Nigeria Tribunal Confirms VAT on Imported IT Services Recharged at Cost but Rejects 150% Penalty

Summary

The Lagos Zone of Nigeria’s Tax Appeal Tribunal upheld a USD 1.67 million VAT assessment against PZ Cussons Nigeria Plc for IT services obtained from non-resident vendors, centrally paid by a UK group company and recharged without a mark-up. The cost-reimbursement characterization did not eliminate VAT on the underlying imported services.
The Tribunal held that VAT arose when the IT services were supplied and consumed in Nigeria, not when PZ Nigeria subsequently reimbursed the UK entity. Delayed payment resulting from foreign-exchange restrictions, regulatory approvals or the National Office for Technology Acquisition and Promotion process did not postpone the Nigerian recipient’s self-accounting obligation.
However, the Tribunal rejected the 150% failure-to-collect penalty because PZ Nigeria was the service recipient, not a supplier required to collect VAT from a customer. It held that the applicable consequence was the late-remittance regime, consisting of a 10% penalty on unpaid VAT plus the prescribed interest.

Article

Nigeria’s Tax Appeal Tribunal, Lagos Zone, has confirmed that an intragroup reimbursement does not remove the recipient’s VAT obligation where the underlying expenditure relates to imported services supplied and consumed in Nigeria.

In PZ Cussons Nigeria Plc v Federal Inland Revenue Service (Appeal No. TAT/LZ/VAT/044/2024), PZ Cussons International Limited, a UK group company, procured information technology services from third-party vendors for group entities. It paid the vendors centrally and recharged the attributable costs to PZ Cussons Nigeria Plc without a mark-up, margin, commission or profit element.

The Tribunal accepted that the recharge, considered independently, represented reimbursement of costs rather than a separate taxable service supplied by the UK company. Nevertheless, it looked through the recharge mechanism to the underlying hosting, network, application-management and consultancy services. Those services were obtained from non-resident vendors for PZ Nigeria’s benefit and consumed in Nigeria.

Accordingly, the Tribunal treated the UK company as an agent or payment conduit rather than the supplier of a distinct service. PZ Nigeria, as the Nigerian recipient of the imported services, was required to self-account for and remit VAT. The absence of VAT on the vendors’ invoices and the fact that the UK company initially settled the costs did not alter this obligation. Nigeria’s VAT legislation generally imposes tax on taxable supplies other than specifically exempt goods and services. [lawsofnige…placng.org]

The Tribunal also rejected PZ Nigeria’s argument that VAT had not become due because it had not yet reimbursed the UK company. It held that the liability arose when the underlying services were supplied. Regulatory approvals, foreign-exchange constraints and delays associated with the National Office for Technology Acquisition and Promotion process did not suspend the VAT obligation.

The Federal Inland Revenue Service’s assessment included a 150% penalty for failure to collect VAT. The Tribunal found that provision inapplicable because PZ Nigeria was not a supplier that had failed to collect VAT from a customer. Instead, it was a recipient required to self-account and remit the tax. The Tribunal therefore substituted the applicable late-remittance consequences: a 10% penalty on the unpaid VAT, together with interest calculated using the relevant Central Bank of Nigeria rate.

The principal VAT liability of USD 1,666,329.63 remained valid. The Tribunal held that the assessment was procedurally sound and severable, allowing the principal tax to stand despite the incorrect penalty provision.

For multinational groups, the judgment highlights the need to identify the underlying supplies behind cost recharges, document any agency or conduit relationship, and assess Nigerian VAT when imported services are received. Businesses should not assume that a no-mark-up recharge, delayed settlement, missing VAT invoice or centralized payment arrangement defers or eliminates recipient-accounted VAT. The judgment was delivered on 17 August 2026.

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