UNIV ERSIT Y O F IB ADAN L IB RARY 2016 Vol.27 Issue 6 ISSN: 0958-5214 International Company and Commercial Law Review Table of Contents Opinion DOROTA GALEZA Articles KFURRAM PARVEZ RAJA MARCUS AYODEJI ARAROMI Book Review DR SALtfEM SHEIKH News Section Brazil Brazil Brazil Getting Rid of the Penal Doctrine: The Implications of the Joint Cases: Cavendish Square v Makdessi and ParkingEye v Beavis 175 Cavendish Square v Makdessi and ParkingEye v Beavis present two striking scenarios as far as the penal doctrine is concerned. In Cavendish, the parties were highly sophisticated commercial partners who were well represented and able to negotiate at arm’s length. In ParkingEye, one o f the parties was a consumer and the contract was imposed by the other party with no legislation to support it. In this case note that I will try to argue for the abolition o f the penal doctrine and its replacement in consumer contracts by Regulations. This resembles one of the submissions made by Miss Joanna Smith QC, which, it is argued, did not receive sufficient weight in any o f the judgments (apart from the application o f the Regulations to ParkingEye). Miss Smith argued that the doctrine was antiquated and stressed the growing importance of statutory regulation in this field. Pakistani Minority Shareholder Protection Jurisdiction as Judicially Considered: 1984-2016 (an Empirical Study) 179 The broadly worded unfair prejudice remedy contained in s.290 o f the Pakistan Companies Ordinance 1984 constitutes the most far-reaching of Pakistan’s corporate law remedies. This article provides the first comprehensive empirical analysis o f Pakistan’s judicial treatment o f shareholder oppression remedies. The author empirically tested the following claims: (1) Pakistani Courts have not made extensive use o f shareholder oppression jurisdiction; (2) minority shareholders have had no significant access to the oppression remedy; (3) non-shareholder creditors and minority shareholders in public companies, private companies and quasi-partnerships have not increased their use o f the oppression remedy; and (4) although the scope of the shareholder oppression remedy allows for substantial judicial creativity under the Companies Ordinance 1984, this is non-existent in Pakistan. The author concludes that the Pakistani judiciary has not used these remedies to benefit minority shareholders, and that the circumstances in which relief may be obtained have not been considerably broadened. Taxation of E-commerce in Nigeria: Treading the Global Pathway 204 Tax policies and legislation arc put in place to ensure adequate taxation, payments and remittances o f tax proceeds. Most tax authorities base liability for tax on residence or personal contacts established within the jurisdictions o f the tax authorities, while some tax purely on the incomes sourced within the jurisdiction without prejudice to other means or bases of generating tax. However, basing tax on residence seems to be a generally acceptable foundation for levying tax. With the introduction o f e-commcrce, basing tax on residence or personal links has become a thorny issue in the current tax regime. Many tax revenues arc lost as a result o f the inability to tax e-commerce in Nigeria. This article intends to address the challenges created by c-commerce to the tax regime currently in existence and^fso to review the approaches and efforts made in some jurisdictions and at the international level to address c-commerce taxation with the hope o f suggesting ways forward for e-commerce taxation in Nigeria. Bovvstead & Reynolds on Agency 216 RENEWABLE ENERGY Project finance N-39 COMPANIES Earnings distributions N-39 COMPANIES Debentures N-41 UNIV ERSIT Y O F IB ADAN L IB RARY 204 International Company and Commercial Law Review Taxation of E-commerce in Nigeria: Treading the Global Pathway Marcus Ayodeji Araromi & Comparative law; E-commerce; Nigeria; OECD; Tax Introduction In every state where the government is expected to have a hold on the power to steer the ship of governance and promote the welfare of the state, there is a need to levy tax appropriately and as it is due. Tax is one of the major ways the government of the day raises its revenue, which has come of age as a measure of securing financial power since time immemorial.' Tax payments may thus vary from income taxes, property taxes and corporate taxes to value-added taxes (VAT) and sales taxes, customs and excise duties, among others. The role of tax in building a flourishing society and a force in developing a strong democracy should not be underestimated. According to one writer: “Democracies are built not only on periodic elections but also on a social contract based on bargaining over the collection and spending of public revenue.”2 The collection of taxes by government depends on its ability to identify people, time, value and location.3 With identifiable contacts and a value assessment it may be easy for government to levy taxes on taxpayers. The traditional transactional system makes for a clear-cut taxability of commodities sold or services rendered through physical and real-time demands, and supplies platforms or the “bricks and mortar” dais. Many commercial activities are now carried out online without the necessity of the parties to the transactions being physically present at the point of entering into such contractual relationships, and also many services and products are now being delivered to the ultimate consumers in electronic form, which may create some problems as to the location and taxability of such activities. As has been rightly asserted, “as with everything in the new economy, the tax authorities are entering an era of confusion where all the rules are changing, and the internet is eroding their traditional revenue base”.4 Government revenue through tax is derived from direct taxation of the income of individuals and companies, and such taxes from customs and excise duties which are predicated on the government being able to identify the people, both real and juristic, in time and space, as well as the taxable commodities. In addition, VAT also constitutes an indirect way by which government can generate revenue. With the introduction of electronic commerce (e-commerce), the certainty of persons, locations, values and activities are no longer easily determined. The seamless nature of activities on the internet, which has brought about globalisation in commerce, has culminated in difficulties in monitoring transactions and indentifying the parties involved. With the internet, it is now easy for a company situated in one jurisdiction to have a direct business contact with a consumer in another jurisdiction without a physical presence and without necessarily passing through a retailer. Furthermore, as more retail methodologies and relevant technologies are developed, more new innovative businesses unknown to the physical world and more challenges to the tax regimes will equally be created.5 This article will therefore examine the current tax regime in Nigeria and how it fares in addressing tax matters in e-commerce, and the article will also consider the taxation of e-commerce at the international level to serve as a compass for promoting the e-commerce regime