International tax policy: jurisdiction, exchange of information and neutralities

A Lagos businessman keeps a bank account in a European country that he has never told the Nigeria Revenue Service (NRS) about. A year later the foreign bank sends the account details to its own tax authority, which passes them to Nigeria without anyone asking. The NRS now holds information that Nigeria could never have collected alone, because its officers cannot demand records from a foreign bank.

Tax policy has to work across borders, and the tools it uses are agreements, international bodies and the sharing of information.

This topic covers the concepts and objectives of international tax policy, tax jurisdiction, the roles of the Organisation for Economic Co-operation and Development (OECD), the United Nations (UN) and other bodies, the World Trade Organization (WTO) and the General Agreement on Tariffs and Trade (GATT), exchange of information and Nigeria’s framework for it, the effect of global co-operation, and the neutralities used to judge international tax rules.

The previous topic covered regional integration. The next covers current tax issues.

Key terms in plain English

Syllabus check

This topic is in syllabus area C (international taxation, 20% of marks). It covers:

• the concept and objectives of international tax policy and the concept of jurisdiction;
• the roles of inter-governmental and supranational bodies, the WTO and GATT;
• exchange of information, the effect of global co-operation and the neutralities in international tax policy.

CAMA 2020 and tax transparency

The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.

The rules in more depth

Concepts and objectives

The main concepts are tax sovereignty (the right to tax income earned within a country), double taxation (the same income taxed in more than one country), tax avoidance (reducing tax by legal means, often through international planning) and transfer pricing (pricing between related entities in different countries).

The objectives are fairness (taxpayers contribute equitably), efficiency (low compliance and administration cost), neutrality (no distortion of economic decisions), competitiveness (a favourable tax setting) and revenue (enough to fund public goods).

Jurisdiction

Tax jurisdiction is the authority of a state to impose tax on persons, businesses or transactions. Residence-based jurisdiction taxes a resident on worldwide income, including foreign-sourced income. Source-based jurisdiction taxes income from business operations, real estate or employment inside the country, whoever earns it. The factors are residence, the source of income and a permanent establishment.

Limits. Geographical: a state taxes only within its territory. Subject matter: only the types of income, transactions or activities its law names. Personal: only persons with a sufficient link to the state. The limits stop overreach, keep tax fair and protect taxpayers from excessive claims.

Cross-border collection. Several states may claim the same income, which causes complexity and double taxation; enforcing against a foreign taxpayer is hard; information must be shared. The remedies are double taxation agreements to allocate taxing rights, treaties for co-operation and information sharing, and mutual assistance in collection.

Controlled foreign companies. The parent’s state may tax the income of a CFC even though it is earned abroad. The CFC’s own state may tax it too, which can produce double taxation. CFC rules need international co-operation and exchange of information.

International and supranational bodies

International organisations are agreements among states to meet shared goals. They set norms and standards, encourage co-operation, and build frameworks for taxing cross-border transactions and the digital economy. A supranational body such as the EU can make rules that bind its members; an inter-governmental body works by agreement.

The WTO and GATT

GATT was a multilateral trade agreement that aimed to cut tariffs and other trade barriers; the WTO took over its work in 1995. Both set trade rules, give a place for negotiation and settle disputes. Their tax significance is:

• Tariff revenue. Cuts in tariffs change a government’s tax base.
• Customs valuation. The rules fix how imports are valued for duty.
• Non-discrimination. Imports must be treated no less favourably than local goods, so an internal tax such as VAT cannot be heavier on imports.
• Trade-related tax issues such as tax discrimination and export subsidies, which include some export tax incentives.
• Dispute settlement. A member can bring a complaint against another member’s tax or trade measure, which pushes states to follow the rules.

Exchange of information

• On request. The applicant state asks for information on a particular case from the tax files of the requested state. If the files are not enough, the requested state takes all relevant measures to obtain it.
• Automatic. Information goes periodically with no request, after the countries agree the procedure; it must be relevant to the administration or enforcement of their tax laws.
• Spontaneous. A state gives information it thinks will help another, for example a possible loss of tax, or a transfer of profit within a multinational. No agreement between the two is needed for each case.

The Multilateral Convention also covers simultaneous tax examinations, tax examinations abroad, assistance in collection and service of documents.

