The Lagos State Division of Tax Appeal Tribunal has ordered MTN Nigeria Communications to pay the sum of $72,551,059 in tax default to the Federal Inland Revenue Services (FIRS) for the period spanning 2007 to 2017. The decision comes after a lengthy legal battle and a thorough examination of the telecom giant’s tax records.
The verdict, which was delivered by a five-man panel led by Professor A. B. Hamed, was reached on Friday in an appeal numbered TAT/LZ/VAT/075, filed by MTN Nigeria against the FIRS’s request to pay the outstanding taxes.
The case originated in May 2018 when the Office of the Attorney General of the Federation (OAGF) issued a report after an investigation into MTN’s Forms A and M transactions, covering the accounting years from 2007 to 2017. A revised report in August 2018 adjusted the alleged outstanding import duty and Value Added Tax (VAT) to N242.2 billion for Form M-visible transactions, while the section related to VAT and Withholding Tax (WHT) was revised to $1.284 billion for Form A-invisible transactions.
In mid-2020, the FIRS received the OAGF’s report regarding MTN’s alleged liability to VAT and WHT. Following a review of MTN’s tax and accounting records, the FIRS upheld the OAGF’s alleged tax liability. MTN and its tax consultant, KPMG Advisory Services, engaged in a series of meetings with the FIRS to resolve the tax dispute.
In July 2021, the FIRS issued a VAT assessment of $93,590,366 to MTN. This assessment comprised $72,551,059 as the principal liability and $21,039,807 for penalties and interest on the principal sum. MTN objected to the initial assessment, leading to a further review by the FIRS. In a Notice of Assessment dated April 14, 2022, the FIRS issued a revised assessment of $135,697,755 to MTN.
Despite the principal tax liability in the revised assessment being lower at $47,776,210 compared to the $72,551,059 in the initial assessment, the interest and penalty imposed on the revised assessment were significantly higher at $87.9 million.
MTN formally objected to the FIRS’s revised assessment in May 2022, but the FIRS refused to amend it. Consequently, MTN filed an appeal before the Tax Appeal Tribunal, expressing its dissatisfaction with the FIRS’s actions.
After reviewing all the arguments and processes submitted by both parties, the tribunal distilled five critical issues for determination:
1. Whether software licensing and upgrades qualified as taxable supplies of goods and services.
2. Whether the lease of bandwidth capacities by a non-resident entity, Intelsat Global Services & Marketing Ltd, through satellite transponders, qualified as taxable supplies of goods and services.
3. Whether the FIRS had the authority to conduct a tax investigation beyond the 5-year restriction in the absence of false or untrue documents.
4. Whether training provided by offshore facilitators outside of Nigeria was liable to VAT in Nigeria.
5. Whether the FIRS acted in error when calculating and imposing interest and penalties on MTN’s alleged non-remittance of VAT liabilities before they became final and conclusive.
During the proceedings, MTN’s counsel urged the tribunal to rule in their favor, while FIRS’s counsel sought the dismissal of MTN’s appeal.
The tribunal ultimately resolved the first four issues in favor of the FIRS and the fifth issue in favor of MTN. After a thorough examination of all the documents and relevant legal precedents, the tribunal ruled, “In the final analysis, it is the decision of the Tribunal that issues one to four discussed above are all resolved in favor of the Respondent, and the appellant is therefore ordered to settle the assessed liabilities accordingly.”
MTN Nigeria Communications is now obliged to pay the sum of $72,551,059 in tax default to the FIRS, covering the period from 2007 to 2017. The decision marks a significant development in the ongoing legal battle between MTN and the tax authorities, highlighting the complexities and nuances of tax law in Nigeria.
