Economy
What Nigeria’s Signing of OECD’s Multilateral Instrument Means for Taxpayers
By Seun Adu and Olanrewaju Alabi
Consider this puzzle. It takes 5 machines 5 minutes to manufacture 5 widgets. How many minutes will it take 100 machines to manufacture 100 widgets? If you answered this in a hurry, you probably said 100. This is wrong. The correct answer is 5. But what does this have to do with the Multilateral Instrument (MLI)? I will come back to this in a bit.
When the international community agreed there was a need to fix the international tax rules through the BEPS project, one of the problems they had to address was how to ensure that the recommendations from the project could be quickly implemented by everyone that was involved.
Implementing the BEPS recommendations would require countries to make several changes to (a) their local tax legislation; and (b) the avoidance of double taxation agreements (DTA) that they had with other countries. Making changes to DTAs was clearly the more challenging issue because of the time and resources required to do so.
Participants in the BEPS project realized that if the old way of updating DTAs was used to implement the BEPS actions, it would take many years before the BEPS recommendations would become fully effective in most countries. This would defeat the purpose of the project.
The Multilateral Instrument (MLI) was developed to deal with this challenge.
What is the MLI?
In its full form, it is called the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument or MLI). The MLI is a single agreement between many countries. It allows a country to make concurrent changes to all or some of the DTAs that it has with other countries.
Quick overview of DTAs
Countries that do a lot of trade with one another usually sign agreements for the avoidance of double taxation to ensure that tax, in particular double taxation, does not become an obstacle to their trade activities. DTAs help to reduce the incidence of double taxation in several ways including: specifying which country has a right to tax a certain type of income, providing for reduced taxes on certain categories of income, etc.
DTAs usually follow a standard template or model. The two most used models are the OECD and UN models developed by the OECD and UN respectively. These models were first developed in the 1920s and are updated from time-to-time to deal with new tax issues.
Whenever a model is updated to address a particular tax issue, countries that follow the model try to make the changes to each of their DTAs to ensure that they can also address the issue.
Updating DTAs is not easy
The process of negotiating DTAs and ratifying them into law is usually long and difficult. Even after an agreement has been reached, it can still take many years before it takes full effect. For instance, the DTA between Nigeria and South Africa only came into force in 2008 even though the original agreement was signed in April 2000.
Negotiations for updating DTAs would typically not take as long as the negotiations for new agreements, but they still take a lot of time and resources. As a result of this, many countries do not update their DTAs as often as they should. This means that many DTAs are outdated.
For the BEPS project to be successful it was necessary to overcome this challenge since implementing the recommendations would require each country to update all of its DTAs. If countries followed the old way of having one-on-one negotiations with their existing treaty partners it would take many years for all the negotiations to be concluded and many more years for the agreements to be ratified by each country.
Such a delay would defeat the whole purpose of the BEPS project.
How the MLI solves the problem
The MLI removes the need for treaty partners to renegotiate the terms of existing DTAs one after the other making it possible to update the provisions of several double tax treaties with the relevant BEPS updates at the same time. It also makes it possible to pursue the domestication of the changes to all the treaties at once.
This is possible because the changes to be adopted through the MLI were based on collective negotiations between the countries that developed the instrument.
Some of the treaty changes are compulsory (these are the minimum standards) for all parties to the MLI while others are optional. Both the compulsory and optional changes have been standardized. The good thing about this is that the areas that will require one-on-one negotiations are not so many and these negotiations will be limited to choosing between several standardized options.
The process requires each country to submit an MLI position to the OECD. The MLI position is a document that contains details of the changes (based on the provisions of the MLI) that a particular country would like to make to each of its DTAs. This is then compared to the MLI positions of its other treaty partners.
Where the MLI positions of the parties to a particular treaty are the same, it means that an agreement has been reached on the specific provisions that match. The parties can then engage each other to discuss and agree on any positions that are different.
The effect is that a country can potentially renegotiate and ratify many of its tax treaties in almost the same time that it would normally have taken to re-negotiate one agreement. If I go back to my earlier puzzle for a second, the reason it takes only 5 minutes for the 100 machines to manufacture the 100 widgets is because they work simultaneously. This is pretty much how the MLI works.
What has Nigeria done so far?
Nigeria signed the MLI on 17 August 2017. Nigeria has also submitted its MLI position. This means that it is already possible to tell the changes that Nigeria plans to make to all of its existing double tax treaties.
In its MLI position, Nigeria listed DTAs with 19 treaty partners for amendment. These include the agreements that are already in force and those that are not yet in force (e.g. DTAs with Korea, Mauritius, United Arab Emirates etc.)
Also, of the 19 agreements, 13 treaty partners (including Belgium, Canada, China, Netherlands, and the United Kingdom) have all listed their DTAs with Nigeria for amendment under the MLI. This means that one can already check what treaty positions match and tell the changes that will likely be made to these DTAs.
