How the two major tax treaties Nigeria signed could affect Nigerians with money abroad

Introduction Yesterday (17 August 2017), Nigeria became a signatory to two major international multilateral instruments to address tax avoidance and evasion. These are the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“Multilateral Instrument” or “MLI”) and the Multilateral Competent Authority Agreement for the Common Reporting Standard (CRS MCAA).

The Multilateral Instrument

The official signing of the MLI comes after Nigeria’s Federal Executive Council (FEC) approved a memo submitted by the Minister of Finance in June 2017, for the inclusion of Nigeria as a signatory to the MLI.

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By signing the MLI, Nigeria becomes the 71st jurisdiction to signify interest in adopting the convention which seeks to automatically modify the provisions of existing bilateral treaties to prevent base erosion and profit shifting (BEPS).

As part of the process, Nigeria submitted its MLI position. This is the document that details the Double Tax Agreements (DTAs) that Nigeria wishes to amend as well as the specific provisions of the DTAs that are to be amended. Subject to the conclusion of the relevant legislative and other required processes, the amendments will take effect for DTAs where the relevant treaty partner has also submitted its MLI position and where the amendments proposed by the treaty partner match those proposed by Nigeria.

The CRS MCAA

The CRS MCAA allows signatory countries to obtain financial information from financial institutions and automatically exchange the information with other jurisdictions that have signed up to the convention.

Notably, the CRS MCAA will allow jurisdictions exchange the following information:

• name, address and tax identification number of taxpayers;
•  taxpayer’s account number;
• name of the reporting financial institution; and
• the taxpayer’s account balance at the end of the reporting period.

Nigeria became the 94th jurisdiction to join the CRS MCAA. Some of the other signatories to the CRS MCAA include China, France Germany, the Netherlands, Switzerland, Spain, the United Kingdom, Bermuda, Cayman Islands, and Mauritius.

The takeaway

The MLI will cause amendments to be made to Nigeria’s existing tax treaties. The aim of these amendments is to limit treaty abuse and other forms of tax avoidance. The CRS MCAA will potentially allow the Nigerian tax authorities automatically receive financial information on Nigerian nationals who hold bank accounts in any of the nearly 100 foreign jurisdictions that have signed the CRS MCAA.

As a next step, both instruments may require ratification by the National Assembly to have the force of law. Nigeria will also need to introduce CRS legislation.
Taxpayers are advised to assess the implication of these actions, and the potential changes to the relevant legislation on their affairs, and take steps to manage any identified risks.