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

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

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ABSTRACT

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 taxation. This actually prompts the analysis of multinational corporate taxation in Nigeria so as to see the effects of corporate investments contribution to foreign investments in Nigeria. Also, the aim of bilateral tax treaty entered into between the Federal Republic of Nigeria and other foreign countries is to encourage economic growth by mitigating international double taxation and other barriers to cross border trade and investment, and to improve tax administration between the contracting nations. The enabling environment created through generous fiscal policies is expected to increase the level of direct foreign investment in Nigeria beyond its present level. On the contrary what obtains are divestments cum capital flight out of the country, it is therefore in line with the above that this study seeks to examine the effects of Nigeria fiscal policies on foreign investment in Nigeria. Therefore, the objective of the study is to examine the extent to which tax incentives have impacted on direct foreign investment in Nigeria; To evaluate the adequacy or otherwise of the present legal regime on corporate taxation and proffer possible necessary reform to the laws; analyze the relationship between taxation and direct foreign investment in Nigeria; to find out who are these multinational corporations that are subject to corporate taxes that can be granted tax reliefs to attract foreign investments into Nigeria. Thus, this study posit that, by identifying the multinational corporations subject to corporate tax, foreign investment opportunities will be created under the Nigerian corporate laws that will attract foreign investments to Nigeria which will boost the revenue development in Nigeria. The old standard of corporation tax, the manual assessment and enforcement procedures cannot meet up with the fast- changing commercial activities of the companies. This consequently creates administrative ineptitude which to a large extent adversely affects revenue generation in Nigeria. There is therefore the need to probe into how the developments have affected our domestic corporate taxation. The study applies the doctrinal methods of research to achieve this and recommends that, Nigeria and United Kingdom and other countries double taxation treaties on multinational corporations be reviewed in line with International best practices by designing sound tax policy, good corporate governance, good tax incentives to encourage investments and amending Nigerian tax laws to guarantee these objectives.

CHAPTER ONE GENERAL INTRODUCTION

1.1       BACKGROUND TO THE STUDY

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

1       Other objectives of the taxation include re-distribution of wealth and management of economy.

2        ― Justice Branders and Constitution” 45 Harvard Law Review 33 reproduced in Ervin H. Pollack. The Brandies

Reader Oceana, Docket series, vol. 7 (1965) p.38 quoted In O. Akanke (ed) Tax Law & Tax Administration in Nigeria, Nigeria Institute of Advanced Legal Studies (NIALS), 1991, p.109.

3 The major taxes in Nigeria are: Personal income tax governed by Personal Income Tax Act 1993, (Now Cap P8 Laws of Federation of Nigeria (LFN) 2004), Companies’ income tax regulated by Companies Income Tax Act 1990 (Now Cap C21 LFN 2004), Petroleum profit tax regulated by Petroleum Profit Tax Act 1990 (Now Cap C1 LFN 2004), Value added tax regulated by Value Added Tax Act 1993,(Now Cap V 1 LFN, 2004), Education tax regulated by Education Tax Act 1993 (Now Cap E4

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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 reve


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