in Nigeria. At this juncture, it is imperative to understand what e-commerce is all about. This article is divided into eight parts. The first part addresses the typical nature of e-commerce which makes it different from the traditional means of commerce. The second part discusses e-commerce in Nigeria and the extent to which this system of commerce has been adopted in Nigeria. The third part deals with the bases for levying tax in Nigeria. In the fourth part, the tax implications of e-commerce will be addressed. The fifth part addresses the legal and regulatory framework for tax in Nigeria vis-a-vis e-commerce, while the sixth part deals with the elusive nature of e-commerce tax revenue and the approaches for controlling the same adopted in some jurisdictions. The seventh part addresses the efforts of the OECD at resolving e-commerce taxation problems, and then the eighth part concludes. The nature of e-commerce The term “e-commerce” has no definite or generally agreed definition. However, the following considerations will suffice for this article. The term “e-commerce” has been described as PhD, Department of Public Law, Faculty of Law, University of Ibadan, Nigeria. 1 In Nigeria, the taxation system dates back to 1904, when personal income tax was introduced in Northern Nigeria before the Northern and Southern Protectorates were amalgamated. The tax system was later implemented through the Native Revenue Ordinances in the Western and Eastern regions in 1917 and 1928 respectively after the amalgamation in 1914. 2 Jacob Babalola Okele, “Evolution and Enactment of Taxes: Dividends of Good Governance in Nigeria”, NLI White Paper (2014), p.36. 3 D. Holmes, E-Government- E-business Strategies fo r Government (London: Nicholas Brealey Publishing Co, 2001), p.222. 4 Holmes, E-Government- E-business Strategies for Government (2001), p.222. 5 C. Gringras, The Law o f the Internet, 2nd edn (London: Reed Elsevier (UK) Ltd, 2003), p.399. [2016] I.C.C.L.R., Issue 6 © 2016 Thomson Reuters (Professional) UK Limited and Contributors UNIV ERSIT Y O F IB ADAN L IB RARY Taxation of E-commerce in Nigeria: Treading the Global Pathway 205 “a broad concept that covers any commercial transaction that is effected via electronic means and would include such means as facsimile, telex, Electronic Data Interchange (EDI), Internet and telephone”.6 In general terms, e-commerce encompasses any transactions carried out through any of the electronic communications media. In the context of this article, the concept is limited to “those trade and commercial transactions involving computer to computer communications whether utilizing an open or closed network”.7 8 Similarly, the United Nations Commission on International Trade Law (UNCITRAL) defined e-commerce as “commercial activities conducted through an exchange of information generated, stored, or communicated by electronic, optical, or analogous means sj 8 Electronic commerce has also been held to “comprise commercial transactions, whether between private individuals or commercial entities, which take place in or over electronic networks. The matters dealt with in the transactions could be intangibles, data products or tangible goods. The only important factor is that the communication transactions take place over an electronic medium”.9 From this definition it is imperative to state that e-commerce can be carried out in three different ways: transactions between two or more individuals; transactions between a business and individuals, which is also known as business-to-consumer transaction (B2C); and transactions between one business and another business, otherwise known as business-to-business (B2B) transactions. The commodities to be traded in e-commerce platforms can be intangible products, such as access to materials in the database of a service provider or the electronic supply of a computer software program; or tangible goods such as the ones supplied by online shopping malls, such as Konga.com, Jumia.com, Dealdey.com etc,10 11 which are goods that may also be supplied in the traditional way. Without doubt, the electronic supply of goods and services poses certain challenges to the traditional notion of goods and services delivery and therefore creates the need to address the legal issues raised by employing new laws or amending the existing ones. E-commerce is not restricted by geographical or physical limits and can therefore be conducted over seamless borders across different physical jurisdictions. This is unlike traditional commerce, which ordinarily has regard to physical boundaries, on account of which there are definite laws to address the legal issues that may be raised. Businesses are now finding it more convenient to engage in contact with other businesses outside their jurisdictions by the use of email and websites, and the same goes for consumers, who may purchase goods outside their jurisdictions." Matters relating to e-commerce cannot be effectively handled by a system of law of a single jurisdiction because of the transnational nature of transactions, and therefore there is a call for co-operation across jurisdictions to develop an understandable legal regime that can be adopted. The EU already provides for measures dealing with a group of states, and has also recognised the need for such an approach in the e-commerce area.12 E-commerce in Nigeria The internet has constituted a propelling force in the development of business and commerce at the global level. Little wonder that many of the developed countries—the US, Denmark, China, Switzerland, Singapore, and so on—are now making use of the internet to boost their economy in the area of e-commerce and business. Nigeria is one of the developing nations that has yet to fully plunge into the mainstream of e-commerce in Africa. To this end, Nigeria does not have a legal framework to holistically regulate e-commerce.13 Nigeria has not really taken a front seat in reflecting its economic development through the use of technology in Africa as it is still struggling to make a reasonable impact in the adoption of e-commerce. Therefore, in terms of technological infrastructure, the legal framework and entrepreneurial and public readiness in adopting or promoting economical activities beyond the frontiers of the country have remained a nightmare. However, the recent significant developments that Nigeria has achieved in the area of technological acquisition include the redelegation of .ng TLD, the electronic payment system; the cashless policy adopted by the banking industry which was introduced by the Central Bank of Nigeria (CBN).14 Electronic money is no . doubt part of the equipment of e-commerce, which may include payment methods similar to traditional debit cards, and is based on the transfer of moneys between bank accounts or between banks. It may also include a 6 Report o f the Electronic Expert Group to the Attorney General (Australia), “Electronic Commerce: Building the Legal Framework” (1998), cited in D. Rowland and E. Macdonald, Information Technology Law, 2nd edn (London: Cavendish Publishing Ltd, 2000), p.251. 7 Report o f the Electronic Expert Group to the Attorney General (Australia), “Electronic Commerce” (1998), cited in Information Technology Law (2000), p.251. 