Federal High Court (FHC) confirms applicability of VAT on services rendered by a foreign entity to a Nigerian entity

Federal High Court (FHC), on 19 June 2018, issued a ruling overturning the decision of Tax Appeal Tribunal (TAT) in the case between Gazprom Oil & Gas Limited (Gazprom or the Company) and Federal Inland Revenue Service (FIRS), on the applicability of value added tax (VAT) on imported services.

The position of FHC is that a Nigerian company has the obligation to remit applicable VAT, to FIRS, on transactions with a non-resident companies (NRC), regardless of the failure of the NRC to include VAT in the underlying invoice.

The TAT, in its earlier judgment of 10 June 2015, ruled that Gazprom had no obligation to account for the VAT on the services rendered to it by the NRC, on the ground that the NRC did not issue a tax invoice to the Company. Furthermore, the NRC’s decision not to issue VAT invoice was premised on the argument that it did not carry out business in Nigeria.

FIRS subsequently lodged an appeal at the FHC, urging an outright reversal of TAT’s decision on the following grounds:

  1. NRC does not have to include VAT on its invoice before the services rendered to a Nigerian entity would be subject to VAT. The provisions of the VAT Act are clear on the services that are liable to VAT.
  2. NRC carrying on business with a Nigerian company is required to register for VAT in Nigeria, whether or not the NRC has a physical presence in Nigeria.
  3. The VAT Act obliges a person who has a subsisting contract with a NRC to account for and pay VAT; as such, the person would be considered as both the supplier and the purchaser.
  4. The place where a service is performed is not a determinant of whether such service will be liable to VAT in Nigeria. VAT is applicable in the place of consumption based on the destination principle.

It is noteworthy that this ruling agrees with a 2017 ruling by another division of FHC on this same subject with respect to a dispute between Vodacom Business Nigeria Limited and FIRS. This ruling therefore reinforces the legal basis for the operation of the reverse VAT charge mechanism and inevitably places controversies around this issue to rest.

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