The next steps will be for Nigeria and its treaty partners to agree on any parts of their proposals that do not match. Subsequent to this, each partner will then need to undertake the local domestication process to ensure that the changes become law. All of this could happen a lot quicker than we are used to.
Final thoughts
These are some of the changes that taxpayers need to be aware of due to the potential implications for their tax affairs. One of the changes is the introduction of the Principal Purpose Test (PPT) for tackling treaty shopping. Another important one is the amendments to the definition of Permanent Establishments in the treaties.
Nigerian resident taxpayers who currently enjoy treaty benefits should consider how the MLI will affect them. In addition, companies who plan to set up new structures that will allow them get treaty benefits will need to be mindful that the MLI could reduce the effectiveness of those structures.
Although the MLI position submitted by Nigeria on August 17 is provisional and subject to change, there is already a lot that one can deduce about how taxpayers will be impacted when the proposals finally become law.
Seun Adu is an Associate Director and Transfer Pricing Leader at PwC Nigeria. He is a regular writer and public speaker on tax and transfer pricing matters.
Olanrewaju Alabi is a Senior Associate with PwC Nigeria’s Transfer Pricing practice.
By Adedapo Adesanya
The Vice President, Mr Kashim Shettima, inaugurated the Board of the Nigerian Consumer Credit Corporation (CREDICORP) and gave a 50 per cent access target for workers, saying consumer credit was critical to Nigeria’s ambition of becoming a one-trillion-dollar economy by 2030.
According to him, President Bola Tinubu established the CREDICORP to build a trusted credit infrastructure, provide catalytic capital to lower borrowing costs, and help Nigerians overcome long-standing cultural resistance to credit.
Speaking on Thursday in Abuja when he inaugurated the board on behalf of the President, the Vice President, in a statement by his spokesman, Mr Stanley Nkwocha, said that the quality of life of Nigerians cannot improve without closing the gap between access to capital and human dignity.
“A civil servant who earns honestly does not have to chase sudden wealth just to buy a vehicle, or save for ten years to buy one. A young professional should not remain in darkness simply because solar power must be paid for all at once,” the Vice President said.
VP Shettima disclosed that in just one year of operations, CREDICORP has disbursed over ₦37 billion in consumer credit to more than 200,000 Nigerians, with over half of them accessing formal credit for the first time.
The Vice President said the organisation was specifically tasked with building credit infrastructure to bridge the trust gap between lenders and borrowers, providing wholesale capital and credit guarantees through its portfolio company.
“Ultimately, these critical jobs of CREDICORP will enable access to consumer credit to at least 50 per cent of working Nigerians by 2030,” he said.
The Vice President explained that the new board’s role was not ceremonial as they are custodians of the organisation’s mission, adding that the long-term strength of the institution would depend on their “vigilance, integrity, sacrifice, and commitment.”
He directed Board members to uphold Public Service Rules, the Board Charter, and all applicable governance frameworks, warning that accountability and stewardship of public resources were non-negotiable.
The Chairman of CREDICORP, Mr Aderemi Abdul, expressed appreciation to President Tinubu for his vision behind the formation of CREDICORP and for the confidence reposed in them, noting that the establishment of the corporation marked an important step towards strengthening the nation’s financial architecture.
He assured President Tinubu that the board understands its responsibility and will guide the institution to deliver meaningful benefits to Nigerians.
For his part, Mr Uzoma Nwagba, Managing Director/CEO of CREDICORP, recalled watching President Tinubu say 20 years ago that consumer credit is one of the major tools that will improve the lives of Nigerians.
He noted that over the past 18 months, the institution has benefited more than 200,000 Nigerians, including students.
He assured that the presidential vision behind CREDICORP would not be taken lightly, as the team considers their appointments a unique, once-in-a-lifetime opportunity.
Other members of the board inaugurated include Mrs Olanike Kolawole, Executive Director, Operations; Mrs Aisha Abdullahi, Executive Director, Credit and Portfolio Management; Mr Armstrong Ume-Takang (MD, MoFI), Representative of MoFI; Mrs Bisoye Coke-Odusote (DG, NIMC), Representative of NIMC; and Mr Mohammed Naziru Abbas, Representative of FMITI.
Others are Mr Marvin Nadah, Representative of FCCPC; Mrs Chinonyelum Ndidi, Representative of the Federal Ministry of Finance; Mr Mohammed Abbas Jega, Independent Director; and Mrs Toyin Adeniji, Independent Director.
By Adedapo Adesanya
Six price gainers helped the NASD Over-the-Counter (OTC) Securities Exchange retain its stay in green territory after a 0.23 per cent appreciation on Thursday, February 26.
