Tax Appeal Tribunal provides criteria for WHT exemption on ‘Sales in the Ordinary Course of Business’

Federal High Court FIRS practice direction

The Tax Appeal Tribunal (TAT or the Tribunal), on 1 December 2020, in the case between Tetra Pak West Africa Limited (Tetra Pak or the Company) and the Federal Inland Revenue Service (FIRS), ruled that the sale of packaging materials, spare parts and equipment by the Company is in the ordinary course of its business and hence not liable to Withholding Tax (WHT).

Tetra Pak had sought clarification from the FIRS on whether its business, which is the sale of packaging equipment, spare parts and materials, qualifies as “sales in the ordinary course of business”, which is exempt from WHT. In its response, the FIRS did not agree with the Company’s position and expressed its opinion that the business is not exempt from WHT on the premises that the Company’s business is based on contracts, which has rights and liabilities that are enforceable by law.

Consequently, Tetra Pak appealed to the TAT and put forward the following issues for determination and resolve:

  • Whether or not Tetra Pak’s activities constitute “sale in the ordinary course of business” which is exempted from WHT

The WHT Regulations provides that “all types of contracts and agency agreements other than sales in the ordinary course of business” are liable to WHT. In determining what constitutes “sale in the ordinary course of business”, the TAT laid the following criteria:

  1. The transaction/activity is in the objects of the memorandum of association
  2. The normal practice in the taxpayer’s industry
  3. The history of the taxpayer in relation to the activity
  4. The frequency of the transaction

The above should serve as a guide in determining whether a contract is that of a sale in a taxpayer’s ordinary course of business.

  • The inherent powers of the TAT to rely on foreign decisions in the absence of local precedence

In the absence of any decided case in Nigeria that defines what constitutes “sale in the ordinary course of business”, the TAT relied on definitions in Black’s Law Dictionary and some (foreign) decided cases. This is in line with the general rules of interpretation of statutes that enable Nigerian courts to be persuaded by such decisions from other jurisdictions (with a similar law), where no judicial precedence exists locally.

The above ruling has brought further clarity on the determination of sales in the ordinary course of business. Going forward, this may be relied upon by taxpayers as a basis to determine the extent to which they are liable to WHT deduction on their sales. It also throws up the conversation about tax refund especially for taxpayers whose sales are in their ordinary course of business, as established by the judgment, but has WHT (unutilized) deducted from the sales.

One thought on “Tax Appeal Tribunal provides criteria for WHT exemption on ‘Sales in the Ordinary Course of Business’”

  1. OBI JONAH says:


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