Why Nigeria Did Not Sign OECD Minimum Corporate Tax Agreement — FIRS

The Federal Inland Revenue Service has explained why Nigeria did not sign the Organization for Economic Cooperation and Development G20 Inclusive Framework two-pillar solution to tax challenges of the digitalized economy.

The OECD G20 Inclusive Framework two-pillar solution proposes a framework of rules aimed at tackling base erosion and profit shifting, and providing for the taxation of Multinational Enterprises.

Four member countries of the Inclusive Framework (Nigeria inclusive), out of 140, have not agreed to the Two-Pillar solution.

Nigeria’s reasons for not agreeing to the Two-Pillar solution was explained in a webinar session hosted by the FIRS.

The Executive Chairman of the FIRS, represented by the Group Lead, Executive Chairman’s Group, Mr M. L. Abubakar, noted that taxation of the digital economy has become a topical issue that many economies and developmental blocs are working to solve, including the OECD and the United Nations Tax Committee who have commissioned projects to produce a common front for countries to adopt.

He said, “Nigeria has been involved in various work-streams under the OECD project and had articulated its position on the technical work towards the goal of producing a common front for countries.

“However, our concerns on potential negative revenue returns that the rule designs would have for developing countries were unaddressed, Nigeria abstained from committing to the rules at this time.”

He explained that the webinar was to educate the general public on the modalities and impact of the statement released by the OECD Inclusive Framework on the 8th of October 2021 and to provide a broad picture on why Nigeria abstained from signing.

The webinar which was a special edition of the FIRS Taxpayer Engagement Series was hosted by Mr. Olufemi Olarinde, Technical Assistant (Tax Policy) to the Executive Chairman FIRS, while technical papers where delivered by Mr. Mathew Gbonjubola, Mr. Temitayo Orebajo, Mr. Kehinde Kajesomo, Mr, Emmanuel Eze and Ms. Aisha Isa, all staff of the FIRS.

Explaining in details, Mr. Mathew Gbonjubola, the Group Lead Special Tax Operations Group, and Nigeria’s representative at the OECD Inclusive Framework highlighted that despite the expected outcome that both Pillars will increase Global Corporate Income Tax by as much as $150bn per annum, with attendant favourable environment for investment and economic growth, there were serious concerns that the pillars did not address negative revenue outcome for Nigeria and other developing countries.

He said, “The general issues that developing countries have with the outcome that was published in October 8th is the high cost of implementation. And that speaks to the complexities of the proposal in the inclusive framework statement.

“In every complex situation or rule, implementation and compliance will always be difficult. When implementation or compliance is difficult, there would be high cost of implementation.

“Another issue was that the economic impact assessment that was carried out on Pillar 1 and 2 were founded on an unreliable premise.

“The country-specific impact assessment that was done was top-down. Somebody just looked at the GDP of Nigeria, and says Nigeria’s GDP is this much and then they should be able to buy this number of shoes and things like that.

“And you and I know, in that kind of postulation, the margin of error is usually very wide. That exactly was what happened with this. Particularly for Nigeria, when we ran the numbers, it was way off the figures that the OECD gave us.

“And the final issue most developing countries had was that the developed world, within the inclusive framework, was very indifferent to the concerns expressed by most developing countries. This you can see from the outcome, with respect to the complexity, issues of high cost of implementation and on the issue of revenue accruable to developing countries.

“When you look at the bulk of the money that would accrue from the project, if any, 70per cent – 80 per cent will go to the developed countries. Almost nothing comes to the developing countries.”

On the specific concerns raised by Nigeria, Gbonjubola, who led Nigeria’s team on the Inclusive Framework negotiations, explained that while the whole project started out to find solutions to the challenges of a digitalised economy the outcome was completely different.

He went further to note that the statement by the OECD Inclusive Framework required all parties to remove all Digital Service Taxes and other relevant similar measures with respect to companies taxation and to commit not to introduce such measures in the future.

“The statement required the withdrawal of unilateral measures by countries. Which Nigeria does not have a problem with. Nigeria does not have any unilateral measure targeted at digital services companies. However, the paper that was released on unilateral measures was so expansive in its definition that we are concerned that the taxing rights that Nigeria has always enjoyed may be withdrawn,” he added.

He further explained that Nigeria is unable to implement the mandatory binding resolution on arbitration because of constitutional limitations as to tax dispute resolution.

The Webinar had in attendance Prof. Abiola Sani, a professor of Commercial Law in Nigeria as well as other eminent tax practitioners and representatives of government and private institutions. The representatives of the Kenya and Zambia revenue authorities were also in attendance.

You might also like
Leave A Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.