September 17, 2019
The taxation of services supplied by non-resident foreign companies (NRCs) to Nigerian companies has been an issue of great debate in recent times. On 24 June 2019, the Court of Appeal held, in the case between Vodacom Business Nigeria Limited (Vodacom) v Federal Inland Revenue Service (FIRS) that the supply of satellite bandwidth capacities from an NRC to Vodacom (a Nigerian based company) is subject to Value Added Tax (VAT) in Nigeria. Based on the facts of the case (and only on that strength), the Court of Appeal in the Vodacom case was correct to have subjected supply of bandwidth capacities to Vodacom to VAT. However, the rationale used by the Court to then attempt (as it seemed to do), to assert that all imported services are liable to VAT in Nigeria, appears to be at variance with the express provisions of the VAT Act, which requires that imported services be supplied in Nigeria before VAT liability can arise.
In the Vodacom decision, the transaction qualified as a VATable supply under the VAT Act because Vodacom had received the bandwidth capacities with equipment located in Nigeria. Although and sadly so, the Court of Appeal in reaching this decision had jettisoned the distinction between the location of supply of a service and the location of receipt of such service and inadvertently interpreted the supply of a service and the receipt of a service to mean the same thing in determining the VATability of a transaction.
Therefore, following the Court of Appeal’s decision, a number of stakeholders have taken a view that the decision has expanded the scope of the VAT liability of Nigerian resident companies to include all forms of services rendered by NRCs whether or not such services are physically supplied in Nigeria (by employees or via some form of equipment located in Nigeria). However, this position clearly contradicts the provisions of the VAT Act.
This Article analyses the Court of Appeal’s decision in the Vodacom case vis-à-vis the relevant provisions of the VAT Act and also seeks to distinguish the Vodacom case from other forms of cross border transactions which do not require any form of physical presence in Nigeria.
Summary of the Vodacom Case
Vodacom challenged a VAT assessment imposed on it by the FIRS in respect of a transaction involving the supply of satellite network bandwidth capacities by a non-resident company. Although the bandwidth was received through Vodacom’s transponders in Nigeria, Vodacom argued that the transaction was not subject to Nigerian VAT because Section 2 of the VAT Act only imposes VAT on services rendered in Nigeria and this supply was not performed in Nigeria but was only received in Nigeria.
Vodacom filed an appeal at the Tax Appeal Tribunal and subsequently at the Federal High Court (FHC) but Vodacom lost at both levels. Dissatisfied with the FHC’s decision, Vodacom appealed to the Court of Appeal.
The Court of Appeal held that Vodacom was liable to self-assess and remit VAT on the said transaction. In giving its decision, the Court of Appeal recognized the fact that although the satellite network was in the orbit, the bandwith was received in Nigeria through Vodacom’s transponders. Thus, the service was rendered in Nigeria and liable to Nigerian VAT.