­sist­ing con­tract is to be used as its ad­dress for pur­poses of VATre­lated cor­re­spon­dence.

In re­spect of the third is­sue, the tri­bunal con­cluded that a re­cip­i­ent of ser­vices from a for­eign ser­vice provider is only obliged to sub­mit VAT when it has been is­sued with a VAT in­voice. In the case at hand, since Gazprom was not is­sued a VAT in­voice, it was not re­quired to ac­count for or pay VAT to the rev­enue ser­vice.

The re­assess­ment no­tices were dis­charged by the tri­bunal. The case pro­vides clar­ity on the is­sue that the mere ex­is­tence of a con­tract be­tween a Nige­rian com­pany and non-res­i­dent ser­vice provider does not au­to­mat­i­cally im­ply that the for­eign ser­vice provider is car­ry­ing on busi­ness in Nige­ria. How­ever, the rev­enue ser­vice in all like­li­hood will ap­peal the tri­bunal’s de­ci­sion to the Fed­eral High Court. It is also pos­si­ble the rev­enue ser­vice may reini­ti­ate a pre­vi­ously aban­doned pro­ject to amend the VAT Act to tax cross-bor­der ser­vices based on the des­ti­na­tion prin­ci­ple. Un­til then, the prece­dent set in this case will ap­ply in com­pa­ra­ble cir­cum­stances.

Case is one of many dis­putes aris­ing from the ‘car­ry­ing on’ of busi­ness

Celia Becker is an Africa Reg­u­la­tory and Busi­ness In­tel­li­gence ex­ec­u­tive at ENSafrica.

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