8 Clayton W. Chan, “Taxation of Global E-commerce on the Internet: The Underlying Issues and Proposed Plans”. Available at: http://www.winthrop.eom/Portals/0/PDF /claytonchan.pdf \Accessed 31 March 2016]. 9 L.J. Davies, “A Model for Internet Regulation” (1998), cited in Information Technology Law (2000), p.251. 10 These are the leading online stores in Nigeria. Other online shopping stores include Kaymu, Buyam, Taafoo, Adiba, OLX, Fashpa, Gloo, Gidimall, Shoppi.ng, Forever Living, Buyright.biz, Egole, Mystore.com.ng, Shopaholicng.com, and host of others. 11 Rowland and Macdonald, Information Technology Law (2000), p.252. 12 Rowland and Macdonald, Information Technology Law (2000), p.252. 13 K.G. Akintola, R.O. Akinyede and C.O. Agbonifo, “Appraising Nigeria Readiness for Ecommerce Towards Achieving Vision 20:20:20” (2011) 9(2) I.J.R.R.A.S. 330. 11 Akintola, Akinyede and Agbonifo, “Appraising Nigeria Readiness for Ecommerce Towards Achieving Vision 20:20:20” (2011) 9(2) I.J.R.R.A.S. 330, 331. [2016] I.C.C.L.R., Issue 6 © 2016 Thomson Reuters (Professional) UK Limited and Contributors UNIV ERSIT Y O F IB ADAN L IB RARY http://www.winthrop.eom/Portals/0/PDF 206 International Company and Commercial Law Review new form of currency based on software systems that operates independently of the banking system and promotes the anonymity of the personnel using this system and the realisation of the actual funds that exchange hands; this has, because of this nature, made the task of the tax authorities impossible.15 There are, however, some challenges being experienced in Nigeria which have been the bane of the development of e-commerce in the country. The challenges include a low level of internet penetration; security concerns; the quality of goods to be supplied; preference for the traditional method; a low level of sensitisation; the lack of technical know-how; a poor infrastructural base; the fear of the unknown; fraud, and so on. However, not much effect has been experienced in the area of acquisition of e-commerce in Nigeria as most daily transactions are still largely carried out through face-to-face contacts compared with developed countries, where a great deal of commercial transactions are effected through electronic platforms. The internet has taken a central role in the promotion of commerce in countries such as the US, the UK, France and basically the Western countries. Many online transactions are being carried out on the internet through which demand and supply are met in some cases; and demands or offers for goods are being perfected. Be that as it may, Nigeria still takes part in the demand and supply of goods and services on the internet, even though to a limited level compared with the developed economies. However, there has been a proliferation of online shopping malls and internet supply channels in Nigeria in recent times, which points to a possible internet transaction boom in the near future.16 The introduction of the cashless policy by the CBN could also contribute in no small measure to the promotion of e-commerce in Nigeria in the near future. Moreover, Nigeria’s retail industry is growing in leaps and bounds and gradually navigating from open-air markets to online stores and supermarkets; it has been reported that between 2012 and 2014 investments in the online industry grew to over NGN 205.4 billion.17 An online shopping report has shown that on average, the leading online stores realise about $2 million worth of transactions per week, which amounts to approximately NGN 1.3 billion per month with no fewer than 500 orders placed per day.18 No doubt the apparent proliferation of online contracts and transactions has unavoidable tax implications, which has many economic connotations. The economic growth of a nation also has some affinity with the tax base of such nation. This is why issues bordering on tax are not taken lightly in most economies. Bases for levying taxes in Nigeria There are different methods and bases for Taxing companies for their profits in different countries. Some countries tax dividends generated by resident companies universally, while some foreign companies are taxed on the incomes sourced from the taxing jurisdiction. It is also possible that domestic companies may be taxed only on incomes generated locally, while incomes accruing from foreign jurisdictions may be exempt. In the case of Nigeria, domestic/resident companies’ income is taxed when the income has a connection with Nigeria, whether or not such income is derived from Nigeria19; whereas other companies are taxed on their profits if the profits have some forms of connection with Nigeria. By s.9(l) of the Companies Income Tax Act 2004 (CITA),20 tax shall be payable by companies upon the profits accruing in, derived from, brought into or received in Nigeria. Such profits include fees, dues and allowances (wherever paid) for services rendered.21 The profit of a Nigerian company is taxable anywhere in the world, therefore adopting a universal approach to taxing incomes of domestic companies. Section 13(1) of CITA provides that “the profits of a Nigerian company shall be deemed to accrue in Nigeria wherever they have arisen and whether or not they are brought into or received in Nigeria”. On the other hand, taxation of the profits of companies other than Nigerian companies is based on having an establishment within Nigeria. By the provision of s.13 of the CITA, the profits of a non-Nigerian company from any trade or business are deemed to be derived from Nigeria if the company has a permanent or a fixed base in Nigeria for doing its business, to the extent that the profit is attributable to that fixed base; or if the company habitually operates a trade or business through a person representing its interest in Nigeria, which also includes the habitual maintenance of a stock of goods and merchandise in Nigeria through such a person representing its interest.22 Another genre of taxpayers other than companies or corporations are individuals, corporate sole or a body of individuals. This also includes incomes arising from or due to a trust or estate. This group of taxpayers is eligible to pay tax based on being resident in a state in Nigeria where the tax will be deemed payable for the year of assessment.23 Similarly, a person resident outside Nigeria who derives profit or income from Nigeria is also subject to tax payment to the extent of such profit or income as 15 Gringras, The Law o f the Internet (2003), pp.403-404. 16 For instance, it was reported that there was a tremendous leap in the number of internet users in Nigeria, with a 90% growth rate between 2000 and 2008. See C.K. Ayo, J.O. Adewoye, and A. A. Oni, “Business-to-consumer E-commerce in Nigeria: Prospects and Challenges” (2011) 5(13) African Journal o f Business Management 5109. 1' Phillips Consulting, “Online Shopping Report: A Study of Current Trends in Online Shopping in Nigeria” (July 2014), p.5. 18 Phillips Consulting, “Online Shopping Report” (July 2014), p.5. 19 Companies Income Tax Act (CITA), Cap. C21 Laws of the Federation of Nigeria (LFN) 2004 ss.9 and 13. 20 CITA, Cap. C21 LFN 2004. 21 CITA s.9(l)(f). 22CITA s i3(2). 