Attorney General’s Consent: A Legal Requirement for Garnishee Proceedings Against the Government?

Introduction

The latest decision by the Tax Appeal Tribunal (TAT) on Value Added Tax (VAT) in Nigeria has been met with a lot of attention, especially relating to its retrospective effect on software licenses and other related services. This case, involving the Federal Inland Revenue Service (FIRS) and MTN, highlights significant points of contention regarding the interpretation of VAT laws, the statute of limitations, and the scope of taxable goods and services. This analysis examines the main points of the tribunals’ decision, its impact and the practical lessons for businesses operating in Nigeria.

Background

The TAT’s ruling arose from a dispute between the FIRS and MTN, following a comprehensive review by the Office of the Accountant General of the Federation (OAGF) for the 2007 to 2017 accounting periods. The OAGF’s review led to a tax assessment of $135 million, including penalties and interest.

Key Points of Contention

1. Software Licences and VAT

MTN’s Argument: MTN contended that software licences, being intangible/incorporeal rights, did not fall under the definition of goods or services in the VAT Act prior to its recent amendments. Thus, they should have been VAT exempt.

FIRS’s Argument: The FIRS argued that software licences were always considered a service and therefore subject to VAT, as they were not specifically listed as exempt in the VAT Act.

2. Training Services Received Offshore

MTN’s Argument: MTN argued that such services, provided and consumed outside Nigeria, should not be VAT able within Nigeria.

FIRS’s Argument: The FIRS maintained that all services consumed by persons in Nigeria, regardless of the supplier’s location, are subject to VAT.

3. Statute of Limitation

MTN’s Argument: The company argued that the FIRS was not empowered to issue assessments beyond a five-year statute of limitation unless there was false representation.

FIRS’s Argument: The FIRS contended that there was no statute of limitation on VAT assessments and that omissions in VAT returns justified retrospective investigations.

Tribunal’s Decisions as a service subject to VAT, even prior to the recent amendments.

Application of VAT to Software Licences: The TAT classified software licences 

Offshore Training Services: The TAT ruled that VAT applied to training services received offshore as they were ultimately consumed by MTN in Nigeria.

Statute of Limitation: The tribunal ruled that the FIRS could investigate and issue assessments beyond the five-year statute of limitation if the taxpayer did not fulfill VAT obligations.

Interest and Penalties: The TAT ruled that interest and penalties do not apply if the taxpayer files an objection within the stipulated timelines, but the FIRS can conduct investigations beyond the six-year statute of limitation.

Conclusion and Takeaway

The TAT’s ruling underscores the importance of understanding the scope of VAT laws in Nigeria and the impact of recent amendments. It highlights the need for businesses to:

– Ensure Comprehensive VAT Compliance: Businesses should review their VAT compliance to ensure all goods and services, including software licences and offshore services, are correctly taxed.

– Maintain Thorough Records: Detailed records and evidence of VAT remittance are crucial to defend against retrospective assessments.

– Stay Updated on Legislative Changes: Companies must stay informed on changes in tax legislation and judicial precedents that could affect their tax obligations.

– Prepare for Potential Disputes: Given the possibility of conflicting judicial decisions, businesses should be prepared for potential disputes and varying interpretations of VAT laws.

Working out what these pronouncements mean and how they affect businesses can enable enterprises to operate within the intricate VAT terrain in Nigeria and avoid expensive, racking tax disagreements.