Holding companies review offshore operations as tax avoidance rules tighten

Nigerian companies with subsidiaries across Africa are reviewing how they structure their overseas operations following the introduction of new international tax rules designed to curb profit shifting and offshore tax avoidance, with advisers warning that some groups may need to reorganise their corporate structures to reduce compliance risks.

 

The changes, introduced under the Nigeria Tax Act (NTA), include Controlled Foreign Company (CFC) rules and a 15 percent global minimum, or top-up, tax, which together make it more difficult for multinational groups to indefinitely retain profits abroad or benefit from jurisdictions with very low corporate tax rates.

“The conversations we’re having with clients are now focused on implementation rather than the policy itself,”  Yvonne Afolabi, a transfer pricing expert, told BusinessDay.

“Institutions are seeking clarity on governance expectations, shared-service arrangements, transfer pricing implications, additional documentation requirements and whether their existing holding company structures will need to be restructured. There are also questions about how these changes could affect compliance costs and future expansion plans.” she explained further.

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According to Afolabi, while the reforms are not intended to discourage Nigerian companies from investing abroad, they are already encouraging businesses to reassess how profits are distributed across subsidiaries, where certain business functions are located and whether existing group structures remain tax-efficient under the new framework.

“For many holding companies, the focus is shifting from tax efficiency alone to balancing efficiency with transparency and compliance,” she said. “Some companies may need to restructure to reduce compliance risks or improve operational efficiency, while others may find the reforms encourage stronger governance and more sustainable long-term business structures.”

 

The provisions form part of Nigeria’s broader effort to align with the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, which seeks to prevent multinational companies from reducing their tax liabilities by moving profits to low-tax jurisdictions or delaying tax through offshore subsidiaries.

Under the new CFC rules, profits earned by certain foreign subsidiaries can become taxable in Nigeria even when they have not been repatriated, limiting the ability of companies to accumulate earnings offshore indefinitely.

 

The accompanying top-up tax complements the CFC regime by ensuring that large multinational groups pay at least a 15 percent effective tax rate, reducing incentives to channel profits through jurisdictions offering little or no corporate income tax.

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The reforms are expected to affect Nigerian groups with significant regional operations, particularly banks, manufacturers and industrial conglomerates whose businesses span multiple tax jurisdictions.

United Bank for Africa generates more than half of its group revenue from operations outside Nigeria and operates subsidiaries in 20 African countries alongside offices in London, Paris, New York and the UAE. Access Holdings Plc has operations in 24 countries across three continents, while Dangote Industries Limited continues to expand its cement business across 11 African countries.

For such companies, advisers say the issue may no longer be whether overseas structures are commercially viable but whether they remain compliant under Nigeria’s evolving international tax framework.

 

The Organisation for Economic Co-operation and Development estimates that profit-shifting practices cost governments between $100 billion and $240 billion in lost corporate tax revenue every year, representing up to 10 percent of global corporate income tax collections. Developing countries are considered particularly vulnerable because they rely more heavily on company income taxes to fund public finances.

Nigeria’s losses are especially significant. According to the United Nations Development Programme, the country loses an estimated $15 billion to $20 billion annually to tax evasion and avoidance, with the oil and gas sector accounting for much of the leakage.

The reforms also coincide with broader regulatory changes affecting corporate groups. The Central Bank of Nigeria’s proposed holding company framework would require foreign subsidiaries of Nigerian banks to sit directly under non-operating holding companies instead of banking entities, potentially affecting institutions such as Access Holdings, GTCO, Zenith Bank and UBA.

 

Afolabi said the overlap between tax reforms and evolving prudential regulations means companies will need to strengthen transfer pricing documentation, intercompany agreements and governance frameworks while preparing for more extensive reporting obligations.

“The proposed framework is likely to increase compliance costs as financial groups enhance governance, documentation and reporting processes,” she said.

“HoldCos providing shared services to subsidiaries will require stronger intercompany agreements and transfer pricing documentation to support related-party transactions, alongside increased legal, tax, audit and compliance oversight. Although this may raise operating costs in the short term, it should improve transparency, strengthen internal controls and reduce regulatory and tax risks across the group.”

 

Olalekan A., chief executive of Rectangle Capital, said stronger holding company requirements should ultimately strengthen corporate resilience despite increasing compliance obligations.

“A well-capitalised HoldCo is better positioned to support subsidiaries during periods of economic stress, absorb losses, finance strategic expansion, inspire investor confidence and reduce systemic risk,” he said, adding that existing holding companies should already be reviewing capital planning strategies, dividend policies, funding structures and long-term capital adequacy.

 

Analysts say the combined effect of the NTA and the CBN’s proposed HoldCo reforms is unlikely to slow Nigerian companies’ regional ambitions. Instead, future expansion is expected to become more deliberate, with greater emphasis on governance, capital allocation and sustainable growth.