Displeased with alleged negotiation carried out by rich countries

By Gabriel Ewepu – Abuja

An international non-profit making, governmental, non-partisan, non-religious and civil society organization, ActionAid Nigeria, AAN, weekend, expressed support for Federal Government’s position on not signing the Organisation for Economic Co-operation and Development, OEDC, tax deal.

Explaining its reasons for supporting Federal Government’s reluctance to sign the deal with OEDC, in a statement signed by the Communications Coordinator, AAN, Lola Ayanda, the organisation pointed out two major pillars in the deal, which are Pillar 1: states that if a company has a global turnover of more than 20bn euros and a profit margin of more than 10 per cent, then 20-30 per cent of the profit in excess of 10 per cent of revenue will be allocated to market jurisdictions using a revenue-based allocation key.

A multilateral agreement will be developed and opened for signature in 2022 to implement pillar 1, with a view of the multilateral agreement being in force from 2023 onwards. The agreement can then be reviewed earliest 7 years after its implementation (i.e., earliest in 2030).

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While Pillar 2: sets a global minimum tax rate of (at least) 15 per cent, and it will only apply to companies with a global turnover of more than 750m euros. The minimum tax will work as a sort of ‘top up’ tax that can be charged in the country where multinational company is resident for tax purposes. So, if a company pays two per cent corporate income tax in a foreign jurisdiction (such as a ‘source’ country where they have operations or a tax haven that they are shifting profits through), then the jurisdiction has the right to tax the remaining 13 per cent (i.e., 15%-2%=13%). In other words: this gives additional taxing rights to the country where a company is headquartered, not where they do business.

The statement reads in part, “ActionAid Nigeria agrees with the concerns expressed by the African Tax Administration Forum (ATAF) who immediately after the publication of the new deal, stated that ‘political pressure should not be brought on countries to apply these rules.’

“Nigeria recognizes and welcomes progressive moves by the Federal Republic of Nigeria to put in place unilateral measures to tax the digital economy through the Finance Act of 2019 and Significant Economic Presence Rule of 2020. We call on the Federal Republic of Nigeria to maintain these measures until an acceptable and beneficial deal is met. Nigeria should also restrain from signing Tax Treaties indiscriminately as they may have same effects as the deal.

“While the new deal is disappointing, it underlines the need for more comprehensive reforms of the international tax practices and treaties. Such reforms are expected to give countries in the global south equal voices in the process of negotiating international tax rules through e.g., a possible United Nations Tax Body. This will also give increased rights to countries in the global south to effectively tax digital companies operating within their jurisdictions.

“In conclusion, the current OECD Tax deal is neither beneficial to the country as a tax rate or FDI attractor. The worst concern about it is that it can only be reviewed in the next seven years.

“Hence, it is better for Nigeria and any developing nations to stand away from ratifying it, the unilateral measures imposed through the Finance Act of 2019 and the Significant Economic Presence Rule of 2020 stand to be more beneficial.”

However, ActionAid applauded the OECD for recognising the need to better tax ,the digital economy and the fact that big tech companies need to be making bigger tax contributions.

“However, ActionAid Nigeria supports the reluctance of the Federal Republic of Nigeria to sign onto the OECD global tax reform deal”, it pointed.

The statement also asserted that, “To corroborate this, an independent study by the Independent Commission for the Reform of International Corporate Taxation (ICRICT) found that, for some selected global southern countries of Brazil, South Africa, and India, only an average of $1 billion will be collected as cooperated taxes from the 15 per cent tax rate.

“However, at 25 per cent global minimum corporate tax, the earning of these countries is projected to double or triple in some countries, While more than ninefold in others. Brazil could generate up to $9 billion, South Africa could generate $3.65 billion, while India could generate $1.83 billion.

“Therefore, sticking to 15 per cent will not give Nigeria or other developing nations the fair share of their taxation. The global rate of 15 per cent is too low and cannot significantly reduce profit shifting from the region.”

On highlighting its position on the rationale behind the OCED’s tax deal, AAN expressed displeasure with the negotiation allegedly carried out by rich countries for their benefit.

According AAN, the deal calls for all countries to remove their unilateral measures to tax the digital economy, such as digital services taxes, and replace them with the new rules laid out in pillars 1 and 2. It is fundamentally unfair to ask countries in the global south to trade-off their unilateral taxation of the digital economy, in lieu of implementing a deal they were not part of negotiating, coupled with the fact that they will only marginally benefit from it.

The statement also argued that the fact that this new deal will take effect earliest in 2023 and cannot be reviewed until earliest 2030 is not good enough. Revenues are desperately needed in the global south to tackle the challenges posed by the covid19 pandemic and to fight poverty and inequality. Companies operating within the digital economy need to be compelled to pay their fair share of taxes.

Vanguard News Nigeria