23 See Personal Income Tax Act (PITA), Cap. P8 LFN 2004 s.2. [2016] I.C.C.L.R., Issue 6 © 2016 Thomson Reuters (Professional) UK Limited and Contributors UNIV ERSIT Y O F IB ADAN L IB RARY Taxation of E-commerce in Nigeria: Treading the Global Pathway 207 derived from Nigeria.24 An individual, executor or trustee who is outside Nigeria is deemed to derive his income in Nigeria if part of the activities leading to such income are performed in Nigeria and such income is attributable to such activities carried out in Nigeria, provided he does not have a fixed base in Nigeria through which he carries on his business; habitually carries on his business through a representative in Nigeria; or habitually maintains a stock of goods or merchandise in Nigeria from which deliveries are regularly made on his behalf.25 This shows that if the non-resident individual, executor or trustee has a fixed place of business in Nigeria, he will be due to pay tax on his income no matter where such income is derived. The application of this system of tax is based on the universal income of such an individual. However, a non-resident individual, executor or trustee will only be accountable in tax for the portion of the profits derived from activities conducted in Nigeria. This latter provision is source-based, in which a foreigner derives his income from Nigeria.26 On employment tax in Nigeria, salaries, wages, fees, allowances or other gains or profits from employment from a source inside or outside Nigeria are taxable.27 According to s.10 of Personal Income Tax Act 2004 (PITA), the gain or profit from employment is deemed to have been derived from Nigeria if the duties of the employment are wholly or partly performed in Nigeria. The measure of the tax payable on employment activities performed in Nigeria shall be to the extent of the gains or profits derived from such activities.28 However, where such duties are wholly or partly performed in Nigeria on behalf of an employer who is based in a foreign country and the remuneration of the employee is liable to tax in the foreign country, such remuneration will not be taxed in Nigeria. The gain or profit from an employment shall be deemed to be derived from Nigeria whether the gain or profit from the employment is received in Nigeria or not.29 Tax implications of e-commerce ° A tax can be described as “a financial charge or other levy imposed upon a tax payer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay, or evasion of or resistance to collect, is punishable by law”.30 The internet has opened up an opportunity for small- and large-scale businesses to thrive at the global level through the exchange of goods and services, therefore projecting such businesses at the national, regional and international level. The use of the internet thereby widens market and economic bases. It has been rightly observed that the resources the government can generate from taxes are far more than the amount that is available to spend.31 Hence, the Nigerian National Tax Policy (NTP) sets as one of its motives the eradication of bottlenecks and leakages in Nigeria’s tax system, therefore charging the tax bodies at all levels to plug such leakages. These leakages can occur at three stages: assessment, collection and the utilisation of tax proceeds. Frankly, the set objective of the NTP may not be easily achieved considering the volume of transactions that are carried out daily through the electronic platforms, especially the internet, as most of the transactions are carried out without evidence of records. A lack of clear delineating boundaries for transactions over the internet, a lack of the physical exchange of cash, and a lack of transactional records create a number of legal and socio-economic issues with far-reaching implications for society. The inability to adequately capture the income generated through e-commerce alone results in difficulties in determining the taxable income. Moreover, some goods and services are exchanged online without a physical or tangible equivalent, which also contributes to the income base of some businesses which cannot be adequately accounted for. The peculiarities of e-commerce place it in a world where facts and figures may be elusive for adequate tax assessment and payment. It is true that with the introduction of a cashless policy and the increasing use of e-commerce and e-banking facilities there will be increasing incidences of tax evasion, especially through internet payment cards and other electronic channels.32 The Nigerian tax system is programmed in such a way that tax is levied on the basis of the physical presence or residency of the payer within the jurisdiction of the tax authority, such that it is difficult to tax individuals and companies in relation to transactions carried out on electronic platforms, especially the internet. The fact that e-commerce can be carried out with seamless borders also gives foreign companies the opportunity to transact business in Nigeria with profits accruing and without paying tax on such profits in Nigeria. Another difficulty that may be created in e-commerce transactions is that predicating tax on the “source” of income can be very dicey or elusive. It cannot always be certain that activities carried out on the internet are linked to a given jurisdiction. Whereas it may be definite that a target customer is located within a specific jurisdiction for the supply of tangible goods, the same cannot be said 24 PITA s.2. 25 PITA s.6. 26 Note that some countries in South-East Asia base their tax liability purely on territoriality, and therefore tax all businesses that make (source) their incomes within their territories and do not levy tax on incomes sourced outside their countries. 27 See PITA s.3(I)(b). According to s.3(2)(d) of the Act, employment includes “any service rendered by any person in return for any gains or profits”. 28 PITAs. 10(5). 29 PITAs. 10(3). 30L.C. Opara, “Tax Challenges of E-commerce in Nigeria: The Panacea for Legal Jurisprudence” (2014) 12(4) Global Journal o f Political and Law Research 1. 3' Opara, “Tax Challenges of E-commerce in Nigeria” (2014) 12(4) Global Journal o f Political and Law Research 1,2. 3“ Opara, “Tax Challenges of E-commerce in Nigeria” (2014) 12(4) Global Journal o f Political and Law Research 1, 3. [2016] I.C.C.L.R., Issue 6 © 2016 Thomson Reuters (Professional) UK Limited and Contributors UNIV ERSIT Y O F IB ADAN L IB RARY 208 International Company and Commercial Law Review where the goods or services are intangible, such as giving access to a database, like LexisNexis, which does not really depend on the location of the customer for supply of such products. This problem would therefore make the tax regime developed for traditional commerce unworkable for internet commerce. It is germane therefore to consider the Nigerian response in terms of legal and regulatory framework, if any, for e-commerce taxation. Legal and regulatory framework for tax in Nigeria vis-a-vis e-commerce The introduction of e-commerce in Nigeria is relatively recent, unlike the age-old traditional system of commercial transactions which take place within a well-defined physical milieu. The traditional regime of commercial transactions is regulated by common law and statutory provisions. E-commerce, being a new