EFFECTIVE TAXATION OF THE DIGITAL ECONOMY: AN ANALYSIS OF THE GLOBAL TAX DEAL AND THE DOMESTIC TAX LAWS IN NIGERIA

Abstract

Globalisation has presented new challenges in relation to the administration of corporate tax. It is now easier for companies to carry out cross-border trade and dealings in two or more tax jurisdictions. This development encourages companies to shift profits from jurisdictions with higher tax rates to jurisdictions with lower rates. To address this, the Organisation for Economic Cooperation and Development (OECD) developed the Base Erosion and Profit Shifting Frameworks. One of the notable innovations of the framework, is the principle of Permanent Establishment (PE) to the effect that a company must pay tax in a jurisdiction where it has fixed or principal place of business. While this principle has worked remarkably well over the years of ‘brick and mortar’ business models, the development of digital technology has brought about newer challenges. Multinational tech companies now carryout business in different countries without having a PE in such countries. In recent times, different countries including Nigeria have enacted municipal laws regulating the taxation of digital economies. The OECD in 2021 also developed the Global Tax Deal (GTD) to regulate taxation of the digital economy at the global level. This Paper discusses the domestic effort to ensure taxation of digital economy in Nigeria and highlights the challenges. It discusses the GTD is extensively with emphasis on its disadvantages for Nigeria and other low- and middle-income countries whose interests appears not to be well protected. The Paper concludes that there is need for regional collaboration to ensure the development of a Tax Deal that protects LMICs and specifically reflects and addresses their specific concerns and peculiarities.