Nigeria Revenue Authority explains why it refuses to support OECD Global Tax Agreement

IBFD Correspondent Augustine Eigbedion reports that the Executive Chairman of Nigeria’s Federal Revenue Service (FIRS) (hereafter referred to as the Chairman) issued a statement at the Institute of Chartered Tax Accountants meeting on May 20, 2022, clarifying why Nigeria refused to sign up to the OECD/G20 Inclusive Framework Response Statement on the Dual Pillar Approach to the Tax Challenge of the Digital Economy (the Statement).

The executive chairman said that signing the declaration would have a detrimental impact on Nigeria’s tax system and ambitious revenue-generating campaigns, especially digital taxation.

Explaining Nigeria’s conservative approach to signing the statement, the Executive Chairman highlighted the following:

– The condition for the introduction of digital tax under pillar 1 is that the company must have a global annual turnover of 20 billion euros and maintain a global average profit margin of 10% for 4 consecutive years, which is not in line with the commercial reality of Nigeria. Most multinational corporations operating in Nigeria do not meet such standards. Therefore, Nigeria will not be able to collect taxes from such digital transactions;

– Second, for Nigeria to tax MNEs under pillar 1 requirements, provided that the entity generates a turnover of at least EUR 1 million from Nigeria within a year. This will create an unfair situation that directly affects domestic businesses already subject to corporate tax in Nigeria. Ultimately, Pillar One will result in the delisting of multiple multinational corporations from the list of entities liable to tax in Nigeria;

– The dispute settlement rules in the statement will subject Nigeria to international arbitration panels and a judicial system that is incompatible with Nigeria’s own judicial system. Therefore, when Nigeria has a dispute with a member enterprise of a multinational conglomerate in Nigeria, the enterprise is usually governed by Nigerian law and pays taxes in that country on its global income. In addition to obtaining tax benefits from such disputes, Nigeria will also be liable for Huge fee.

The Executive Chairman noted that to ensure that Nigeria does not lose potential revenue from the digital economy, the country has proposed several solutions to tax the digital economy. These include an annual amendment to Nigeria’s tax code that sets a threshold for multinational companies with a physical presence in the country to register and pay taxes on their digital transactions in the country.

Note: Statements by the FIRS Executive Chairman have also been reported in several newspaper publications.