Legal Briefings

Sep 22 2017
Legal Briefings >> September 2017

The Implications of Nigeria becoming a Signatory to both the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting; and the Common Reporting Standard Multilateral Competent Authority Agreement

by Olufumbi Kehinde

The Federal Government of Nigeria has taken further steps in pursuance of its objective to curb tax evasion, widen the tax net and improve the tax to Gross Domestic Product (GDP) ratio when on Thursday 17 August 2017, it signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”) and the Common Reporting Standard Multilateral Competent Authority Agreement (“CRS MCAA”)


By virtue of the provisions of Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters which provides that countries can by mutual agreement automatically exchange information; 51 jurisdictions in October 2014, signed a multilateral competent authority agreement to automatically exchange information targeted at curbing tax avoidance and tax evasion; and also to prevent double taxation. Nigeria became the 94th jurisdiction in August, 2017 when it signed the CRS MCAA.


The aim of the CRS MCAA is to implement the automatic exchange of financial account information pursuant to the OECD/G20 Common Reporting Standard (“CRS”) which would drive delivery of the automatic exchange of information between 101 jurisdictions by 2018.


The CRS MCAA operates by enabling tax authorities of signatory jurisdictions to obtain information from their financial institutions and exchange that information automatically with other jurisdictions on an annual basis.  The tax authorities along with financial institutions including banks, custodians, brokers, certain collective investment vehicles, trusts and certain insurance companies are to identify financial asset holders in a bid towards establishing their tax residence. The CRS MCAA specifies the details of information to be exchanged and timing of such exchange.


The income to be reported includes: all types of investment income, account balances and sales proceeds from financial assets. The accounts to be reported includes individual accounts and corporate accounts. There is also the requirement to critically examine passive entities to obtain information on reportable controlling persons.


The information to be exchanged includes as identified by the CRA MCAA include:

(a)     the name, address, tax identification number(s) [TIN(s)] and date and place of birth (in the case of an individual) of each reportable person that is an account holder of the account and, in the case of any entity that is an account Holder, the name, address, and TIN(s) of the entity and the name, address, TIN(s) and date and place of birth of each controlling person;

(b)      the account number;

(c)       the name and identifying number (if any) of the Reporting Financial Institution;

(d)      the account balance or value as of the end of the relevant calendar year or other appropriate reporting period or if the account was closed during such year or period, the closure of the account;

(e)      in the case of any Custodial Account: the total gross amount of interest, the total gross amount of dividends, and the total gross amount of other income generated with respect to the assets held in the account, in each case paid or credited to the account (or with respect to the account) during the calendar year or other appropriate reporting period; and the total gross proceeds from the sale or redemption of Financial Assets paid or credited to the account during the calendar year or other appropriate reporting period with respect to which the Reporting Financial Institution acted as a custodian, broker, nominee, or otherwise as an agent for the Account Holder;

(f)       in the case of any Depository Account, the total gross amount of interest paid or credited to the account during the calendar year or other appropriate reporting period; and

(g)      in the case of any account not described above, the total gross amount paid or credited to the account holder with respect to the account during the calendar year or other appropriate reporting period with respect to which the Reporting Financial Institution is the obligor or debtor, including the aggregate amount of any redemption payments made to the Account Holder during the calendar year or other appropriate reporting period.


The information to be exchanged under the CRS MCAA is subject to applicable confidentiality rules and other safeguards. Furthermore, the use of the information exchanged is limited to the extent needed to ensure the necessary level of protection of personal data, in accordance with the safeguards which may be specified by the supplying competent authority as required under its domestic law.


 It should however be noted that although Nigeria has signed the agreement, there are certain modalities before the CRS MCAA can be implemented within Nigeria such as the enactment  of a legislation to put the country’s obligations under the agreement into effect as required by section 12 of the 1999 Constitution of Nigeria (as amended).


Furthermore, a notification has to be given to the OECD Secretariat affirming the following:

(a)      that Nigeria has the necessary laws in place to implement the Common Reporting Standard and specifying the relevant effective dates with respect to pre-existing accounts, new accounts, and the application or completion of the reporting and due diligence procedures;

(b)         confirming whether Nigeria is to be listed as a non-reciprocal jurisdiction;

(c)         specifying one or more methods for data transmission including encryption;

(d)         specifying safeguards, if any, for the protection of personal data;

(e)         that it has in place adequate measures to ensure the required confidentiality and data safeguards standards are met and attaching the completed confidentiality and data safeguard questionnaire; and

(f)         a list of the jurisdictions of the competent authorities with respect to which it intends to have the CRS MCAA in effect, following national legislative procedures.



The MLI is a legal instrument designed to prevent base erosion and profit shifting (BEPS) by multinational enterprises. BEPS occurs where unintentional lapses in tax legislation operate to make it more attractive to a taxpayer to re-arrange its affairs such that its tax residence would be in a different location which would make a taxpayer pay a lower amount of tax in respect of the specified activity.


The MLI allows the signatory jurisdictions to use results from the OECD/G20 BEPS Project, including minimum standards, to implement tax treaties in a manner which prevents treaty abuse and treaty shopping, into the jurisdiction’s existing networks of bilateral tax treaties in a quick and efficient manner.


Notable amongst the provisions of the MLI which Nigeria has indicated would apply to its applicable tax agreements are:


·      Article (9)4 which provides that gains derived by a resident of a contracting jurisdiction from the alienation of shares or comparable interests, such as interests in a partnership or trust, may be taxed in the other contracting jurisdiction if, at any time during the 365 days preceding the alienation, these shares or interests derived more than 50 per cent of their value directly or indirectly from immovable property in that other Contracting Jurisdiction. This means that tax would now be imposed on gain from the disposal of shares or similar interests in Nigeria which are derived by residents of a contracting country where, 50% of the value of the shares was derived within the year from real property (i.e. land or buildings) located in Nigeria.


·      Article 13 (1) provides that permanent establishment shall be deemed not to include activities at a fixed place of business being of a preparatory or auxiliary character. Therefore, the provision limits the definition of permanent establishment so that where the combined activities of an entity is merely preparatory or auxiliary in nature, it would be deduced that there is no permanent establishment in Nigeria.



The signing of the MLI and the CRS MCAA by Nigeria is a great step in the right direction as it would greatly assist in minimising and ultimately extinguishing tax avoidance and evasion caused by unintended non-taxation, shifting of profit bases and other means. The information thereby would also help to curb double taxation. All that remains to eat the good fruits of these efforts is the implementation of the Nigerian legislative process as outlined in section 12(1) of the Constitution.

Last changed: Sep 22 2017 at 4:16 PM