Tax Appeal Tribunal Delivers Landmark Decision On Threshold For Exported Service Under Nigerian Tax Law

In any event, and contrary to the Appellant’s arguments on the point, the location of the service provider and recipient of service in Vodacom v FIRS, though of relevance in the case, was not the key issue considered by the Court of Appeal in arriving at its decision. The question of whether the service supplied by the non-resident entity to Vodacom was supplied in Nigeria for tax purposes was the key issue considered by the Court of Appeal in Vodacom v FIRS, and the basis upon which it arrived at its decision in the case. In deciding the issue, the Court of Appeal in Vodacom v FIRS considered the fact that even though the satellite bandwidth capacities supplied by the non-resident company were in orbit, the bandwidth capacities were transmitted through satellite signals using Vodacom’s transponders located in Nigeria. The Court of Appeal also considered the fact that the bandwidth capacities were ultimately used and enjoyed by Vodacom in Nigeria.

Accordingly, in addition to our belief that the Appellant was misconceived in its argument that the same set of rules applied by the Court of Appeal in Vodacom v FIRS to determine what constitutes “imported service” for tax purposes should have also applied to the TAT’s determination of what constitutes “exported service” for tax purposes in Allan Gray; we also recognise that even assuming without conceding that the rule in Vodacom v FIRS were applicable in Allan Gray, the rule in that case does not support the Appellant’s arguments on the point. The reason for this conclusion is that, in addition to the physical location of the service provider and recipient of service in Vodacom v FIRS, the Court of Appeal considered the additional condition that the service must be rendered in Nigeria as distilled from the definition of “imported service” in the VAT Act.

Applying the same logic as that applied in Vodacom v FIRS, the TAT in Allan Gray was right to have arrived at the conclusion that, in addition to the physical location of the Appellant and Allan Gray International, the additional conditions that (i) the actual recipient of the service performed by the Nigerian resident must be a person resident outside Nigeria, and (ii) the service performed must flow directly from the Nigerian resident to the person outside Nigeria, and not from the Nigerian resident or company to persons resident in Nigeria on behalf of or for the benefit of the person outside Nigeria, must be satisfied.

Accordingly, the TAT decision in Allan Gray does NOT in any way suggest that Nigerian service providers must leave Nigeria for their services to qualify as exported. It only clarified the points on who should be the actual recipient of the service provided, and the direction in which the service provided must flow. There is, therefore, no misalignment with international VAT principles or potential for double VAT (both in Nigeria and South Africa) in Allan Gray. It will be interesting to see: (i) how superior courts of law in Nigeria will react to the TAT decision in Allan Gray on appeal (if the Appellant decides to appeal the decision), or (ii) how the Tribunal and regular courts of law in Nigeria will interpret the TAT decision in Allan Gray within the meaning of “exported service” under the Bill (when the Bill is enacted into law). 

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