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Exemption of sales in the ordinary course of business from WHT

Exemption of sales in the ordinary course of business f

The Tax Appeal Tribunal (TAT or “the Tribunal”) Lagos Zone on 30 November 2020 decided in Tetra Pak West Africa Limited (Tetra Pak or “the Appellant”) and Federal Inland Revenue Service (FIRS or “the Respondent”) that sales in the ordinary course of a company’s business are exempt from withholding tax (WHT) in line with the provisions of the WHT Regulations pursuant to the Companies Income Tax Act, C21, LFN, 2004 (as amended) (CITA).

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Wole Obayomi

Partner & Head, Tax, Regulatory & People Services

KPMG in Nigeria

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Facts of the Case

Tetra Pak’s principal business activity is the importation and sale of packaging equipment and spare parts to customers in the manufacturing sector. In July 2016, the Appellant wrote a letter to the FIRS seeking clarification on whether its principal business, the sale of packaging equipment, spare parts and materials, qualified as sales in the ordinary course of business and, therefore, exempt from WHT. The FIRS in its response letter of 18 December 2019 noted that the sale of packaging equipment, spare parts and materials is a contract with rights and liabilities enforceable by law and, therefore, did not qualify as sales in the ordinary course of business. The FIRS further noted that Tetra Pak’s sales were subject to WHT at the rate of 5% based on the provisions of its Information Circular No. 9801 of 1 October 1998.

Dissatisfied with the position of the FIRS, the Appellant appealed to the Tribunal, seeking the following reliefs, among others:

  1. a declaration that its sale of packaging equipment, spare parts and materials qualifies as sales in the ordinary course of business and is, therefore, exempt from WHT,
  2. a declaration that the FIRS cannot amend the provisions of the CITA by its information circulars,
  3. a dismissal of the FIRS’ letter dated 18 December 2019, wherein the FIRS stated that Tetra Pak’s business activity does not qualify as sales in the ordinary course of business; and

In response to the above grounds of appeal, the FIRS argued that the relevant provision of the WHT Regulations were ambiguous, and that an endorsement of the Appellant’s position would defeat the purpose of the WHT Regulations, and lead to loss of revenue to the government. The FIRS also posited that the intent of the legislators was to make WHT applicable to all types of contracts and agency agreements of which the Appellant’s business activity falls under, except for contracts of sale in the ordinary course of business. The FIRS therefore urged the Tribunal to resolve the issues in its favour.

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