Court Of Appeal Holds That The Recipients Of Intangible Imported Services Such As The Supply of Satellite Network Bandwidth Capacities Services Are Liable To Account For The Vat Arising From Such Transactions

On 24th June 2019, the Court of Appeal sitting in Lagos (in Appeal Number:
CA/L/556/2018 between Vodacom Business Nigeria Limited v. Federal Inland Revenue Service) held that recipients of imported services have a statutory duty to deduct VAT and remit to the Federal Inland Revenue Service (FIRS).

Vodacom Business Nigeria Limited (the appellant) challenged a VAT assessment imposed on it by FIRS (the respondent) in respect of a transaction involving the supply of satellite network bandwidth capacities services by a non – resident company to the appellant in Nigeria first at the Tax Appeal Tribunal (TAT). The position of the appellant at the TAT is that the transaction is not subject to because:

(a) the service was not physically rendered in Nigeria;
(b) the non – resident company did not invoice for VAT; and
(c) the non – resident company was not registered for VAT in Nigeria.

The appellant also contended that section 2 and 10 of the VAT Act relates to physical goods and services and not intangibles as is the satellite bandwidth capacities services supplied to the appellant.

The respondent on the other hand contended as follows:

(a) every service rendered in Nigeria is liable to VAT except the services listed in the First Schedule to the VAT Act and the supply of satellite network bandwidth capacities services is not among the services listed in the First Schedule to the VAT Act; and
(b) section 10 of the VAT Act subject to VAT services supplied to Nigeria from anywhere and mandates the Nigerian consumer to deduct and the VAT. The TAT dismissed the appeal. Upon appeal by the appellant, the Federal High Court upheld the decision of the TAT and also dismissed the appeal. Dissatisfied with the decision, the appellant appealed to the Court of Appeal.


In dismissing the appeal, the Court of Appeal held as follows:

(i) Supply of satellite network bandwidth capacities services is not listed among goods and services exempted from VAT under the First Schedule to the VAT Act. The supplier of goods and services does not have to be physically within Nigeria to make the transaction subject to VAT in Nigeria; all that is required is that the supply must be for valuable consideration and that the goods or services are received in Nigeria.
(ii) The receiver of goods or services from a non-resident supplier has a duty to remit VAT on the transaction even if the non-resident supplier does not issue an invoice for VAT purpose. Thus an invoice for VAT by the non-resident supplier is not a condition precedent for the imposition and collection of VAT on such supplies.
(iii) The fact that a non-resident company is not incorporated in Nigeria under the Companies and Allied Matters Act does not exempt transactions by that nonresident company from VAT.
(iv) Though the reverse charge mechanism is not expressly mentioned in the VAT Act, section 10(2) of the Act which requires the recipient of the goods or services to deduct and remit VAT operates in a manner similar to the reverse charge mechanism.
(v) Whether or not the Destination principle is applicable in Nigeria, does not affect the position that the supply satellite bandwidth capacities services to a recipient in Nigeria is subject to VAT.

Implications of the decision

This judgment re-affirms the position that all transactions for the supply of goods and services imported into or consumed in Nigeria are subject to VAT in Nigeria. VAT will be imposed automatically irrespective of whether the tax is contemplated by parties or whether the non-resident supplier is registered for VAT in Nigeria.

However, it would appear that this judgment created some uncertainty when it attempted to define the meaning of the phrase “carries on business” as used in section 10 of the VAT Act. The decision of the court seems to give the impression that a transaction by a nonresident company will not be subject to VAT unless it is of a continuous nature. With due respect to the court, it is opinion that all vatable transactions are subject to VAT whether
they are one-off or continuous in nature.

For more information contact:
Maxwell Ukpebor
Adebiyi Tax & Legal
House 20 Wema Terrace
Udi Street Ikoyi
+234 8039600520

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This Legal Alert contains information on tax /legal issues. It does not constitute legal or professional advice on such issues. Where specific legal advice is needed, the services of a solicitor/tax adviser should be sought.

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