Tax Appeal Tribunal Provides Criteria for WHT Exemption

Wednesday, December 16, 2020, 11:00 AM /
by Deloitte/ Header Image Credit: @tat_govng

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.