AN EXAMINATION OF THE TAXATION OF MULTINATIONAL CORPORATIONS AND ITS LEGAL EFFECTS ON FOREIGN INVESTMENTS IN NIGERIA

CHAPTER ONE GENERAL INTRODUCTION

The international multinational corporate taxation vis-à-vis foreign investments, together with issues of double taxation and non-adherence to corporate rules are some factors that have brought companies to ruins. The viability and health of corporations have direct bearing on a country‘s economic growth and revenue generation.

It is definite to state that taxation is the key to a sustainable development. This is because no government can survive without sufficient revenue to finance its activities. This explains why revenue generation is one of the basic objectives of taxation¹. As a matter of fact, fiscal considerations are paramount in shaping development policies of a given economy either at micro or macro level. In his remark, Felix Frankfurter² states the significance of tax thus:

Taxation has always been the sensitive nerve of government. The enormous increase in the cost of society and the extent to which wealth is represented by intangibles, are putting public finance to its severest tests. To balance budgets, to pay for the cost of progressively civilized social standards, to safeguard the future and to divide these burdens with substantial fairness to the different interests in the community, strains to the utmost the ingenuity of statesmen.

Nigeria has many taxes through which sufficient revenue can be generated to meet government expenditure³. Some of these taxes include companies‘ income tax and petroleum profit tax among others⁴. These taxes are capable of generating sufficient revenue to finance the government activities if they are effectively administered and enforced. However, there is no gainsaying despite the fact that Nigeria has many companies and other taxable persons from whom revenue can be generated, the government is repeatedly complaining of the widespread incidence of tax avoidance and evasion⁵. Our tax system has not succeeded in achieving the goals of revenue adequacy and equity. Revenue authority attempts to generate too much revenue but ends up with little.

A lot of reasons are responsible for the inadequate revenue generation. In the 1970s during the oil boom, the government depended much on oil revenue. Petroleum profit tax gained prominence at the expense of other taxes. The authority became relaxed to adequately harness other forms of taxes that would have boosted and complemented its oil revenue generation. This consequently brings about loops and slack in Companies‘ Income Tax Laws. It equally weakened the administrative and enforcement institutions of other non-oil taxes.

Apart from the fact that our corporation tax laws have not been overhauled and reviewed for a long period of time to make them more elegant and in tandem with the international best practices, their provisions are clumsy, unnecessarily verbose and complicated. This may increase the cost for tax payers to comply with their tax obligations. Besides, it is trite that for a tax to be justified at all, it must be found within the clear language of a statute⁶. In the observation of O. Akanke;

….the law forms the foundation upon which the structure of the tax system is built. It is trite law that there is no presumption about tax. Tax being a compulsory levy by government and therefore a compulsory

contribution by the subject must be clearly imposed upon him. Consequently the first cardinal principle of taxation is that there must be a clear manifestation of an intention on the part of the government to deprive the subject of his property. It is therefore pre- requisite for a good tax system to impose the tax clearly and unambiguously in a manner that who and what is being taxed is easily identifiable.⁷

The Companies Income Tax Act and Petroleum Profit Tax Act are far from fulfilling the above requirements. In fact, they are in the main inelegantly drafted. This makes compliance and implementation not very easy and consequently affects revenue generation. Although Nigerian government usually embarks on tax reforms, these reforms have failed to introduce any new principle of significance.

Allied to this, is the fact that a company is a distinct legal entity and by its very nature it poses taxation problems. A series of dimensions and developments have crept into the practice and procedure of corporation taxation which have not been adequately captured as a result of loop holes in our laws. Companies, like natural persons do engage in cross – border transactions and in that course, contrive various tactics to avoid and evade taxes in Nigeria. This poses a complicated taxation problem as techniques for corporation tax abuses have become too sophisticated for our own tax system to cope with. In other words, the business world is always a step ahead and there is a growing need to update knowledge through continuous review of the corporation tax laws and practice in Nigeria⁸. Otherwise these ingenious schemes will constitute conduit through which a lot of revenue will be eluding the government. This in turn will have adverse effect on the citizenry because the government will not be able to provide for their needs adequately.