entrant into the commercial industry in Nigeria, does not have well-defined legislation or a regulatory body to monitor the commercial activities on the internet. It can be said that the legal regime developed for traditional commerce cannot work with seamless ease for e-commerce considering the relative features of e-commerce.33 The peculiar nature of e-commerce includes among other things the transfer of goods and services without a physical presence, and also the sale of intangible material which can be channelled through electronic platforms without physical delivery. Moreover, the payment channels of e-commerce transactions, which can be effected through electronic money, internet payments or electronic fund transfers, also add to the special features of e-commerce which distinguish it from other forms of exchange of goods and services. The tax regime in Nigeria for the collection of direct income tax is currently built on the physical presence of the taxpaying individual, company or business within the jurisdiction that are expected to pay taxes on their global incomes. This taxing strategy is basically workable in physically locatable businesses and individuals who are within the jurisdiction as there will be no conflict as to who and what is taxable since this will be premised on location. Moreover, taxing tangible materials or income made therefrom may not be problematic as this will be based on numerical formulae, compared with intangible material that can be exchanged in trade over the internet.34 Non-resident individuals or businesses are also taxable in Nigeria upon the activities carried out within the country through permanent establishments, such as branch offices, sales points etc, and having agents within the jurisdiction.35 The problem is, however, created in e-commerce where goods and services are being received from businesses that are not located within the jurisdiction. It is also common that people work from cyberspace for businesses situated in physically identifiable jurisdictions, without being physically present there, and are on the businesses’ payrolls, which makes it difficult for tax authorities to determine where the businesses or transactions were carried out. It may therefore be difficult to pin down such individuals to a specific jurisdiction for the purpose of income tax following the traditional taxing mechanism. There can also be a problem of tracking VAT in e-commerce as it will be extremely difficult to determine the volume of goods and services that are transmitted through e-channels.36 Suppliers of goods and services are required to collect VAT on the goods and services for onward transmission to tax authorities. If VAT is so collected from consumers it will likewise be difficult to determine whether adequate remittances are made to tax authorities, if made at all. It is equally important to state that under the Value Added Tax Act 199437 of Nigeria there is no definition of the word “goods”, which is an operative term in the Act. It is not helpful if the definition of the term is looked up in the general law regulating sales of goods in Nigeria, which is the Sales of Goods Act 1893.38 The Sales of Goods Act defines “goods” to include “all chattels personal, other than things in action and money, and includes emblements, industrial growing crops, and things attached to and forming part of the land which are agreed to be severed before sale or under the contract of sale”. This definition does not seem to capture intangible goods that may be purchased online, such as electronic books, software applications etc. This therefore means that VAT cannot be levied on such goods if they constitute the substance of the transaction.39 By and large, e-commerce has not entered the contemplation of the draftsmen and policy developers of taxation and its principles in Nigeria. As succinctly put, ^e-commerce is not subject to tax in Nigeria owing to a lack of adequate operational and administrative infrastructure for taxation on e-commerce.40 Nigeria is known for adopting a slow pace in addressing internet-related issues which have legal implications, such as the criminalisatron of cybercrime and the regulation of e-commerce activities, whereas some African countries, like South Africa, are taking decisive and timely steps in addressing such issues. Little wonder therefore that 33 C. Anikwe, “Introduction to the Taxation of E-Commerce in Nigeria”, Nigeria Leadership Initiative (NLI) White Papers, Vol.2 (2013), p.77. 34 See PITA s.3( 1), as amended, and also CITA s. 11 ( I), as amended. 35 See PITA s.2( 1) and CITA s. 11 (2). 36 It should be noted that for VAT to be levied, the supply of goods and services has to be made in Nigeria. 37 Sales of Goods Act 1893, Cap. VI LFN 2004 (as amended). 38 This Act constitutes one of the Statutes of General Application that are received into the Nigerian legal system. 39 Anikwe, “Introduction to the Taxation of E-Commerce in Nigeria" (2013), pp.79-80. 40 Anikwe, “ Introduction to the Taxation of E-Commerce in Nigeria” (2013), p.83. [2016] I.C.C.L.R., Issue 6 © 2016 Thomson Reuters (Professional) UK Limited and Contributors UNIV ERSIT Y O F IB ADAN L IB RARY Taxation of E-commerce in Nigeria: Treading the Global Pathway 209 Nigeria does not really have a regulatory framework for e-commerce taxation aside from the one developed for the traditional tax system. Electronic commerce, as seen from the above discussion, operates by defying physical borders. It therefore makes it difficult for the traditional tax system to apply with seamless ease to the e-commerce regime. Many issues are settled internationally as regards tax matters, one of which is the need to avoid double taxation. There are therefore measures taken to reconcile tax rules of various allied nations in order to prevent overtaxing their subjects. When a transaction cuts across different jurisdictions, attaching the income or profit to a particular one may prove difficult and irreconcilable. The existing tax regime in Nigeria, as earlier noted, is founded on the physical location or residence of the payee within the jurisdiction; applying this same canon to the internet or e-commerce transactions may prove abortive, or create the confusion or cloak of conjugating a verb of one language using the rules of another language. Even if the Nigerian Government decides to adopt the residence rule for e-commerce taxation, it may create a double taxation problem because another jurisdiction may also have a different basis for taxing the same income on account of some connecting factors. The US has supported a resident-based approach to levying e-commerce tax rather than employing a source-based approach, as the latter approach can lead to the difficulty of determining the geographical location of a source of income on the internet.41 In response to the damning reality and consequences of information technology, the Nigerian Government has seen the need to bolster its economic policy programme, as evidenced in its economic policy of 1999-2003. However, Nigeria has yet to come out with definite policy on e-commerce taxation, nor is there a legal framework for the same. There is no official data as to the volume of e-commerce activities in Nigeria, and