Confronting the problem of cross-border tax evasion in an era of greater global transparency of tax relevant information. The case of Nigeria

Publication Date03 October 2016
AuthorDerek Adetokunbo Obadina
SubjectAccounting & Finance,Financial risk/company failure,Financial compliance/regulation,Financial crime
Confronting the problem of
cross-border tax evasion in an era
of greater global transparency of
tax relevant information
The case of Nigeria
Derek Adetokunbo Obadina
Faculty of Law, Lagos State University, Lagos, Nigeria
Purpose – This paper aims to examine the Nigeria’s approach for tackling tax evasion, the limitations
of double tax conventions for that purpose, the benets of multilateral instruments/standards for
automatic exchange of tax information and Nigeria’s ability to participate in such arrangements.
Design/methodology/approach This paper is a library-based research, deploying content
analysis with respect to books, law reports, law journals and newspapers.
Findings Nigeria has taken signicant steps to deal with domestic tax evasion by tightening
anti-money laundering legislation, principally by making tax evasion a predicate offence and by
imposing relating reporting obligations on nancial institutions and a wide range of designated non
nancial institutions (DNFI’s), but cross-border tax evasion remains a big problem owing to a limited
network of double tax conventions (DTCs) and inherent limitations of the machinery in limiting
exchange of information to distinct requests. Nigeria’s ability to benet from new international
standards providing for automatic exchange is compromised by the absence of robust rules with
respect to taxpayer condentiality and data protection.
Research limitations/implications – Because the research focused on Nigeria, the ndings of the
study might not be applicable to other jurisdictions.
Originality/value – Given the devastating effects of tax evasion on development in Nigeria and the
priority accorded to the eradication of the problem in the sustainable development goals, this paper
meets a need to determine the extent of sufciency of Nigeria’s legal and regulatory framework in
enabling the country to tackle tax evasion.
Keywords Tax evasion, Automatic exchange of tax information
Paper type Research paper
1. Introduction
The problem of tax evasion has come to the fore in many countries in recent years as a
consequence of economic crises and the associated concern of governments to maximize
tax revenues in response. This includes the Federal Republic of Nigeria, where the
tax-to-gross domestic product (GDP) ratio has historically been one of the lowest in
Africa (Oyedele, 2015)[1]. Here, in the wake of declining crude oil prices, “there has been
an unprecedented focus on taxation as a means of generating non-oil revenue”[2]. As
part of this focus, the Federal Government has identied, domestic tax evasion, as
indicated by the number of individuals and companies outside the tax net, as a major
source of public revenue leakage[3] and, consistent with prudential advice from donor
The current issue and full text archive of this journal is available on Emerald Insight at:
Journalof Money Laundering
Vol.19 No. 4, 2016
©Emerald Group Publishing Limited
DOI 10.1108/JMLC-10-2015-0043
countries seeking faster development in the African continent[4], has committed to
tackling tax evasion more effectively[5]. This is seen in decision of the Federal
Government to bring in a foreign consultancy rm to advice on ways of improving
domestic tax collection[6]. Not surprisingly, the Federal Inland Revenue Service (FIRS),
responsible for administering the main taxes in the country as they apply to companies,
has keyed into the thinking of the Federal Government, with a series of recent public
pronouncements making clear its intention to clamp down hard on companies engaging
in tax evasion[7]. At the level of the states of the Federation, States Internal Revenue
Service, responsible for administrating the Personal Income Tax Legislation, under
pressure to respond creatively to reduced nancial allocations from the Federal
Accounts Allocation Committee, has sought to boost internally generated income by
widening their tax nets (Abdulahi, 2014;Chigozi-Nmonwu, 2015;Balogun, 2015), with
many of them specically targeting tax evasion[8]. Yet, cross-border tax evasion, a
major element of the wider problems of money laundering and illicit nancial ows, is
also a signicant source of revenue leakage in Nigeria as in many other developing
countries. Thus, the report released by the High-Level Panel on Illicit Financial Flows in
June 2015[8] found that between 1970 and 2008, the African continent lost about $850bn
to illicit nancial ows and that of this, about $128bn comprised illegal transfers out of
Nigeria that related to tax evasion[9].
Cross-border tax evasion takes different forms, but it typically involves the use of
anonymous legal structures for the purpose of concealing taxable assets and moving
them to offshore jurisdictions (Marriage, 2013;Erodad, 2015;Picciotto, 2012). In tackling
this, tax authorities will invariably require the assistance of their counterparts in the
off-shore jurisdiction concerned in tracking such assets and matching them to their true
owner. Historically, recognizing that they have a mutual interest in countering tax
evasion, countries have sought to meet this need through the machinery of bilateral
agreements in the form of double taxation agreements containing provision for
exchange of taxpayer information or Tax Information Exchange Agreements (TIEAS),
in either case modeled on either on Article 26 of the Organisation of Economic
Cooperation and Development (OECD) Model Tax Convention on Income and Capital
(OECD Model Tax Convention), with the Convention on Mutual Administrative
Assistance in Tax Matters (the Multilateral Convention) providing an alternative,
multilateral, basis for such exchanges[10]. By convention, exchange of taxpayer
information under these arrangements has been on the basis of a specic request[11]
from the country in need of assistance[12], with “shing expeditions” prohibited.
However, in recent years, an emergent international consensus, prescribing greater
transparency and international cooperation in tax matters to counter tax evasion, has
viewed the traditional arrangements for exchange of tax information as insufcient. The
meeting of G20 countries in 2008, “amid serious challenges to the world economy and
nancial markets” was cathartic in this respect (Declaration of the Summit on Financial
Markets and the World Economy, 2008), leading to a series of initiatives designed to boost
levels of international cooperation in relation to a number of matters including exchange of
tax information. This included the 2010 decision to amend the Multilateral Convention[13],
to allow for the participation of non-OECD and non-Council of Europe, with Nigeria signing
the Convention in 2013 and ratifying it in April 2015[14] and the decision of the Global Forum
on Transparency and Exchange of Information for Tax Purposes, an off-shoot of the OECD,
to establish a two-stage peer review mechanism to assess the effectiveness of “on-request”
Greater global

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