Nigeria Sends Clear Signal of Getting Serious on Tax Evasion, Avoidance
With revenue from petroleum taxes at its lowest point in fifteen years, Nigeria is under even more pressure to tackle tax evasion and pursue other revenue enhancing initiatives. Indeed, experts have found that tax evasion plays a significant part in the over $50 billion that the continent loses every year to illicit financial flows. West African countries in particular stand “to lose $56 billion between 2012 and 2018 in tax revenue from corporations, most from ineffective tax incentives and transfer pricing.” Thus, it is a major development that the Nigerian government finally has ratified the Convention on Mutual Administrative Assistance in Tax Matters (“the Convention”).
The Convention is “the most comprehensive multilateral instrument available for all forms of tax cooperation to tackle tax evasion and avoidance.” Under the Convention, States agree to provide administrative assistance — in the form of information exchange, recovery assistance and service of documents — to each other in tax matters. (Where appropriate, this assistance may involve measures issued by judicial bodies.) Broader than the standard bilateral tax treaty, the Convention applies not only to taxes on income, profits, capital gains, and net wealth but also taxes imposed by political subdivisions or local tax authorities, compulsory social security contributions, and other categories (e.g., property taxes, value added taxes, excise taxes).
As a party to the Convention, Nigeria now theoretically has access to the tax files of the over 60 participating countries “including all G20 countries, all BRICS [Brazil, Russia, India, China and South Africa], almost all OECD countries, major financial centres and a growing number of developing countries.” Nigeria can request this information or, with respect to certain categories of cases, enter into agreements for the information to be exchanged automatically. Perhaps the lowest hanging fruit is the spontaneous exchange of information provision under which other States must forward information without prior request from Nigeria. This provision is triggered by a variety of circumstances, most of which pertain to situations where there may have been a tax loss to Nigeria. Tax savings that may have resulted from “artificial transfers of profits within groups of enterprises” — in other words, transfer pricing — is one of these situations.
Nigeria also stands to benefit considerably from the enforcement support provided for by the Convention. Upon a recovery assistance request from Nigeria, other States are obligated to “take the necessary steps to recover tax claims […] as if they were its own tax claims.” Nigeria also can request other States to effect service of documents, including judicial decisions, on its behalf.
Ratification of the Convention is a clear sign that Nigeria intends to pay far closer attention to the income-generating activities, and subsequent tax liabilities, of multinational corporations and other taxpayers.