consequently, the Government does not have an idea of the extent to which e-commerce activities have an effect on its domestic economy. Since Nigeria has yet to come out with the modus operandi of determining, levying and collecting tax on e-commerce, the reality of generating revenue through e-commerce taxation still remains a mirage. The backbone of every government includes the financial base of such a government, which is the cement that holds the bricks of the political house'together; and if the house is falling the owner must not go to sleep. A lot of revenue may be lost from internet or electronic transactions where the liable payee cannot be located or the volume of taxable incomes generated cannot be ascertained. It is therefore imperative for the Government to take decisive steps to save its financial fabric from collapsing. A writer once said: “As e-commerce increases in volume and popularity, there will be implications for the ability of governments to raise revenues through traditional mechanisms like sales and corporate taxes, value-added taxes, and tariffs, particularly when dealing with digitised products. Hence, it is highly likely that as governments obtain less revenue as tariffs decrease as a result of trade liberalization (tariff reduction measures) they will be tempted to shift to sales taxes and various consumption taxes to make up for losses at the border.”42 The worrying thing is that the physical movement of goods across borders may subject such goods to tax, especially through the payment of customs and excise duty, but the transfer of goods and services over the internet will escape this tax liability. The daunting situation created by this experience may encourage businesses towards a tax haven on the internet, and if this happens governments will be forced to find other ways of raising tax revenue, which will possibly take a toll on physically transmitted goods and services, perhaps by increasing tax on such identifiable objects.43 Tackling the evasive tax revenue from e-commerce—the approach in other jurisdictions The problem created by the need for a tax system for e-commerce necessitated the Member States of the World Trade Organization (WTO) in 1998 to place a two-year customs duty moratorium on electronic transmissions, which has continued with the recent extension granted at the 2014 WTO Bali Ministerial Conference.44 Considering the volume of the exchange of goods and services on the internet, much income that can be generated from tax revenue may be lost if such trade on the internet should continue to be given a moratdrium. The evasion of tax responsibility through e-commerce is a dog that needs to be tamed if governments are to appropriately police their financial turf. Part of the tax revenue generating system of governments is the collection of VAT and goods and services tax; however, the use of the internet has made the collection of these taxes difficult. Consumption taxes are taxes realised from sales: it will therefore be difficult to determine the volume of goods sold online, and countries that have their tax revenue generating system majorly based on this form of tax will have their revenue base seriously depleted.45 Moreover, according to 41 M.M.K. Sardana, “Evolution of E-commerce in India: Taxation of E-commerce Transactions”. Available at: http://www.isid.org.in/pdf/DNl501 .pdf {Accessed 31 March 2016], 42 M.A. Bristol, “The Impact o f Electronic Commerce on Tax Revenues in the Caribbean Community”, Publication of Regional Tax Policy and Administration Unit (South Africa: CARICOM Secretariat, 2001), p.12. 43 D. Holmes, eGov—eBusiness Strategies for Government (London: Nicholas Brealey Publishing (2001), p.226. 44 Sardana, “Evolution of E-commerce in India”. 45 Chan, “Taxation of Global E-commerce on the Internet”, p. 14. [2016] I.C.C.L.R., Issue 6 © 2016 Thomson Reuters (Professional) UK Limited and Contributors UNIV ERSIT Y O F IB ADAN L IB RARY http://www.isid.org.in/pdf/DNl501 210 International Company and Commercial Law Review Teltscher, developing countries will face more challenges and losses from custom duties compared with developed countries owing to the fact that the developing countries would be net importers of e-commerce products and will run the risk of losing tariffs and tax revenues if traditional import delivery methods are replaced by online or e-delivery.46 It is therefore essential for governments, especially in developing economies, to deploy a system for determining taxable activities on e-commerce and methods of collecting such taxes. In the UK, aside from resident companies and individuals who are liable to pay tax on their profits or incomes wherever they arise, foreign resident companies or individuals only have to pay tax on profits realised from trade in the UK. Such a foreign resident company only becomes liable to pay tax if it has a branch or agency in the UK. The problem that seems to have a universal effect where tax is based on the residence of the payee within the jurisdiction, or where he has an agent or a branch, is that a foreign company trading in the UK via the internet, for instance, would not be doing that through an agent or a branch located within that jurisdiction, especially if the nature of the goods (the subject-matter of the transaction) is e-goods, which can be delivered to the ultimate consumer electronically without the need of any physical location in the nation where the consumer is, and without any need for a middle man or agent. It has been observed that the presence of servers, routers and internet service providers within the UK will not constitute the fulfilment of the requirement for agents of the foreign company within the UK as these are simply automatic machinery transmitting packets.47 The US Department of the Treasury has also made an important observation on the likelihood of imposing an unnecessary tax burden on taxpayers through e-commerce model taxation. In its words: “New technologies, particularly communications technologies including the Internet, have effectively eliminated national borders on the information highway. As a result, cross-border transactions may run the risk that countries will claim inconsistent taxing jurisdictions, and that taxpayers will be subject to quixotic taxation.”48 As most countries tax their residents on their worldwide incomes, and non-residents on incomes generated from within their jurisdictions, the taxpayers may be exposed to double taxation. In order to avoid this danger, countries have entered into double taxation treaties among themselves. The import of the treaties is that tax will only be charged and paid in one of the countries where any of the connecting factors leading to the payment of tax might have occurred. Nigeria has currently entered into treaties with seven countries, including France, Canada and the UK. The UK is reported to have the highest number of such treaties among the nations, with approximately 100 countries.49 Basically, these treaties are fashioned on the model treaty created by the Organisation for Economic Corporation and Development (OECD).50 The OECD Treaty model stipulates that tax can only be levied based on residence and if permanent residence is established in