Taxation of Digital Economy; Global Realities Vis-À-Vis the Nigerian Perspective


By Babatunde Oyewole 


 The news as to the enactment of the Finance Act, 2020 by the Nigerian government was accompanied with mixed feelings. This was majorly because the enactment brought along with it consequential amendments to the principal Tax legislations in the country[1]. One which has been an issue for debate among experts, is the introduction of the Taxation of non-resident companies providing digital services in Nigeria. Globally, businesses are taking transcendental shifts from the establishment of a fixed base towards a digitally transformed avenue through which services can be enjoyed and utilized by consumers. The sore spot however, is that these companies generate humongous incomes[2] from countries around the world with no legal and trade consequences or obligation whatsoever. Policymakers, professional tax commentators, alongside the Organization for Economic Cooperation and Development (OECD) Base Erosion Profit Shift (BEPS) Action plan[3], have questioned the multi-jurisdictional income generation of digital service providers as a form of BEPS and tax leakages for countries where value is being created.

Progressively, it becomes highly imperative to critically examine the path being towed by the Nigerian government in line with the global trends of digital taxation, while carefully analysing what is and what is to come.


Since the London Summit of April 2009, the OECD has been a major player in the fight against tax evasion, ending tax havens and addressing tax avoidance by multinational corporations[4]. In 2015, the OECD reported that BEPS result in loss of revenue for governments, which is conservatively estimated between 4% and 10% of global corporate income tax i.e. USD 100 to 240 billion annually based on its 2014 figures[5]. It also acknowledged that it would be difficult, if not impossible, to “ring-fence” the digital economy from the rest of the economy for tax purposes, due to the increasingly pervasive nature of digitization[6]. The OECD Action Plan on BEPS[7], introduced in 2013, set 15 specific Action Points to ensure international tax rules are fit for an increasingly globalized, digitized business world and to prevent international companies from paying little or no tax. While talks amongst supranational decision makers have been facilitated, same can be said to have been stunted by international politics. At the forefront of stalling these proposals is the United States of America (U.S.A)[8], where there is a significant number of thriving digital service providers domiciled therein[9]. However, with the outbreak of the novel coronavirus (COVID-19) and subsequent measures implemented to flatten the curve, many countries have been on the verge of economic redundancy. Interestingly, while countries are struggling to survive, most of these multinational companies are savoring their spike in profits like never before[10], thereby awakening the conscious need for governments to Tax these companies.

The European Commission (the Commission) and the OECD are the two standard-setting bodies concurrently studying the issue of digital taxation. The Commission proposed two directives for taxing the digital economy[11]. The first proposed a short term measure that would impose a tax on revenues for companies with worldwide revenues of over €750m and EU revenues of over €50m; the second was a longer term proposal which introduced the concept of ‘significant digital presence’ to determine the EU tax requirements[12]. Meanwhile, individual countries propelled by both political agitations and revenue considerations have started to move forward with unilateral tax measures in somewhat varying degrees[13]. The common ground however, is that these Taxes, although applying but not limited to Online marketplaces, search engines, social media platforms, online advertisements and the likes, do not apply to purely business-to-business transactions. The introduction of these legislations have also increased tensions at the global political level. France, being the first EU member-state to have implemented a Digital Service Tax(DST), was issued an economic threat over her decision to impose a 3% tax on sales generated by tech firms in the country[14]. The United States threatened to impose tariffs of up to 100% on French imports, which is estimated to be around $2.4billion of French imports[15]. Thereafter, the two countries agreed on a truce, whereby the U.S. would back off from tariffs and France would delay collection of its digital tax to the end of 2020[16], to allow for a “unified approach”.

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Moving forward, 31st May 2019, the OECD published a program of work on the tax challenges arising from the digitization of the global economy[17]; carefully grouped into Two Pillars. Pillar One deals with the allocation of taxing rights to market and user jurisdictions, and Pillar Two focuses on global minimum taxation. Surprisingly, the US pulled out of the talks on digital taxation[18] and threatened to retaliate if the commission moves ahead with plans of its own[19]. The decision of the US to withdraw from these talks have been criticized by experts as an attempt to initiate a global trade war[20].


