In a recently published research, Veronica Naa Okaikor Josiah-Aryeh, an international tax and business consultant, highlights the importance of the Exchange of Information (EOI) as a global tool to combat cross-border tax evasion. The research explains the depth and core of EOI, the role of tax havens in cross-border tax evasion, the role of countries, regional, and international bodies in facilitating EOI, roadblocks to EOI being efficient in combating cross-border tax evasion, and recommendations on how to effectively fight cross-border tax evasion.
The research is a crucial document for Nigeria, considering that it is one of the top four largest economies in Africa which in 2021 reported a loss of $178 billion to tax evasion in 10 years to multinationals.
In the research, Ms. Josiah-Aryeh states that globalisation and technological advancements in cross-border transactions have seen an increase and are facilitating business opportunities globally but serving as enablers for cross-border tax evasion. Her research highlights that EOI is also a tool of cooperation and tax transparency between governments to fight cross-border tax evasion.
According to the researcher, “Cross-border tax evasion involves individuals and multinational corporations (MNCs) using cross-border transactions to hide income and wealth, thus avoiding tax obligations. This practice leads to substantial revenue losses for countries, with developing nations being disproportionately affected. A 2022 report says that countries lost over $427 billion to tax avoidance and evasion schemes, with the United States alone losing over $90 billion. High-net-worth individuals and MNCs often use tax havens to evade taxes, further complicating efforts to mobilise revenue for sustainable economic development.”
It is important to note that Nigeria is not the only country faced with this challenge; it is a global cancer that needs to be addressed individually as countries are united on the global front through cooperation among governments and international organisations.
Expounding on what EOI is, the researcher states, “EOI is a process by which countries share financial and taxpayer information to combat tax evasion. Effective EOI requires the availability of information, access to information, the ability to exchange information, and the willingness of governments to cooperate. The Multilateral Convention on Mutual Administrative Assistance in Tax Matters is a key legal instrument facilitating EOI among 146 participating jurisdictions.”
Nigeria is a participating jurisdiction in the above-mentioned Convention. As a participating jurisdiction, the country benefits from the five types of EOI under the Convention which Ms. Josiah-Aryeh detailed as follows:
“Exchange of Information on Request (EOIR): The first global framework to be adopted by the Organisation for Economic Cooperation and Development (OECD), EOIR entails the request of taxpayer information and transactions by a tax authority of a participating country, which must be provided by the country the information is being requested from.
Under the EOIR, information such as bank statements, financial account details, and assets are requested. The information requested must be provided to the requesting country in a timely and confidential manner.
In ensuring the effective implementation of the EOIR standard, the OECD conducts periodic peer reviews on participating countries. Depending on the level of implementation, countries are categorised as compliant, largely compliant, partially compliant, or non-compliant.
Automatic Exchange of Information (AEOI): When by mutual agreement and procedure, two or more countries automatically exchange information among themselves. AEOI is facilitated by the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information.
The purpose of AEOI is to increase transparency and enhance the fight against cross-border tax evasion by enabling tax authorities to automatically exchange information on financial accounts held by their residents in other countries. The Standard for Automatic Exchange of Financial Account Information in Tax Matters (“AEOI Standard”) is the framework used by countries to exchange information under AEOI.
Spontaneous Exchange of Information (SEOI): This involves the sending of foreseeably relevant taxpayer information from one country to the other without any prior request from the receiving country. SEOI happens when the country sending the information believes it will be of interest to the receiving country.
“Simultaneous tax examination is when two or more tax authorities of participating countries agree upon the request of one of them to simultaneously examine the tax activities of a person(s) who is/are of common interest to them. Under simultaneous tax examination, each tax authority examines the person’s tax activities in their country and exchanges the information discovered between themselves,” Josiah-Aryeh she said.
Tax examination abroad is when a country from which taxpayer information is requested allows the officials from the tax authority of the country requesting such information to be present in the country during the examination of the tax matter requested.”
She further said, “EOI has significantly impacted the fight against cross-border tax evasion. The OECD’s Global Forum oversees the implementation of EOI standards, which has led to the identification of over €114 billion in additional revenues. However, challenges remain, such as the lack of strict sanctions for non-compliance and the limited reporting requirements under AEOI.”
Nigeria is making commendable progress in enhancing EOI, both regionally and globally. In 2023, the Global Forum in its Second Round Peer Review Report, on EOIR in Nigeria, ranked the country as “Largely compliant.”
Again in 2023, Femi Edgal, Deputy Director of Tax/Head Exchange of Information of the Federal Inland Revenue Services (FIRS) of Nigeria was elected as the Chairperson of the EOI Technical Committee of the African Tax Administration Forum (ATAF).
Though countries like Nigeria are making efforts to effectively and efficiently implement EOI standards, it is imperative to note that cross-border tax evasion is still prevalent more than ever. In the present research, she states among others that the following are some challenges faced by the current EOI global framework: EOI Conventions and standards lack strict sanctions for non-compliance, participating countries often impose their sanctions leading to inconsistencies, exploitation of loopholes in EOI standards by tax havens which undermines global efforts to combat tax evasion, and the annual reporting requirements under AEOI causes delays in detecting tax evasion.
Concluding, Josiah-Aryeh proposes several recommendations, including empowering global bodies like the OECD to impose strict sanctions on non-compliant countries, amending AEOI standards to include detailed reporting of all account activities, and enhancing transparency and accountability of tax havens by encouraging them to adopt international standards and increase transparency.
Lessons
Nigeria, like many developing countries, faces significant challenges in mobilising revenue due to tax evasion and avoidance. Losing huge amounts deprives the country of funds to develop the country and its economy.
Strengthening of Domestic Legislation: Nigeria can learn from the experiences and best practices of other countries and strengthen its domestic tax laws to ensure compliance with international EOI standards. This includes imposing strict penalties for non-compliance and ensuring accurate reporting of financial information.
Enhancing Transparency Mechanisms within the FIRS: Nigeria must adopt comprehensive reporting standards to prevent tax evasion within the FIRS. The FIRS is the competent authority in charge of exchanging financial information with other jurisdictions. Implementing robust due diligence procedures and ensuring transparency in FIRS can significantly reduce opportunities for tax evasion.
International Cooperation and Technical Assistance: Nigeria must make a conscious effort to benefit from technical assistance provided by international organisations such as the OECD, the International Monetary Fund, and the World Bank. These organisations can support the strengthening of Nigeria’s tax systems and ensure compliance with international standards.
By adopting these recommendations, Nigeria can improve its tax revenue collection, enhance transparency, and contribute to global efforts to combat cross-border tax evasion.
Nwobodo, editorial consultant and the researcher’s aide, wrote in from Yola, Nigeria.
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