Prece­dent ig­nored in Nige­ria Vo­da­com tax case

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

THE La­gos Tax Ap­peal Tri­bunal on Fe­bru­ary 12 2016 ruled in favour of the Fed­eral In­land Rev­enue Ser­vice in its case with Vo­da­com Busi­ness Nige­ria Lim­ited that satel­lite-net­work band­width ca­pac­i­ties pro­vided to Vo­da­com out­side Nige­ria by New Skies Satel­lites, a Dutch in­cor­po­rated com­pany, are li­able to value added tax (VAT) in Nige­ria.

In terms of the Nige­rian VAT Act, VAT is charge­able on the sup­ply of goods and ser­vices, other than those specif­i­cally ex­empted un­der the First Sched­ule to the VAT Act. Sec­tion 10 of the VAT Act re­quires a non­res­i­dent com­pany “car­ry­ing on busi­ness in Nige­ria” to reg­is­ter for VAT pur­poses in Nige­ria, us­ing the ad­dress of its Nige­rian cus­tomer and to in­clude VAT on the in­voices it is­sues to the Nige­rian cus­tomer.

The Nige­rian cus­tomer is re­quired to re­mit the VAT to the Fed­eral In­land Rev­enue Ser­vice.

New Skies Satel­lites en­tered into a con­tract with Vo­da­com for the sup­ply of band­width ca­pac­i­ties for Vo­da­com’s use in Nige­ria.

The ca­pac­i­ties were trans­mit­ted by New Skies Satel­lites to its satel­lite in or­bit and re­ceived in Nige­ria by Vo­da­com via its earth­based satel­lite. New Skies Satel­lites did not charge VAT on its in­voice to Vo­da­com for the ser­vice ren­dered and Vo­da­com did not re­mit any VAT to the Fed­eral In­land Rev­enue Ser­vice.

Dur­ing an au­dit, the rev­enue ser­vice as­sessed Vo­da­com to VAT on this trans­ac­tion, and when the rev­enue ser­vice re­fused to ac­cept sev­eral ob­jec­tions by Vo­da­com, it filed an ap­peal at the La­gos Tax Ap­peal Tri­bunal.

Vo­da­com ar­gued that New Skies Satel­lites’ sup­ply of band­width was a ser­vice pro­vided out­side Nige­ria (from the Nether­lands), and that in terms of the VAT Act, such ser­vices would not qual­ify as “im­ported ser­vices” as the ser­vices were not ren­dered in Nige­ria, and ac­cord­ingly, VAT should not be levied on the trans­ac­tion.

Re­ly­ing on the Gazprom Oil and Gas Ltd (Gazprom) vs Fed­eral In­land Rev­enue Ser­vice case, Vo­da­com ar­gued that New Skies Satel­lites did not have an obli­ga­tion to reg­is­ter for and charge VAT on its in­voices as it was not car­ry­ing on busi­ness in Nige­ria and Vo­da­com, ac­cord­ingly, did not withhold and re­mit VAT, since the obli­ga­tion to re­mit VAT arises from the is­suance of a tax in­voice.

The Fed­eral In­land Rev­enue Ser­vice ar­gued that:

Based on the des­ti­na­tion prin­ci­ple un­der the In­ter­na­tional VAT/GST Guide­lines, the ser­vices pro­vided by New Skies Satel­lites were ef­fec­tively im­ported into Nige­ria, be­cause the band­width ca­pac­i­ties were re­ceived in Nige­ria through earth-based sta­tions set up in Nige­ria by Vo­da­com;

The “im­ported ser­vice” utilised by Vo­da­com in Nige­ria is li­able to VAT, since such ser­vices fall within sec­tion 2 of the VAT Act, and “band­width ca­pac­i­ties” are not specif­i­cally VAT-ex­empt ser­vices per the First Sched­ule to the VAT Act;

By hav­ing a con­tract with Vo­da­com, New Skies Satel­lites meets the re­quire­ment of “do­ing busi­ness in Nige­ria”, and, ac­cord­ingly, was re­quired to reg­is­ter and charge VAT on the sup­ply to Vo­da­com;

The fact that New Skies Satel­lites failed to reg­is­ter with the rev­enue ser­vice and is­sue a VAT in­voice, does not pre­clude Vo­da­com from ful­fill­ing its obli­ga­tion to withhold and re­mit the VAT due on the trans­ac­tion as sec­tion 10 of the VAT Act is an ad­min­is­tra­tive pro­vi­sion that deals with the VAT regis­tra­tion of com­pa­nies car­ry­ing on busi­ness in Nige­ria and does not spec­ify trans­ac­tions which should be sub­ject to VAT.

The La­gos Tax Ap­peal Tri­bunal held that:

Sec­tion 2 of the VAT Act im­poses tax on the sup­ply of all ser­vices, other than those specif­i­cally ex­empted un­der the First Sched­ule to the VAT Act. On the ba­sis that band­width ca­pac­i­ties are not ex­empted un­der the sched­ule, the ser­vices pro­vided by New Skies Satel­lites are li­able to VAT;

Sec­tion 10 of the VAT Act is merely an ad­min­is­tra­tive pro­vi­sion and it does not lay down con­di­tions prece­dent for sub­stan­tive vi­a­bil­ity; and

As it was Vo­da­com, rather the New Skies Satel­lites that is be­ing taxed in Nige­ria, it has the obli­ga­tion to pay the VAT due on the trans­ac­tion, ir­re­spec­tive of the fact that New Skies Satel­lites did not have a pres­ence in Nige­ria.

KPMG and EY Nige­ria high­lighted that the TAT did not seem to have prop­erly con­sid­ered the mean­ing of “im­ported ser­vice” as per the VAT Act, which is quite clearly de­fined by the VAT Act as “a ser­vice ren­dered in Nige­ria by a non-res­i­dent per­son to a per­son in­side Nige­ria”. The La­gos Tax Ap­peal Tri­bunal in its judg­ment ad­mits that the des­ti­na­tion prin­ci­ple, “while not bind­ing on us, is a help­ful guide in re­solv­ing this case”. How­ever, in terms of the des­ti­na­tion prin­ci­ple, a ser­vice is deemed to be “im­ported” and there­fore sub­ject to VAT re­gard­less of where it is ren­dered by the non­res­i­dent ser­vice provider, whereas the VAT Act refers to “ser­vices ren­dered in Nige­ria”.

The judg­ment con­tra­dicts the de­ci­sion of the Abuja Tax Ap­peal Tri­bunal (a court of equal stand­ing to the La­gos tri­bunal) on June 10 2015 in the case of Gazprom vs Fed­eral In­land Rev­enue Ser­vice, in which it was held that ser­vices to Nige­rian en­ti­ties by non­res­i­dent com­pa­nies are not li­able to Nige­rian VAT, ex­cept if such ser­vices were per­formed in Nige­ria. 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.

The La­gos Tax Ap­peal Tri­bunal ruled “Gazprom can­not guide us” as “the em­pha­sis by the par­ties on sec­tion 10 was ex­ag­ger­ated and mis­placed”.

It would ap­pear that, in ap­peal­ing to the tri­bunal, tax­pay­ers can­not rely on prece­dents set by other tri­bunal courts of equal stand­ing, but should wait un­til clar­ity is pro­vided by a Fed­eral High Court on ap­peal.

La­gos Tax Ap­peal Tri­bunal on Fe­bru­ary 12 ruled in favour of the Fed­eral In­land Rev­enue Ser­vice

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

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