Over the past few years, Nigeria has reformed its transfer pricing regulations, introduced mechanisms to tackle tax evasion and pursued other revenue enhancing initiatives.  With revenue from petroleum taxes at its lowest point in fifteen years, the country is under even more pressure to increase its tax enforcement efforts.  At the same time, there have been reports alleging that the African continent loses over $50 billion every year to illicit financial flows has brought increasing attention to the need to strengthen the capacity of tax authorities in Nigeria and other countries.  Thus, it is a major development that the Nigerian government finally has ratified the Convention on Mutual Administrative Assistance in Tax Matters (“the Convention”).

The Convention is “the most comprehensive multilateral instrument available for all forms of tax cooperation to tackle tax evasion and avoidance.”  Under the Convention, States agree to provide administrative assistance — in the form of information exchange, recovery assistance and service of documents — to each other in tax matters.  (Where appropriate, this assistance may involve measures by judicial bodies.)  The Convention applies not only to income taxes but also taxes imposed by political subdivisions or local tax authorities, compulsory social security contributions, and other categories (e.g., property taxes, value added taxes, excise taxes).

As a party to the Convention, Nigeria now has access to the tax and other information that a revenue authority either has or can obtain in the over 60 countries that have ratified the Convention, a group that includes not only the majority of the G20 countries but also an increasing number of developing countries.  Nigeria can request this information or, with respect to certain categories of cases, enter into agreements for the information to be exchanged automatically.  In addition, there is a spontaneous exchange of information provision under which other States shall forward certain information without prior request from Nigeria.  This provision is triggered by a variety of circumstances, most of which pertain to situations where there may have been a tax loss to Nigeria.  Tax savings that may have resulted from “ within groups of enterprises” — in other words, from inappropriate transfer pricing — is one of these situations.

Nigeria also stands to benefit considerably from the enforcement support provided for by the Convention.  Upon a recovery assistance request from Nigeria, other States are obligated to “take the necessary steps to recover tax claims […] as if they were its own tax claims” unless they have made a reservation in respect of this provision.  Nigeria also can request other States to effect service of “documents, including those relating to judicial decisions” on its behalf.

Ratification of the Convention is a clear sign that Nigeria intends to pay far closer attention to the income-generating activities, and subsequent tax liabilities, of multinational corporations and other taxpayers.