Nigeria has declined to endorse the Organization for Economic Cooperation and Development (OECD) Minimum Corporate Tax Agreement, according to the Federal Inland Revenue Service (FIRS), since it does not suit the country’s overall interests.
Mohammad Nami, the Executive Chairman of FIRS, made this explanation at the Chartered Institute of Taxation of Nigeria’s recent tax conference (CITN).
Nami was responding to a comment made by Mr Aigboje Aig-Imoukhuede in his opening paper at the conference, in which he questioned the wisdom of Nigeria, along with three other countries, Kenya, Pakistan, and Sri Lanka, refusing to sign the OECD’s global minimum tax deal in response to the digital 4th industrial revolution.
In his welcome address, CITN President Adesina Adedayo expressed concerns about Nigeria’s refusal to sign the 15-point Organisation for Economic Co-operation and Development Base Erosion and Profit Shifting (OECD-BEPS) Action Plan, particularly action plans 5, 6,13, and 14, which he claimed formed the implementation of the OECD-BEPS Project 4 minimum requirements.
Nigeria’s use of reciprocal jurisdiction, he said, has its own consequences in terms of disrupting the global tax system.
However, Nami stated in his response that Nigeria’s cautious approach to the adoption of the (OECD)/ G20 Inclusive Framework two-pillar solution to the taxation of the digital economy is in the country’s best interests and will ensure that Nigeria does not miss out on potential revenue from the digital economy.
Nami explained why the agreement is unfair to Nigeria and developing nations in general by stating that the country was concerned about the impact that signing the agreement would have on the country’s tax structure and tax revenue creation after reviewing the terms of the agreement.
“There are grave concerns about how the rules would exacerbate the problems in our tax system.” To tax any digital transaction or multinational enterprise (MNE), for example, the company or enterprise must have an annual global turnover of €20 billion and a global profitability of 10%. That is a cause for concern. Because the majority of MNEs operating in our country do not fit these standards, we would be unable to tax them.
“Secondly, the €20 billion global annual turnover in question does not apply to a single accounting year; rather, the enterprise must generate €20 billion in revenue and maintain a 10% profit margin on average for four consecutive years; otherwise, the enterprise will never pay tax in our country, but in the country from which it originated, or its country of residence,” he added.
Finally, he pointed out that for Nigeria to apply the law, a global corporation must have generated at least €1 million in revenue from Nigeria within a year.
Nami believes that this is an unjust situation, particularly for domestic businesses that have a minimum revenue of N25 million (about €57,000) and are subject to Nigerian corporate income tax.
He went on to say that this rule will exempt a large number of multinational corporations from paying taxes in Nigeria.
In other words, even multinational corporations that currently pay taxes in Nigeria would stop paying taxes to us as a result of this rule.
Fourth, the FIRS Executive Chairman indicated that under the terms of the Two-Pillar Solution, in the case of a dispute between Nigeria and a Multinational Enterprise, Nigeria would be subjected to an international arbitration panel rather than Nigeria’s domestic court system.
“Even when the money is directly tied to a Nigerian member of an MNE group, which is typically liable to tax in Nigeria on its worldwide income and subject to Nigerian laws, it would be subject to international arbitration rather than Nigeria’s court system and laws.” We are concerned about receiving a fair bargain as a result of this procedure.
“More importantly, a dispute resolution process involving a Multinational Enterprise before an international arbitration tribunal outside the country would result in high legal fees, travel expenditures, and other incidental costs.” Nigeria will spend more, even if the tax revenue from such cases was not enough,” he stated.
On the possibility of Nigeria losing significant revenue if it does not sign the OECD Inclusive Framework rules for the taxation of the digital economy, the FIRS Executive Chairman stated that this was not a concern because the country had already proposed four solutions to the problem of digital economy taxation.