The Nigerian government, through the enactment of the Finance Act 2020, announced that foreign companies with “Significant Economic Presence (SEP)” are now liable to pay Tax. The term SEP has been formulated as a replacement to the traditional concept of fixed base”, thus amending Section 13(2) of the Companies Income Tax Act(CITA)[21] to accommodate taxation of digital activities. In line with this, the Companies Income Tax (SEP) Order (“the Order”) was released by the Minister of Finance[22], it details how Nigeria intends to implement its digital tax policy. Summarily, the Order contains activities and operations which qualifies as digital activities for the purpose of taxation and underlines a gross income threshold before companies may be taxed. Consequently, a foreign company shall have significant economic presence in Nigeria in any accounting year where it derives N25million ($65,000) annual gross turnover or its equivalent in other currencies from any or combination of the following digital activities;

  • Streaming or downloading services of digital contents including but not limited to movies, videos, music, applications, games and e-books to any person in Nigeria or ;
  • Transmission of data collected about Nigerian users which has been generated from such users’ activities on a digital interface, including websites or mobile applications; or
  • Provision of goods or services other than those under sub-paragraph 5 of the Order, directly or indirectly through a digital platform to Nigeria
  • Provision of intermediation services through a digital platform, website or other online applications that link suppliers and customers in Nigeria.
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Additionally, a foreign company shall have a SEP where it uses a Nigerian domain name (i.e., .ng) or registers a website address in Nigeria, or has a purposeful and sustained interaction with persons in Nigeria by customizing its digital page or platform to target persons in Nigeria, including reflecting the prices of its products or services in Nigerian currency or providing options for billing or payment in Nigerian currency.

The Order also provides that the activities carried out by connected persons in any accounting year shall be aggregated in order to determine whether the N25 million annual gross turnover threshold was met. The Order defines connected persons as:

  1. Persons that are “associates” as defined in the Companies and Allied Matters Act [CAMA];
  2. Persons that are business associates in any form, such that one person participates directly or indirectly in the management, control or in the capital of the other, or the same person or persons participate directly or indirectly in the management, control or in the capital of both enterprises.

Going further, the Order provides that a foreign company providing technical, professional, management or consultancy services shall have a SEP in Nigeria in any accounting year where it earns any income, or receives any payment from a person resident in Nigeria, or a fixed base or agent of a foreign company within Nigeria.

Based on international norms, the provisions of Double Tax Treaties (DTTs) supersede local tax laws. The Order, being an extension of CITA, cannot apply to companies based in countries with which Nigeria has a DTT or multilateral agreements. Also exempted are foreign companies making any payment, where the payment, is made (i) to its employee under a contract of employment (ii) for teaching in an educational institution or for teaching by an educational institution; or (iii) by a foreign fixed base of a Nigerian company.

Paragraph 3 of the Order depicts the intention of the Government that this is an interim measure which will be overridden by a consensus approach to taxation of the digital economy at the end of the current rounds of OECD negotiation.

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The enactment of the Finance Act and the issuance of the SEP Order by the Nigerian government is a remarkable step in the right direction however, many Tax professionals still opine that the country is not ripe to Tax the digital economy, mainly because many questions have been left unanswered. How do we implement these Tax liabilities on foreign companies? Do we have the technological and administrative facilities to bypass the challenge of monitoring the fluidity and border-less market of online transactions? The Order did not give any guidance on whether the Company Income Tax returns filed by qualifying companies will be based on actual or deemed income basis. More so, how will the government trace such Tax liabilities? It is important to note, that the SEP principle originated from the Eurocentric OECD where there is a legal nexus between the EU Commission and the OECD Investment Committee, this makes the administration of taxing rights and revenue allocation easier as it is a consensus-based proposal by nations, mostly from the EU, constituting the OECD. Making a case for the implementation of the SEP by a non-aligned country like Nigeria would be a different challenge entirely.


The digital economy is the new frontier of Taxation. As a result, its effective taxation remains a challenge even for developed economies. While the international consensus on taxation of digital revenue has yet to materialize, taxing the digital economy is very much a live issue but should not be hastened. Formulation of new international and multi-juridictional Tax laws capable of withstanding the challenges of an ever-dynamic world should be the basis of all negotiations and implementations, not speed.

Babatunde Oyewole is currently a 500 Level Law Student in Ekiti State University, Ekiti State, Nigeria. He can be reached at:


[2] For example, Facebook’s quarterly net income is about 4.9 billion US dollars and about 20 billion in US dollars as its annual net income.

[3] The BEPS Action Plan details the challenges concerning the taxation of the digital economy. Action plan 1 and 8 addresses the concept of digital taxation.

[4] The OECD/G20 BEPS Project was developed in 2013 to address these concerns and rewrite international tax laws capable of proffering workable solutions to modern day Tax issues.


[6] Ibid.


[8]This is understandably so because, allowing Taxes on these multinational corporations based on the “nexus approach” signifies that the net profit of these corporations will be split amongst countries where they have “significant economic presence”. By implication, leading a reduction of taxes paid to the government of the United States, where they have their “fixed base”.

[9] Amazon, Shopify, Zoom, Netflix, Facebook, and Google all have their Fixed base in the US.



[12] Ibid.



[15] Ibid.








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