the two countries to the treaty; the income that can be attributed to each country should be taxed in that country. Another treaty model is the one developed by the United Nations, and often used by developing countries, which is based on the philosophy that business income should be taxed in the territory of the source. Hence, countries base their tax responsibilities on a resident or permanent establishment or source. However, residence is more determinate than “source”, as residence involves some truly overt act tied to a specific geographical location, or establishing a physical presence. It is provided by most countries that source of income means the country in which the economic activities that lead to the income take place.51 The supply of tangible goods and services in a country from a foreign country through an order made using the internet may not create much controversy, as it may have the same legal and tax implications as mail order from a foreign country. Thus in the UK, for instance, to be liable for VAT, the supply of goods and services must be made in the UK. Obviously, the model treaties were not developed with the internet or e-commerce in mind, as it cannot be said that electronic presence in any jurisdiction will amount to permanent establishment as required by the model treaties. As earlier noted, the presence of servers, routers or internet service providers in the UK does not constitute permanent presence as they only act as a repository of information for transactional or business purposes. If the UK has avoided this basis for tax responsibility, it is not unlikely that some other countries may adopt this as a basis of levying tax. For instance, in India, the Indian Tax Authority holds that the presence of a website could constitute permanent establishment as required by their tax law as a basis for levying tax in certain circumstances.52 46 S. Teltscher, “Electronic Commerce and Development: Fiscal Implications of Digitised Goods Trading” (2002) 30(7) Journal o f World Development 1137-1158. 47 Gringras, The Law o f the Internet (2003), pp.404-405. 44 Department of the Treasury, Selected Tax Policy Implications o f Global Electronic Commerce (1996). 49 Gringras, The Law o f the Internet (2003), p.405. 50 This includes the treaties Nigeria has with other countries on this matter. 51 See Chan, “Taxation of Global E-commerce on the Internet”. 52 Nishit Desai Associates, “E-commerce in India: Legal, Tax and Regulatory Analysis” (July 2015), p.31. Available at: http://docplayer.net/3644632-E~commerce-in-india -legal-tax-and-regulatory-analysis-july-2015-copyright-20I5-nishith-desai-associates-www-nishithdesai-com.html [Accessed 31 March 2016]. [2016] I.C.C.L.R., Issue 6 © 2016 Thomson Reuters (Professional) UK Limited and Contributors UNIV ERSIT Y O F IB ADAN L IB RARY http://docplayer.net/3644632-E~commerce-in-india Taxation of E-commerce in Nigeria: Treading the Global Pathway 211 The VAT regime in the UK is predicated on registration by taxable businesses or individuals in the jurisdiction for determination of tax payments, which could vary from the amount to the mode of payment, and whether the taxpayer is within or outside the EU.S3 The supply of services involves dealing with intangible goods at prescribed fees which may not be physically delivered. Such services include website design and hosting, online books and journals or other electronic educational materials, software for downloading, database services (such as LexisNexis), pay-per-view TV, music, video clips and so on. With the use of the internet, the supply of intangible goods or services can be effected without necessarily delivering them through a physical medium. This therefore opens up the taxation of such goods and services to the problem of determining the appropriate body or jurisdiction that should actually collect or be paid tax, especially using the recognised standard of permanent establishment of the taxpayer.54 Ordinarily, the use of offshore structures cannot assist companies owned and doing business in the UK from tax liabilities because of the extensive anti-avoidance legislation devised to prevent the use of such structures to avoid tax payment.55 A company whose presence in the UK exists mainly through the internet would not be liable to corporation tax but would only pay income tax like an individual since it does not cany' on its trade in the UK through a UK branch or agency.56 A business established outside the EU that supplies electronically-supplied services to customers in the UK who are not VAT registered is regarded in principle as making the supplies within the UK and will have to register for VAT once its supplies exceed a prescribed threshold. If such services are supplied by the business to other customers in other EU Member States, the business can opt to register for VAT in any of the states rather than doing that in all the states. Even so, the business will have to account for VAT at the prevailing rate in the country of the customer but will only have to deal with one Member State for filling and payment purposes.57 A non-EU supplier of electronic goods and services will levy tax at the rate applicable in the Member State where the customer is located as established through a permanent address or usual residence of such customer. There may, however, be a problem of determining the location of the customer where such a transaction is to be purely effected on the internet. Another obvious problem with the requirement that non-EU businesses not physically present in the EU countries should levy VAT on goods and services supplied in EU Member States is that there may be difficulties in calling the businesses to account for the VAT so collected, thus leading enforcement problems against such non-EU businesses.58 There may also be a problem of administration of tax policies developed by a state if this will affect foreign-based or non-resident businesses that source their profits from customers based in other states. On the whole, there is no international framework for collection of VAT in the digital economy and therefore there are calls for international co-operation to sustain the digital economy and prevent tax erosion.59 One thing that is sure about taxing a business physically based in a foreign country that derives profit from another country is that the business may be opened up to double taxation where, for instance, profit made outside its place of location is taxed based on source, and the same profit is taxed in a country of location based on physical presence. This situation will definitely discourage running online-based transactions, thereby defeating the whole essence of the global market opportunities brought about by e-commerce, especially through the internet. The double taxation problem can, however, be circumvented if there is an understanding between the countries involved as to who will levy and collect tax dues, and how this is done. This can happen if there is an agreement, for instance, that the country of residence will give tax relief to those incomes that have already been taxed by the source country. Rather, there may be need to create uniform bases of taxation across the globe especially owing to the conflicting