Supreme Court dismisses Unilever's VAT appeal in toothbrush, soap dispute

The Supreme Court has rejected Unilever Sri Lanka Limited's appeal in a long-standing VAT case centring on two of its widely-sold household products. The dispute involves Signal brand toothbrushes and Vim washing bars, both manufactured by external companies operating under arrangements with the multinational consumer goods firm.

In its ruling, the court determined that manufacturing arrangements do not exempt Unilever from VAT obligations. Although the physical production of Signal toothbrushes and Vim washing bars was conducted by third-party manufacturers, the Supreme Court found that Unilever retained sufficient control and responsibility to be classified as the liable party for tax purposes.

The decision represents a significant development in tax interpretation regarding outsourced manufacturing in Sri Lanka. The case underscores the tax authority's position that companies cannot circumvent VAT obligations simply by contracting external manufacturers, regardless of the operational arrangements in place.

This judgment may have broader implications for other multinational corporations operating similar manufacturing arrangements within Sri Lanka, potentially affecting how companies structure their production and tax responsibilities.