A treaty is a formal, written agreement between sovereign states or between states and international organizations. The type of tax treaty within the purview of the Federal Inland Revenue Service (FIRS) and domiciled in the Tax Policy and Legislation Department is the Avoidance of Double Taxation Agreement (ADTA).
A tax treaty is a written tax agreement between two Contracting States for the avoidance of double taxation and fiscal evasion. It identifies all items of income and defines what standards would apply to their taxation as well as where each income would become taxable (at residence, at source or both) and when this should be done. A tax treaty clearly spells out the conditions for the limitation or denial of benefits under the agreement.
The agreement also does the following:
Double tax treaties are viewed as beneficial by most states because they allow business to transact with a degree of certainty both on the part of the individuals, partnerships or corporate entities and the government of that state in which that business entity operates. The perceived benefits of double tax treaties have been identified as follows:
Tax treaties create the elucidation of taxation rights between the two Contracting states involved in the Agreement for purpose of clarity, avoidance of litigation and international conflicts. In the case of Tax Treaty, it states specifically which Contracting States has the taxing right and when both of them have the right.
International juridical double taxation arises where the same profits are taxed in the two Contracting States in the hand of the same person (corporate or individual). The ADTA clearly addresses and resolves such harsh conditions.
The Acronym ADTA in Nigeria is fully called the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income and on Capital Gains. The Agreement therefore plays a dual purpose of preventing double taxation and also preventing fiscal evasion. Exchange of information provision (see Article 26 below) is intended to assist countries to obtain information in order to ensure its taxing rights are preserved, although the effectiveness of such provisions for tax avoidance as opposed to tax fraud may be limited at present.
Contracting States to the ADTA establish economic cooperation by opening the gate for companies from their Country to come to the other Contracting State because of its confidence in the tax system of that Country.
Double tax treaties generally are of tremendous importance to businesses with an international dimension. Without them trade would be stifled and economies would likewise be affected. It is because of this that treaties often assume huge importance when developing tax strategies. However, the introduction of anti-treaty shopping Articles (pioneered by the US) in double tax treaties and the exchange of information between member states is forcing substance into structure where perhaps years ago this would not have been an issue. Because of the importance of treaties it is not only necessary to understand how they operate but also how they are interpreted.
Tabular Presentation of List of Countries having ADTA with Nigeria:
|S/N||Countries||ADTA Type||Date/Place of Signing||Date of Entry into Force||Effective Date|
|1||Nigeria - Canada||Comprehensive||4th August, 1992 in Abuja||16th November, 1999||1st January, 2000|
|2||Nigeria - Pakistan||Comprehensive||10th October, 1989 in Lagos||7th March, 1990||1st January 1991|
|3||Nigeria - Belgium||Comprehensive||20th November, 1989 in Brussels||1stJanuary, 1990||1st January, 1991|
|4||Nigeria - France||Comprehensive||27th February, 1990 in Paris||2nd May 1991||1st January, 1992|
|5||Nigeria - Romania||Comprehensive||21st July, 1992 in Abuja||18th April, 1993||1st January, 1994|
|6||Nigeria - Netherlands||Comprehensive||11th December, 1991 in Lagos||9th December, 1992||1st January, 1993|
|7||Nigeria - United Kingdom||Comprehensive||9th June, 1987 in London||1st January,1988||1st January, 1989|
|8||Nigeria - China||Comprehensive||15th April, 2005 in Abuja||21st March, 2009||1st January, 2010|
|9||Nigeria - South Africa||Comprehensive||29th April, 2000 in Cape Town||5th July, 2008||1st January, 2009|
|10||Nigeria - Italy||Air & Shipping Agreement Only||22nd February, 1976 in Lagos||1977||1st January, 1978|
|11||Nigeria-Philippines||Comprehensive||30th September, 1987 in Manila||18th August 2013||1st January, 2014|
|12||Nigeria- Czech||Comprehensive||31st August 1989 in Lagos||2nd December, 1990||1st January, 1991|
|13||Nigeria- Slovakia||Comprehensive||31st August 1989 in Lagos||2nd December, 1990||1st January, 1991|
This is the date the Agreement is deemed to be a law forming part of the body of the legal system of both Contracting States. In essence, the Agreement becomes an enforceable law in both States because it has fulfilled necessary domestication procedures. This is provided for in Article 28 (1) of the various ADTAs that;
“each of the Contracting States shall notify to the other the completion of the procedures required by its law for the bringing into force of this Agreement. The Agreement shall enter into force thirty days after the date of receipt of the latter of these notifications”.
Both of these clauses are often used interchangeably. However, it is the date citizens of both Contracting States start benefiting from the Agreement as provided for in Article 28 (2) (a) (i)(ii) of the various ADTAs. Technically, the Effective Date of the Agreement is the first day of the fiscal year following the date of Entry into Force of the Agreement.
Mr. Gabriel Ogunjemilusi
Director, Tax Policy & Legislation Department.
Federal Inland Revenue Service,
Tax Advisory Department,
Wuse Zone 5, Abuja,
Federal Capital Territory, Nigeria.
Phone Nos: +234 8033022303
For enquiries or feedback about service received at any of our offices nationwide, please mail any of the listed addresses, or call the following numbers:
|Phone Numbers|| 09074444441