Atlas Copco Tanzania Ltd. is part of Atlas Copco Group, a conglomerate of multinational companies headquartered in Sweden. The group produces and sell compressors, vacuum solutions, generators, pumps, power tools etc. Apart from supplying generators in Tanzania on its own, Atlas Tanzania sold generators as an agent of its sister companies which had no presence in the country. For the latter type of sales, known as “indent sales”, Atlas Tanzania earned a commission.
Being oblivious that the commission income attracted Value Added Tax (“VAT”), Atlas Tanzania did not file any VAT returns on indent sales until its external auditors, KPMG, informed it of the requirement. By then, Atlas Tanzania had posted in its sales ledgers commission income amounting to TZS. 134,413,682,281.00 for FY 2007 and 2008.
Atlas Tanzania then accounted for VAT on the commission for the years 2007 and 2008 amounting to TZS. 5,692,574,000.00, which was paid through the VAT returns filed in 2009. This amount was much smaller than the sum of TZS. 13,413,682,281.00 originally booked in the sales ledgers for the two Fiscal Years. This was due to the fact, that Atlas Tanzania had reduced the amount on the ground that there was an overstatement of the commission by TZS.7,721,108,281.00, which was then corrected through an accounting reversal based on ordinary accounting practices.
The tax authorities did not agree with the alleged overstatement and issued a notice of additional assessment for the sum of TZS. 2,118,115,834.00 representing the outstanding VAT plus interest.
On appeal, the assessment issued by the tax authorities was upheld by the Appeals board and Tax Tribunal.
Atlas Copco Tanzania Ltd. then appealed the decision to the Court of Appeal.
Judgement of Court of Appeal
The Court dismissed the appeal of Atlas Tanzania.
“We would thus conclude that the present appeal presents no question of law but matters of fact that do not merit the attention of the Court in terms of section 25 (2) of the TRAA.”atlas-copco-tanzania-ltd-vs-tra-civ-app-no-167-2019