Nigeria will not endorse a framework for what has been called a two-pillar solution to taxation of the digital economy, promoted by the Organization for Economic Cooperation and Development (OECD)/ G20 included. This was revealed in a press release by the Federal Internal Revenue Service (FIRS), which says the proposal is not in the best interest of the country, and wants to “ensure that Nigeria does not lose out on potential revenue from the digital economy”.
In a statement released on behalf of FIRS Executive Chairman Muhammad Nami, it was revealed that the terms of the agreement had been revised, and this raised concerns about the impact signing the agreement would have. on the tax and tax system of the country. income generation.
“There are serious concerns about how the rules would make problems in our tax system worse. For example, in order to be able to tax any digital sale or any multinational company (MNE), this company or business must have an annual worldwide turnover of 20 billion euros and an overall profitability of 10%. It is a concern. Indeed, most of the multinationals that operate in our country do not meet these criteria and we would not be able to tax them,” the statement read.
“Secondly, the global annual turnover of 20 billion euros in question is not just about an accounting year, but is that the company must achieve 20 billion euros in turnover and 10% of profitability on average for four consecutive years, otherwise this company will never pay tax in our country, but in the country of origin of the company or its country of residence,” reads the press release.
Third, it was noted that for Nigeria to subject a multinational company to tax under the rule, the entity must have generated at least €1 million in revenue in Nigeria in a year.
According to the FIRS, this is an unfair position, especially for domestic companies which, with a minimum turnover of more than 25 million naira (approximately €57,000), are subject to tax on corporate income in Nigeria. He added that this rule will remove so many multinational companies from the reach of those currently paying taxes in Nigeria.
In other words, even multinational corporations that currently pay taxes in Nigeria would stop paying taxes in the country because of this rule.
Fourthly, on the issue of dispute settlement under the two-pillar solution, it was noted that in the event of a dispute between Nigeria and a multinational enterprise, Nigeria would be referred to an international arbitration panel against Nigeria’s own judicial system.
“It would be subject to international arbitration and not to the judicial system and laws of Nigeria, even where the income is directly related to a Nigerian member of a multinational group, who is normally subject to tax in Nigeria on his income worldwide and subject to the laws of Nigeria.
We are concerned about getting fair treatment from such a process. Moreover, such a dispute resolution process with a multinational company, in an international arbitration panel outside the country, would entail heavy expenses in legal services, travel and other incidental costs.
“Nigeria would spend more; even beyond the tax yield of such cases,” the statement read.
On the issue of Nigeria losing significant revenue if it fails to comply with the rules of the OECD Inclusive Framework for Taxing the Digital Economy, the statement said it is not a problem as the country has already offered four ongoing solutions to the tax challenge. of the digital economy.
According to the statement, it is already practical for the country’s tax laws to change every year to reflect current global realities, and it was through these reviews that the Significant Economic Presence (SEP) rule was developed, through the finance law of 2019 and 2020.
The SEP rules set a threshold for multinational companies, with no physical presence in Nigeria, to register and pay taxes in the country.
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Additionally, technology has been deployed to bring digital transactions to the tax net. Coupled with the rule of significant economic presence, the FIRS claims to have started to see the impact of the technology deployed; companies like Twitter, Facebook, Netflix, LinkedIn among others which have no physical presence in Nigeria and which until now did not pay taxes have now registered for tax purposes and are paying taxes accordingly.
There is also the Data-4-Tax initiative, a blockchain technology that FIRS is jointly developing with the 36-state Internal Revenue Service and the FCT, under the auspices of the Joint Tax Board. With this project, FIRS is confident of having a transparent view and access to all economic activities of individuals and corporate entities in Nigeria in the future, including money spent on digital commerce.
“The fourth is that we have set up a specialized office, the Non-Resident Persons Tax Office, to handle the taxation of non-resident persons and cross-border transactions, including all operational issues of tax treaties and income from of Nigeria by non-resident individuals and businesses,” the statement read.
According to the statement, the FIRS Executive Chairman appreciates members of the Nigerian public who have repeatedly expressed their concerns over Nigeria’s decision not to endorse the two-pillar solution, saying that their concerns stem from a place of genuine passion and patriotism, rooted in the pursuit of a better Nigeria.