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OECD’s corporate tax plan not in Nigeria’s interest, says FIRS

The Federal Inland Revenue Service (FIRS), has declared that the Organisation for Economic Cooperation and Development (OECD)/G20 Inclusive Framework’s Two-pillar Solution to Taxation of the Digital Economy, is not in the best interest of Nigeria.

As such, its refusal to endorse the framework is to ensure that Nigeria does not lose out on potential revenue from the digital economy.

The Executive Chairman FIRS, Muhammad Nami, who said this in a statement at the weekend, noted that the agreement is unfair to Nigeria and the developing countries in general.

Having reviewed the conditions of the agreement, he said Nigeria had concerns over the impact that the signing of the document would have on the country’s tax system and revenue generation.

Nigeria had concerns over the impact that the signing of the document would have on the country’s tax system and revenue generation.

Losing tax revenues

The statement reads in part: “There are serious concerns on how the rules would compound the issues in our tax system. For instance, to be able to tax any digital sale or any multinational enterprise (MNEs) that company or enterprise must have an annual global turnover of €20 billion and global profitability of 10 per cent. That is a concern.

“This is because most MNEs that operate in our country do not meet such criteria and we would not be able to tax them.

“Secondly, the €20 billion global annual turnovers in question is not just for one accounting year, but it is that the enterprise must make €20 billion revenue and 10 per cent profitability in average for four consecutive years, otherwise that enterprise will never pay tax in our country, but in the country where the enterprise comes from, or its country of residence.”

Nami also noted that for Nigeria to subject an MNE to tax under the rule, the entity must have generated at least €1 million turnover from Nigeria within a year.

This, he said, is an unfair position, especially to domestic companies which, with a minimum of above N25 million (that is about €57,000) turnover, are subject to Companies Income Tax in Nigeria.

He argued that this rule will take off many MNEs from the scope of those that are currently paying taxes to Nigeria; while those that are currently paying taxes in Nigeria would stop paying because of this rule.

We are concerned about getting a fair deal from such a process. More so, such a dispute resolution process with a Multinational Enterprise, in an international arbitration panel outside the country, would lead to heavy expenses on legal services, travelling and other incidental costs.

Dispute resolution

On the issue of dispute resolution under the Two-Pillar Solution, the Chairman said: “It would be subject to international arbitration and not Nigeria’s judicial system and laws – even where the income is directly related to a Nigerian member of an MNE group, which is ordinarily subject to tax in Nigeria on its worldwide income and subject to the laws of Nigeria.

“We are concerned about getting a fair deal from such a process. More so, such a dispute resolution process with a Multinational Enterprise, in an international arbitration panel outside the country, would lead to heavy expenses on legal services, travelling and other incidental costs.

“Nigeria would spend more; even beyond the tax yield from such cases.”

While rejecting the OECD Inclusive Framework, Nami informed that Nigeria had already put forward four ongoing solutions to the challenge of taxation of the digital economy.

He said: “One, we have made it a point of practice to annually amend our tax laws to reflect the current global realities, it was courtesy of these reviews that we developed the Significant Economic Presence (SEP) rule, through the Finance Act of 2019 and 2020.

“The SEP rules set a threshold for Multinational Enterprises, without physical presence in Nigeria, for registration and payment of taxes to the country.

“Two, we have deployed technology in order for us to bring digital transactions to the tax net. Coupled with the Significant Economic Presence rule, we have started seeing the impact of the technology we have deployed; companies like Twitter, Facebook, Netflix, LinkedIn, among others who have no physical presence in Nigeria and that were hitherto not paying taxes have now registered for tax purposes and are paying taxes accordingly.

“A positive to this is that we surpassed our target in the year 2021, despite the challenge posed to the global economy, including our own economy, by the COVID-19 pandemic.

“The third initiative is the Data-4-Tax Initiative, a blockchain technology which FIRS is jointly developing with the Internal Revenue Service of the 36 states and that of the FCT, under the auspices of the Joint Tax Board.

“With this project, we are confident that we are going to have a seamless view and access to all economic activities of individuals and corporate bodies in Nigeria going forward, including money spent on digital commerce.

“The fourth is that we have set up a specialised office, the Non-Resident Persons Tax Office, to manage the taxation of non-resident persons and cross-border transactions, including all tax treaty operational issues and income derived from Nigeria by non-resident individuals and companies.”

The FIRS therefore appreciated Nigerians, who had raised concerns at various occasions over the country’s decision not to endorse the Two-Pillar Solution, saying it was done in good faith.

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