FG ratifies convention on tax treaties to curb profit shifting, tax evasion

Nigeria’s government has approved the signing of a multilateral convention on tax related treaties that will end profit shifting and tax evasion by multinationals, officials said on Wednesday. Profit shifting refers to tax planning strategies used by multinational companies, that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity.

The approval given by the Federal Executive Council came following a memo submitted by the Minister of Finance, Kemi Adeosun, who said this was part of the government’s plan to rack up its tax base and improve its revenue generation.

The convention will enable Nigeria evaluate, amend and cancel existing treaties not beneficial to the country. Signing of the convention will also curtail illicit financial flows.

Briefing newsmen after the weekly FEC meeting chaired by Acting President Yemi Osinbajo, the minister of Finance said “This convention will give us the right to go and amend that treaty and opt out of some of the treaties that we have already signed in previous administration, that are not appropriate for Nigeria. The convention allows us to renegotiate.
“The benefits are the convention will swiftly modify existing bilateral tax treaties to implement tax treaty related matters in a cost efficient manner instead of individual negotiation and amendment of the treaty. It will incorporate into existing tax treaties provisions that will prevent the granting of tax treaty benefit in an appropriate circumstance.
“It will address tax treaty abuse, promote transparency and drastically curtail illicit financial flows and ultimately it will increase the tax revenue of the government,” Kemi Adeosun, minister of finance said.

Nigeria is racing to exit its worst economic recession in 25 years and much will rely on its ability to stimulate private capital and boost infrastructural spending. This year, GDP shrank 0.5 percent in the first three months, according to state data agency, the National Bureau of Statistics (NBS).

Last year, the country said it had lost about $1trillion to tax evasion and avoidance by multinationals. The government had also hinted last year that to address the problem it will soon start to compel multinational operating in Nigeria to  provide reports on their operations in other countries. On the other hand Nigeria is said to have lost about $178billion to illicit financial flow in the last ten years.

Adeosun who briefed alongside the Ministers of Information and Culture, Lai Mohammed, Power, Works and Housing, Babatunde Fashola and Transport, Rotimi Amaechi, explain that the administration is focused on revenue generation and mobilisation and part of that work is to improve its tax collection.

“One of the means by which major companies evade is a practice called base erosion and profit shifting which means that the profit that was made in Nigeria using accounting methods shift it to a country that has little or no tax.
“So really the country in which profit was generated doesn’t get tax, they go and declare those profits in a country that has very low tax.
There is a contact among the G20 countries and the OECD to end this and Nigeria was part of those who negotiated this convention and today
council gave us permission to go and sign the conventions” she said.
Some of the existing tax treaties with a particular country may say that their national carrier will not pay tax in Nigeria and in exchange Nigeria’s national carrier will not pay tax in their country but as you know Nigeria does not have a national carrier, so that type of arrangement is adverse fro Nigeria. Adesoun noted that the government may not be able to retrieve all it lost to tax evasion by these multinationals, however going forward it tighten the noose to avoid re-occurrence.

Council also gave approval for the completion of Baro River Port in Niger state, Transport minister told reporters adding that the council
deliberated on the major contract that will assist in the completion which is the purchase of forklifts. “We hope that in the next four to six months we should be able to complete the Baro River Port. The minister of works was also directed to look at the roads leading to the River Port while on the other side we will look at the revival of the narrow gauge to the Port” Amaechi said adding that the cost to complete the project is not more than N500million.

FEC gave approval for the reimbursement of Kwara state government to undertake the construction of the Kayamashi road which is a road that serves the Agricultural belt that produces Agro Product between Oyo and Kwara state, Fashola said. He explained that the Kwara state government had applied to be allowed to fix the road on the basis that they will be refunded at sometime in the future.

“We have actually received anticipatory approval from Mr. President and Council has ratified that approval for them to continue. The road contract is N7.943billion” he said.
Fashola said Council also ratified an earlier approval given for GE to undertake the Afam emergency fast power project which is part of the ministry’s roadmap for incremental power to the grid.
According to him, the project will see to the completion of 240MW of emergency power through 830MW turbines this year. “Council also
approved the contract for the construction and rehabilitation of the sub-station to enable the evacuation of the power, once the turbines
are installed.
“The total package for the Afam power plant is $186.6million and the contract for the substation is $2.207million for the components that
are offshore and N133.184million for the local components” he said.

Elizabeth Archibong