The Court of Appeal (CoA), on 24 June 2019, upheld the decision of the Federal High Court (FHC), in the case between Vodacom Business Nigeria Limited ('Vodacom' or 'Appellant') and Federal Inland Revenue Service ('FIRS' or 'Respondent'). The key issue for determination was whether value-added tax (VAT) should apply on services rendered outside the shores of Nigeria by a non-resident company (NRC) to a Nigerian company.
The CoA, after considering the arguments of both parties, held that the supply of satellite bandwidth capacities to Vodacom by New Skies Satellites (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.
Therefore, Vodacom was required to account for the VAT on the transaction and remit same to FIRS.
The following issues were considered and resolved by CoA:
- Whether the FHC is right in holding that the transaction is VATable
The CoA held that since transmission goes to and fro the satellite by signals using the Appellant'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. 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.
- Whether the FHC is right when it held that the Appellant is liable to pay VAT even though conditions precedent were not fulfilled
The CoA 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.
- 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 the CoA, 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 CoA 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 a 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 far-reaching effect on the cost of doing business in Nigeria.
However, 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 judgement by the Supreme Court.
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