Nigeria signs multilateral agreements to tackle international tax avoidance and evasion

The Chairman of Federal Inland Revenue Service (FIRS); Mr. Babatunde Fowler, on Thursday 17 August 2017, signed the following agreements:

  • the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI)
  • the Common Reporting Standard Multilateral Competent Authority Agreement‎ (CRSMCAA)

The MLI and CRSMCAA will become effective in Nigeria after they are ratified by the National Assembly and three months after Nigeria deposits the instrument of ratification with the Organisation for Economic Cooperation and Development (OECD).

The MLI was developed as part of OECD and G20’s Base Erosion and Profit Shifting (BEPS) project and facilitates swift implementation of the BEPS outcomes/measures relating to Double Taxation Anti-Avoidance Treaties (DTAs). It is intended to be applied side-by-side all of Nigeria’s existing nineteen (19) DTAs; including those awaiting ratification, (DTAs with Republic of Korea, Mauritius, Qatar, Singapore, Spain, Sweden and United Arab Emirates). Some of its anticipated impacts include:

  • imposition of taxes on gains derived by residents of Nigeria’s DTA-countries from disposal of their Nigerian shares or comparable interests where 50% of the value of the shares derive from real property located in Nigeria
  • limitation of the list of exempted activities contained in DTAs under the definition of “permanent establishment” to only activities that are of a preparatory or auxiliary character
  • expansion of the definition of “permanent establishments” to include instances where same entity or another closely related entity carries on other activities (that qualify as permanent establishment) in another place in Nigeria, or if their overall combined activities is not of a preparatory or auxiliary character

The CRSMCAA, on the other hand, sets out the nature and type of information that the revenue authorities of signatory countries are required to obtain from their financial institutions and automatically exchange with other jurisdictions every year. These include – the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.

The signing of the two agreements further underscores the government’s determination to reduce the incidence of tax evasion and tackle profit-shifting from Nigeria. It is therefore important for taxpayers and other stakeholders to proactively assess the impact these agreements (when ratified) would have on their businesses.

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