The Tribunal Ruled That MTN Must Pay $72.5 Million Fine To FIRS

The Tax Appeal Tribunal of Lagos State has issued a ruling, ordering MTN Nigeria Communications to pay a sum of $72,551,059 in tax arrears to the Federal Inland Revenue Service (FIRS). This fine covers the period from 2007 to 2017.

In a significant decision, the Tribunal has absolved the telecommunications company from paying an additional $21,039,807 in penalties and interest on the principal sum.

The verdict, delivered on Friday by a five-member panel led by Professor A.B. Hamed, was the outcome of an appeal, numbered TAT/LZ/VAT/075, filed by MTN against the FIRS’s demand for payment of the outstanding tax.

The other panel members included P.A. Olayemi, Babatunde Sobamowo, Samuel N. Ohwerhoye, and Terzungwe Gbakighir.

The case originated from an investigation conducted by the Office of the Attorney General of the Federation in May 2018, covering MTN’s Forms A and M transactions from 2007 to 2017. In a revised report in August 2018, the alleged outstanding amount for import duty and VAT was adjusted to N242.2 billion for Form M visible transactions, and $1.284 billion for Form A invisible transactions.

In mid-2020, the FIRS received a report from the Office of the Attorney General of the Federation regarding MTN’s alleged liability to VAT and Withholding Tax (WHT). Following a review of MTN’s tax and accounting records, the FIRS upheld the alleged tax liability.

MTN and its tax consultant, KPMG Advisory Services, engaged in several meetings with the FIRS to resolve the tax dispute. In July 2021, the FIRS issued a VAT assessment of $93,590,366 million to MTN, comprising $72,551,059 as the principal liability and $21,039,807 for penalties and interest on the principal sum (first assessment).

MTN objected to the first assessment, leading to a further review by the FIRS. On 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 first assessment, the interest and penalty imposed on the revised assessment at $87.900 million was higher than the $21,039,807 imposed in the first assessment.

MTN objected to the revised assessment in May 2022, but the FIRS refused to amend it in a letter dated June 16, 2022. Dissatisfied with the FIRS’s amended revised assessment, MTN filed an appeal before the Tax Appeal Tribunal.

After a thorough review of the case, the tribunal identified five key issues for determination:

1. Whether the provision of software licensing and upgrades qualifies as a taxable supply of goods and services in accordance with the VAT Act.
2. Whether the provision/lease of bandwidth capacities by Intelsat Global Services & Marketing Ltd, a non-resident entity, through satellite transponders, qualifies as a taxable supply of goods and services.
3. Whether the FIRS has the authority to conduct a tax investigation beyond the 5-year restriction in the absence of false or untrue documents.
4. Whether offshore training provided by facilitators outside of Nigeria is 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, given that these liabilities were not final and conclusive.

During the proceedings, MTN’s counsel argued in favor of the company, while the FIRS counsel, including Abu Ocheme, Director Legal FIRS, Egodi Adedeji, and Moses Ideho, argued in favor of FIRS.

The tribunal, after considering all arguments presented, resolved the first four issues in favor of the FIRS and the fifth issue in favor of MTN.

In its final decision, the tribunal ordered MTN to settle the assessed tax liabilities accordingly and set aside the penalty and interest related to issue five.