Tribunal Directs MTN to Settle $72.5 Million Fine to FIRS

The Lagos State Division of the Tax Appeal Tribunal has recently issued a significant ruling that requires MTN Nigeria Communications to pay a substantial sum of $72,551,059 in back taxes to the Federal Inland Revenue Service (FIRS). The period under scrutiny for this tax assessment spans from 2007 to 2017. This decision comes as a result of an appeal filed by MTN against the FIRS’s request for the payment of these outstanding taxes.

The Tax Appeal Tribunal, led by Professor A. B. Hamed, and comprised of panel members P. A. Olayemi, Babatunde Sobamowo, Samuel N. Ohwerhoye, and Terzungwe Gbakighir, delivered this verdict on a Friday, settling the dispute between MTN and the tax authority.

The origins of this tax controversy can be traced back to May 10, 2018 when the Office of the Attorney General of the Federation initiated an investigation into MTN’s Forms A and M transactions for the accounting years 2007 to 2017. Subsequently, in August 2018, the Office of the Attorney General adjusted the alleged outstanding tax liability to N242.2 billion for import duty and VAT related to Form M-visible transactions. Another section that pertained to VAT and Withholding Tax (WHT) was revised to $1.284 billion for Form A-invisible transactions.

In mid-2020, the FIRS informed MTN that it had received a report from the Office of the Attorney General regarding MTN’s supposed liability for VAT and WHT. Following this, the FIRS conducted a review of MTN’s tax and accounting records and upheld the tax liability initially alleged by the Office of the Attorney General.

MTN, along with their tax consultant KPMG Advisory Services, engaged in a series of discussions with the FIRS in an attempt to resolve the tax dispute resulting from the alleged liability. In July 2021, the FIRS issued a VAT assessment of $93,590,366 million to MTN, comprising the principal liability of $72,551,059 million and $21,039,807 million in penalties and interest on the principal sum (the first assessment).

MTN objected to this initial assessment, leading the FIRS to conduct a further review of the assessment. Consequently, on April 14, 2022, the FIRS issued a revised assessment of $135,697,755 million to MTN.

It is important to note that while the principal tax liability in the revised assessment, which amounted to $47,776,210 million, was less than that of the first assessment, the interest and penalty imposed by the FIRS on the revised assessment, which totaled $87.900 million, were higher than those imposed in the first assessment, which amounted to $21,039,807 million.

In response to the revised assessment, MTN filed an appeal before the Tax Appeal Tribunal, contesting the FIRS’s assessment.

After a comprehensive review of all the documentation provided by both parties, the tribunal identified five key issues for determination:

1. Whether the provision of software licensing and upgrades qualified as a taxable supply of goods and services, considering the VAT Act before its amendment by the Finance Acts.
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 had the authority to conduct a tax investigation beyond the 5-year restriction in the absence of any false or untrue document or statement by MTN.
4. Whether training provided by offshore facilitators outside of Nigeria is liable to VAT in Nigeria.
5. Whether the FIRS erred in calculating and imposing interest and penalties on MTN’s alleged non-remittance of VAT liabilities, given that these liabilities had not become final and conclusive.

MTN’s legal representatives argued that the tribunal should decide these issues in favor of MTN, while the FIRS, represented by Abu Ocheme, Director Legal FIRS, Egodi Adedeji, and Moses Ideho, called for the dismissal of MTN’s appeal and supported the FIRS’s position on these issues.

After careful consideration of the arguments presented by both parties, the tribunal ruled in favor of the FIRS on issues one to four, requiring MTN to settle the assessed liabilities accordingly. However, on the fifth issue related to penalties and interest, the tribunal ruled in favor of MTN and set aside the penalties and interest imposed by the FIRS.

In summary, the Tax Appeal Tribunal’s decision in this case requires MTN Nigeria Communications to pay a substantial sum in back taxes to the FIRS, but it also provides some relief by overturning the penalties and interest previously imposed. This decision carries significant implications for MTN and the broader telecommunications industry in Nigeria, as it underscores the importance of adhering to tax regulations and seeking clarity on complex tax matters.