Tax Appeal Tribunal updolds VAT liability on cross-border IT Services in PZ Cussons Nigeria PLC vs FIRS

Tax Appeal Tribunal updolds VAT liability on cross-border IT Services in PZ Cussons Nigeria PLC vs FIRS

19 Oct 2026 3 min read

Overview

On 3 August 2026, the Tax Appeal Tribunal, Lagos Zone, dismissed in part PZ Cussons Nigeria PLC's appeal against the Federal Inland Revenue Service (FIRS), now the Nigeria Revenue Service (NRS), challenging the VAT assessment on IT cost recharges under a Shared Services Agreement. The Tribunal upheld the principal VAT liability of USD 1,666,329.63 on those recharges.
In Appeal No. TAT/LZ/VAT/044/2024, the Tribunal addressed two questions. The first was whether cost recharges under a Shared Services (Information Technology) Agreement between a Nigerian company and its UK affiliate constitute a taxable supply of services within the meaning of the Value Added Tax Act (as amended). The second was whether VAT liability arises at the point of supply or upon payment.

Delivering the judgement, the Honourable Tribunal resolved the appeal on four issues for determination. The Tribunal held that the underlying IT services supplied for the benefit of and consumed by the Appellant in Nigeria constituted taxable services under the VAT Act. The Tribunal found that the recharge arrangement between the Appellant and PZCIL did not alter the statutory incidence of VAT. The Tribunal further held that VAT liability arises at the point of supply and not upon payment, and that the requirement for NOTAP approval did not suspend the operation of the charging provisions of the VAT Act. However, the Tribunal found that the 150% penalty imposed under Section 34 of the VAT Act was wrongly applied. The Tribunal held that Section 34 applies to a taxable person acting in the capacity of a supplier who fails to collect VAT from a customer, and that the reverse charge mechanism imposed a self-accounting obligation, not a collection obligation. The Tribunal set aside the penalty The Tribunal's Decision and interest imposed under Section 34 and directed the Respondent to reassess the Appellant's penalty and interest liability in strict compliance with Section 19 of the VAT Act, which provides for a penalty of 10% of the unpaid tax and interest at the Central Bank of Nigeria minimum re-discount rate.
Contents

Practical Implications for Multinational Groups and Cross- Border Service Arrangements

This judgment establishes the following principles with significant implications for multinational groups, tax administration, and cross-border service arrangements in Nigeria:

  1. Cost recharges without markup may not constitute a taxable supply by the recharging entity, but the underlying services may still be taxable in Nigeria. Multinational groups operating shared services arrangements must carefully consider the VAT implications of cross-border service flows, even where costs are recharged at cost without any profit element.
  2. VAT liability arises at the point of supply, not upon payment. Taxpayers cannot defer VAT liability on imported services by delaying payment to the non-resident supplier. The statutory trigger is the supply of  services to a person in Nigeria, not the subsequent transfer of funds.
  3. The reverse charge mechanism imposes a self-accounting obligation, not a collection obligation. The distinction between collection and remittance is critical for determining the applicable penalty regime. Taxpayers who fail to self-account for VAT on imported services should be subject to the penalty regime under Section 19 of the VAT Act, not Section 34.
  4. Penal provisions in tax statutes must be construed strictly. The Tribunal reaffirmed the principle that penal provisions cannot be extended by implication or administrative convenience. Tax authorities must apply the correct statutory provision when imposing penalties and interest.
  5. Substance over form prevails in tax adjudication. The Tribunal will look beyond the contractual or invoicing structure of a transaction to its true commercial and economic reality. The interposition of related entities in a payment flow will not shield a transaction from VAT liability where the underlying services are consumed in Nigeria.
  6. Regulatory approvals do not suspend tax obligations. The requirement for NOTAP approval does not suspend the operation of the charging provisions of the VAT Act. Taxpayers must account for VAT on imported services within the statutory timeline, irrespective of regulatory or foreign exchange constraints.

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Tax Appeal on PZ Cussons Nigeria PLC vs FIRS

Tax Appeal on PZ Cussons Nigeria PLC vs FIRS

The Tax Appeal Tribunal's judgment in PZ Cussons Nigeria PLC v. FIRS (2026) provides much-needed clarity on the VAT treatment of cross-border shared services arrangements in Nigeria. The Tribunal has unequivocally affirmed that the underlying IT services consumed in Nigeria constitute taxable supplies under the VAT Act, and that the recharge arrangement between related parties does not alter the statutory incidence of VAT. The decision reinforces the reverse charge mechanism under Section 10 of the VAT Act and confirms that VAT liability arises at the point of supply, not upon payment.

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