The price gainers were led by Nipco Plc, which added N25.00 to close at N278.00 per share compared with the previous day’s N253.00 per share, NASD Plc rose by N5.13 to N56.41 per unit versus N51.28 per unit, FrieslandCampina Wamco Nigeria Plc expanded by N2.24 to N102.44 per share from N100.00 per share, Afriland Properties Plc grew by 88 Kobo to N18.88 per unit from N18.00 per unit, 11 Plc increased by 35 Kobo to N277.00 per share from N276.65 per share, and Lagos Building Investment Company (LBIC) Plc gained 27 Kobo to close at N3.75 per unit versus N3.48 per unit.
On the flip side, Central Securities Clearing System (CSCS) Plc lost N1.75 to sell at N68.25 per share versus N70.00 per share, and Geo-Fluids Plc depreciated by 2 Kobo to N3.25 per unit from N3.27 per unit.
The weight of the advancers fortified the NASD Unlisted Security Index (NSI) by 9.21 points to 4,034.46 points from 4,025.25 points, and the market capitalisation soared by N5.51 billion to N2.413 trillion from Wednesday’s N2.408 trillion.
Yesterday, the transaction value jumped by 18.8 per cent to N102.8 million from N80.7 million, and the number of deals surged by 18,8 per cent to 38 deals from 32 deals, while the transaction volume went down by 84.9 per cent to 1.3 million units from 8.7 million units.
At the close of business, CSCS Plc was the most traded stock by value (year-to-date) with 34.2 million units worth N2.04 billion, followed by Okitipupa Plc with 6.3 million units sold for N1.1 billion, and Geo-Fluids Plc with 122.1 million units valued at N478.2 million.
Resourcery Plc remained as the most traded stock by volume (year-to-date) with 1.05 billion units exchanged for N408.7 million, trailed by Geo-Fluids Plc with 122.1 million worth N478.2 million, and CSCS Plc with 34.2 million units traded for N2.04 billion.
By Adedapo Adesanya
The Naira further weakened against the Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) for the fourth straight session this week on Thursday, February 26.
At the official market yesterday, the Nigerian Naira lost N3.71 or 0.27 per cent to trade at N1,359.82/$1 compared with the previous session’s N1,356.11/$1.
In the same vein, the local currency depreciated against the Pound Sterling in the same market window on Thursday by N8.27 to close at N1,843.23/£1 versus Wednesday’s closing price of N1,834.96/£1, and against the Euro, it crashed by N8.30 to quote at N1,606.89/€1, in contrast to the midweek’s closing price of N1,598.59/€1.
But at the GTBank forex desk, the exchange rate of the Naira to the Dollar remained unchanged at N1,367/$1, and also at the parallel market, it maintained stability at N1,365/$1.
The continuation of the decline of the Nigerian currency is attributed to a surge in foreign payments that have outpaced the available Dollars in the FX market.
In a move to address the ongoing shortfall at the official window, the Central Bank of Nigeria (CBN) intervened by selling $100 million to banks and dealers on Tuesday.
However, the FX support failed to reverse the trend, though analysts see no cause for alarm, given that the authority recently mopped up foreign currency to achieve balance and it is still within the expected trading range of N1,350 and N1,450/$1.
As for the cryptocurrency market, major tokens posted losses over the last 24 hours as traders continued to de-risk alongside equities following Nvidia’s earnings-driven pullback, with Ripple (XRP) down by 2.7 per cent to $1.40, and Dogecoin (DOGE) down by 1.6 per cent to $0.0098.
Further, Litecoin (LTC) declined by 1.3 per cent to $55.87, Ethereum (ETH) slipped by 0.9 per cent to $2,036.89, Bitcoin (BTC) tumbled by 0.7 per cent to $67,708.21, Cardano (ADA) slumped by 0.6 per cent to $0.2924, and Solana (SOL) depreciated by 0.4 per cent to $87.22, while Binance Coin (BNB) gained 0.4 per cent to sell for $629.95, with the US Dollar Tether (USDT) and the US Dollar Coin (USDC) closing flat at $1.00 each.
-
Feature/OPED6 years agoDavos was Different this year
-
Travel/Tourism10 years ago
Lagos Seals Western Lodge Hotel In Ikorodu
-
Showbiz3 years agoEstranged Lover Releases Videos of Empress Njamah Bathing
-
Banking8 years agoSort Codes of GTBank Branches in Nigeria
-
Economy3 years agoSubsidy Removal: CNG at N130 Per Litre Cheaper Than Petrol—IPMAN
-
Banking3 years agoSort Codes of UBA Branches in Nigeria
-
Banking3 years agoFirst Bank Announces Planned Downtime
-
Sports3 years agoHighest Paid Nigerian Footballer – How Much Do Nigerian Footballers Earn