COURT AND TRIBUNAL TAX CASES IN NIGERIA
TRANSACTIONS RELATING TO THE SUPPLY OF SATELLITE NETWORK BANDWIDTH BY A NON-RESIDENT COMPANY TO A NIGERIAN COMPANY ARE LIABLE TO VAT. THE NON- REGISTRATION FOR VAT PURPOSE OF THE NON-RESIDENT COMPANY UNDER SECTION 10 OF THE VAT ACT AND NON-ISSUANCE OF TAX INVOICE BY THE NON-RESIDENT COMPANY ARE IRRELEVANT CONSIDERATIONS – VODACOM BUSINESS NIG. LTD. V. FEDERAL INLAND REVENUE SERVICE (FIRS) TAT/LZ/VAT/016/2015
The Tax Appeal Tribunal (TAT or the Tribunal), Lagos Zone, held recently that transactions relating to the supply of satellite network bandwidth by a non-resident company to a Nigerian company are liable to VAT in Nigeria. The non-registration of the non-resident company for VAT purpose under section 10 of the VAT Act and non-issuance of tax invoice by the non-resident company are irrelevant considerations. The TAT Lagos Zone departed from the earlier judgment of the TAT Abuja zone in Gazprom case and held that the Gazprom case was decided per incuriam.
According to the TAT Lagos Zone, Nigerian companies doing business with a non-resident company are obligated to ensure that the non-resident company is registered for VAT with the FIRS in compliance with section 10 of the VAT Act. The issue for determination in the Appeal was whether satellite network bandwidth capacity supplied by a non-resident company to a Nigerian company is subject to VAT in Nigeria.
SUMMARY OF FACTS
New Skies Satellites (NSS), a non-Nigerian company based in the Netherlands, entered into a contract with Vodacom Business Nig. Ltd. (Vodacom), for the supply of bandwidth capacities for Vodacom's use in Nigeria. VAT was not remitted on the transaction. The Federal Inland Revenue Service (FIRS) assessed the transaction to VAT and issued a re- assessment notice. After repeated objections to the assessments, Vodacom filed an Appeal challenging the re-assessment notice. As stated above, the sole issue for determination in the appeal was whether the transaction between NSS and Vodacom is subject to VAT.
CONTENTION OF THE PARTIES
Vodacom relied on sections 10 and 46 VAT Act and section 12, Value Added Tax (Amendment) Act arguing that the VAT Act only applies to imported services and the supply of bandwidth services, in this case, does not qualify as "imported services" because it is transferred from the Netherlands via satellite and not "supplied in Nigeria".
Vodacom also relied on the case of Gazprom Oil & Gas Ltd. V FIRS (TAT/ABJ/APP/030/2014) to contend that it did not contravene section 10 of the VAT Act which provides for the registration and taxation procedure for a non-resident company doing business in Nigeria stating that NSS did not carry on business in Nigeria and was not registered with the FIRS. Therefore, it could not issue a tax invoice.
Vodacom also concluded that since it was not issued a tax invoice by NSS, it could not remit any tax. Vodacom maintained that under section 10, the obligation to remit tax arises from the issuance of a tax invoice.
FIRS argued that since the bandwidth capacities could only be utilized once received at an earth-based station in Nigeria, they qualified as imported services. To buttress this point, the respondent cited sections 2, 3, 46 and the 1st Schedule to the VAT Act.
FIRS also contended that bandwidth capacities are not listed among the goods and services exempted from VAT under the 1st Schedule to the VAT Act. FIRS added that section 10 (2) VAT Act places the burden of remitting VAT on the person to whom goods or services are supplied. Hence, it is the duty of Vodacom and not NSS to remit VAT and this duty is neither dependent on NSS' duty to issue a tax invoice nor its registration with the FIRS.
The FIRS concluded that Gazprom Oil & Gas Ltd. V. FIRS is a good persuasive authority for holding that the destination principle under the International VAT/GST Guidelines, which states that "for consumption-tax purposes, internationally traded services and intangibles should be taxed according to the rules of the jurisdiction of consumption", applies to transactions such as this.
DECISION OF THE TRIBUNAL
After considering the arguments of both parties, the Tribunal held that section 10 of the VAT Act imposes no duty on Vodacom to pay tax stating that it is simply an administrative provision dealing with VAT registration for foreign companies that carry on business in Nigeria and its provisions need not be fulfilled for section 2, which provides for VAT on goods and services, to be activated. Also, because NSS is a foreign company, it behooved Vodacom to ensure its registration with the FIRS in line with section 10 VAT Act.
On the issue of "doing business in Nigeria" the tribunal held that NSS met this criterion by entering into a contract with Vodacom.
The tribunal, relying on the destination principle, held that since VAT is a consumption tax and bandwidth is intangible, the Appellant's transaction for the supply of bandwidth capacities is subject to VAT. The Tribunal therefore upheld the additional VAT re- assessment on the Appellant while dismissing the Appeal.
The decision of the Tribunal in Vodacom is a clear departure from its earlier judgment in the case of Gazprom Oil & Gas Ltd. V. FIRS. While we are unsure as to whether Vodacom will appeal this judgment, the judgment in opinion reflects the true position of the law. Therefore, companies doing business in Nigeria with non-resident companies must be mindful of the structure of their transaction. Where necessary, the Nigerian entity must ensure that the issue of registration for, deduction and payment of VAT in compliance with section 10 of the VAT Act is brought to the fore during negotiations with the non-resident company. This will save the Nigerian company from any unforeseen assessment, additional assessment or re-assessment with the attendant punitive interest and penalty.
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