Nigeria’s framework

• Treaties. Each double taxation agreement has an exchange of information article, and s. 121(3) of the Nigeria Tax Act (NTA) 2025 lifts secrecy rules so that information required by a treaty can go to an authorised officer of the partner.
• Convention. Nigeria signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters in 2013 and ratified it in April 2015; it took effect on 1 September 2015.
• CRS. Nigeria signed the CRS multilateral competent authority agreement on 17 August 2017, and the Income Tax (Common Reporting Standard) Regulations 2019 oblige financial institutions to collect and report account data. Nigerian banks report accounts of foreign residents to the NRS, which passes them to the partner state; partner states send Nigeria data on Nigerian residents’ foreign accounts. An exchange needs both states to have the agreement, to have notified and to have named each other as partners.
• Country-by-country reporting. Reports are exchanged under the multilateral agreement (see the BEPS topic).
• Data protection. Transfers of personal data abroad are also subject to the Nigeria Data Protection Act 2023, which requires an adequate level of protection or another lawful basis.

Effectiveness. Information exchange has raised compliance, because evaders can no longer count on foreign secrecy, and it supports transparency under the CRS and the BEPS actions. Challenges. The NRS needs the capacity to use the data it receives; domestic rules on obtaining and passing on information must be robust; cross-border cases are complex and need co-ordination; and the data protection rules add steps.

Effectiveness of global co-operation

International tax co-operation began with bilateral treaties against double taxation and now sets norms to close loopholes. The UN and the OECD are the two main centres. The UN has universal membership. The OECD, which works with the G20, runs the Global Forum on Transparency and Exchange of Information (over 140 members) and the Inclusive Framework on BEPS, and oversees the implementation of its agreements.

Both maintain model conventions and guidance, run policy analysis and peer reviews, and provide capacity building, for example Tax Inspectors Without Borders, the World Bank Global Tax Program and IMF technical assistance.

Neutralities

A neutral tax does not change what people and firms would do for economic reasons. Departures are sometimes justified, for example to encourage or discourage an activity. The international forms are:

• Capital export neutrality (CEN). A resident investor faces the same tax on home and foreign investment, so the choice is made on pre-tax returns. A worldwide tax with a full foreign tax credit approaches it.
• Capital import neutrality (CIN). All investors in a country, local or foreign, bear the same tax, so competition is level. An exemption of foreign income approaches it.
• National neutrality (NN). A country wants to maximise national income, so it taxes foreign income but allows only a deduction for foreign tax, not a credit.

Three policy applications:

• broaden the base and lower the rates, which makes tax neutral between activities and between working and not working
• prefer credits or spending programmes to special deductions where they target a goal better
• use tax deliberately to discourage harmful activity such as smoking or carbon emission so that the social cost is priced in

Worked examples

1. Home.
   10% × (1 − 30%) = 7.0% after tax.
2. Abroad under a credit system: foreign tax 20% is credited against the Nigerian 30%, so the total tax is 30%.
   11% × (1 − 30%) = 7.7%.
3. The credit leaves tax the same wherever it invests, so the choice follows the pre-tax return: this is capital export neutrality.
4. Under an exemption system the foreign income bears only the 20% foreign tax, so it competes with local firms on equal tax terms: this is capital import neutrality.

1. (a) is exchange on request.
2. (b) is automatic exchange, such as the CRS.
3. (c) is spontaneous exchange.

1. Kenya taxes the rent on source because the property is there.
2. Nigeria taxes the same rent on residence because the owner lives here.
3. Relief comes as a credit for the Kenyan tax under s. 120 NTA 2025 (see the treaties topic).

1. Under the non-discrimination principle the import may not bear more internal tax than the local product.
2. VAT on the import is limited to 7.5% × 1,000,000 = ₦75,000, in addition to any customs duty that the tariff allows.

How to score full marks

• Define residence and source jurisdiction at the start.
• Separate request, automatic and spontaneous exchange and give a Nigerian example of each.
• Name the legal tools: treaty articles, the Convention, the CRS agreement and Regulations.
• Give the neutralities as CEN, CIN and NN with the credit and exemption links.
• Add one challenge and one effect for Nigeria.

Common mistakes in the exam

• Saying Nigeria’s exchange of information framework is the Data Protection Act; that Act only governs how personal data moves abroad.
• Mixing up the OECD and the UN: only the UN has universal membership.
• Writing neutrality as a single idea with no CEN, CIN or NN.
• Confusing spontaneous exchange with exchange on request.
• Calling GATT a current body; the WTO replaced it in 1995.

Quick revision

• Residence and source; limits: geographical, subject matter, personal.
• Exchange: on request, automatic, spontaneous.
• Convention 2015; CRS signed 17 Aug 2017; CRS Regulations 2019.
• CEN, CIN, NN.
• OECD Global Forum over 140 members; UN universal.
• CAMA 2020: ss. 54, 119, 377(1), 378.

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Recall check: multiple choice

Recent ICAN papers are written, although older papers such as May 2014 included multiple-choice questions. These questions are for quick recall. The written questions that follow are closer to the exam.

Written questions

Model answers

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