With the rise the digital economy and its peculiar tax challenges, Nigeria, with the articulated new Finance Bill may still lose a fortune to nonresident companies, analysts at KPMG has said.
“International tax has typically revolved around the concept of residency rather than source. This has limited the ability of countries to generate tax revenue from these transactions even though the participants generate significant revenue from these countries”, said Martins Arogie is Associate Director and Itoro Adediran, Manager with KPMG Advisory Services Nigeria.
Companies transact with users across various jurisdictions online but do not pay tax in any of these countries as they do not have any physical presence (commonly called “permanent establishment”) in those countries.
This has subsequently led to the call for a review of the concept and basis of international taxation. The Organization for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action Point 1 is dedicated to this issue.
The Finance Ministers of the G-20 mandated the Inclusive Framework on BEPS, through the Task Force on the Digital Economy (TFDE), to come up with a report which contains long-term solutions to the impact digitalization has had on nexus and profit allocation rules.
The TFDE has come up with an interim report, Tax Challenges Arising from Digitalisation, which sets out three proposals to address the issue. They include the “user participation” model, the “significant economic presence” model and the “marketing intangibles” model.