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Nigeria kicks against plans to stop digital taxes

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The Federal Government has expressed displeasure over plans to stop taxing firms without physical presence in the country but are making money from it.

This requirement is contained in the proposal for international tax reform.

Nigeria is also concerned that the pressure mounted on it to stop taxing Non Resident Companies (NRC) “is not restricted to Digital Service Taxes, but also includes other relevant measures that have not been defined”.

Speaking at the 10th Anniversary and High-Level Policy Dialogue of the West Africa Tax Administration Forum in Abuja, Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, expressed Nigeria’s displeasure with some new tax rules which robs the country of much-needed tax revenue.

Ahmed lamented that “the building blocks on unilateral measures require that all jurisdictions withdraw their existing legal framework for taxing all NRC deriving income through digital means without a physical presence, and refrain from introducing any other ones subsequently”.

The implication of this Ahmed said “is that it restricts the number of non-resident companies engaged in digitalised businesses that may pay tax in our jurisdictions to only the 100 that are in scope of the threshold, to the exclusion of all others, regardless of the actual number”.

Read Also: FG should continue collecting VAT for now – Umahi

Digital Services transactions is put at around $11 trillion and Nigeria does not want to miss out on the tax revenue that it hopes to generate from taxing the services.

The finance minister further noted that “the unilateral measures to be withdrawn is not restricted to Digital Service Taxes but also includes other relevant measures that have not been defined, that taxes non-resident companies without physical presence in the market jurisdiction”.

According to Zainab Ahmed, “this is a challenge because Withholding Taxes on Royalties and fees for Technical Services, which represent a significant source of revenue generation to countries where payments are made, may be included in subsequent definitions of those measures. Thus, such taxes may no longer be collectible under the proposed rule”.

Ahmed is equally worried that the project introduces a mandatory binding dispute resolution mechanism for Amount A and issues connected to it including all transfer pricing and business profits disputes. “Amount A represents a political compromise designed to stave-off proliferation of digital services taxes”.

This she said, “implies that most tax disputes involving Multi National Enterprises cannot be determined under the domestic legal framework, but under international arbitration”.

“This will most likely lead to conflict with the requirements of domestic law for many jurisdictions. Under the constitution of Nigeria, for instance, tax revenue disputes are within the exclusive jurisdiction of the relevant Court” she said.

The government raised the alarm that “the cost associated with international arbitration, the unreasonableness of arbitral awards which Nigeria has experienced, and low capacity in the arbitral process are germane concerns for developing countries”.

Nigeria’s concerns she said “is centred around the strong possibility that the terms of the proposed agreement may result in undesirable outcomes for the revenue accruable to taxing jurisdictions”.

“Many developing jurisdictions may experience negative or reduced revenue collection from the implementation of the outcome of the digital economy project” she cautioned.

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