footholds of taxation, that is, “permanent residence” and “source”. Resolving e-commerce taxation problems—the OECD efforts Efforts have been made at the international level to ensure the proper regulation and creation of a legal framework for e-commerce in-order to promote this platform of commercial transaction. The US and some international organisations have proposed the need for tax neutrality in e-commerce and the need for an e-commerce tax 53 VAT is an indirect tax on consumers of goods and services imposed by all the Member States o f the EU as created by Directive 77/388, also referred to as the Sixth Directive, requiring Member States to enact domestic legislation in line with the Directive. The primary law on VAT in the UK is the Value Added Tax Act 1994 (VATA 1994) which is amended by the annual Financial Act based on the budget and also some secondary legislation, such as the Value Added Tax Regulations 1995 (SI 1995/2518). HM Customs and Excise is responsible for the collection of VAT in the UK, and all persons making taxable supplies and whose turnover exceeds a certain amount as prescribed from time to time will be required to register for VAT. Anybody who trades below the threshold can also choose to register for VAT as a voluntary trader. Moreover, if a business has an establishment within the UK and supplies goods outside the UK, which if made within the UK would be taxable, it may choose to register for UK VAT. Non-UK entities supplying taxable goods in the UK are also subject to the registration regime applicable to UK entities. Such entities may appoint a VAT representative with joint and several liabilities to the tax authorities, or VAT agent with no liability. A non-UK VAT registered business, which sells and delivers goods from another EU Member State to customers in the UK who are not VAT registered with a sales volume exceeding £70,000, is required to register and account for VAT in the UK. 54 Permanent presence being a universally recognised basis o f levying tax. 55 Gringras, The Laws o f the Internet (2003), pp.407-408. 56 Gringras, The Laws o f the Internet (2003), p.408. 57KPMG, “Global Indirect Tax, United Kingdom: Country VAT/GST Essentials” (October 2011). Available at: http://www.kpmg.com/global/en/services/tax/globalindirecttax /documents/vat-gst-essentials-2012/united-kingdom-2011-vat-gst-essentials.pdf [Accessed 31 March 2016]. 58 Gringras, The Laws o f the Internet (2003), p.416. 59 Davis Tax Committee Interim Report, “Addressing Base Erosion and Profit Shifting in South Africa” (December 2014), p.23. Available at: http://www.taxcom.org.za /docs/New_Folder/l%20DTC%20BEPS%20Interim%20Report%20-%20The%20Introductory%20Report.pdf [Accessed 31 March 2016]. [2016] I.C.C.L.R., Issue 6 © 2016 Thomson Reuters (Professional) UK Limited and Contributors UNIV ERSIT Y O F IB ADAN L IB RARY http://www.kpmg.com/global/en/services/tax/globalindirecttax http://www.taxcom.org.za 212 International Company and Commercial Law Review system that provides for legal certainty.60 The OECD has made tremendous efforts in addressing e-commerce taxation. The first initiative by this organisation took place in 1997 with the initiation of a taxation framework condition for e-commerce.61 The OECD in a report submitted at a conference in Ottawa in 1998 proposed that the same taxation principles which guide conventional commerce should also be applicable to e-commerce, which are neutrality, simplicity, certainty, effectiveness, efficiency, fairness and flexibility.62 Though the OECD admits that webpage is intangible and cannot constitute the required physical establishment as basis for levying tax, it suggests that a server located in a given jurisdiction would have fulfilled this requirement.63 The consideration of a server as constituting permanent establishment has been refused in the UK.64 The application of server rule presupposes that a transaction will only make use of a dedicated server employed by a business which is located in a definite jurisdiction. This may, however, not be the case as a business can make use of multiple servers located in different countries and this may create a problem of determining which of the countries should claim tax from the transaction. E-commerce taxation is now being focussed on taxation of profits where economic activities deriving such profits are performed and where value is created.65 The UK has also taken the lead among the countries in the EU to modernise the EU VAT rules by ensuring that goods and services are taxed by Member States where these are used or consumed, known as the “destination principle”.66 Similarly, the Indian tax regime supports taxation of the income of a non-resident if such is derived from India in the form that it is received or deemed to be received in India by the non-resident, and where such income accrues to, arises in or is deemed to arise in India.67 Furthermore, s.9(l)(vii) of the Income Tax Act 1961 of India provides that any income from technical services which is payable by a resident to a non-resident will be deemed to arise in India irrespective of whether or not the non-resident has a residence or place of business or business connection in India; or regardless of whether or not the non-resident has rendered the services in India.68 It shout'd, however, be reiterated that basing taxation power on the source of income may prove abortive with regard to the internet, owing to its seamless nature. The Australian Treasury has observed that “source”, “residence” and “permanent establishment” are mere tools for allocating tax rights and do not constitute the guiding conceptual frameworks for taxation.69 It added that the underlying drivers of corporate tax base erosion are international in nature, which will require an international approach rather than a single nation approach. One of the action plans of the OECD is to ensure the prevention of artificial shifting of profits or incomes by businesses to a place where low tax will be paid or tax will not be paid at all, so as to restore tax rights to the jurisdiction where the income is generated and the parent jurisdiction of the business.70 The uncertainty created by the digital model of e-commerce is also experienced in the mode of payment for digital activities. The use of digital moneys or virtual currencies, such as Bitcoins, may make it rather difficult to pin down payment to a particular jurisdiction and also allows transactions to be done on an anonymous basis as no personal identification is required.71 It therefore makes the using of the source base for levying tax from income generated within a jurisdiction difficult to ascertain, especially where the goods and services for which the payment is made are not tangible, but digitally delivered or accessed. It also forfeits the place of consumption principle where the goods and services are digitally delivered.72 With the challenges posed by the digital economy to the current tax regulatory regime, it is important that steps be taken to align taxation of e-commerce incomes with the tax regime currently in operation, or to create a separate tax regime for e-commerce. The OECD has suggested that countries need to develop rules to address the tax challenges of the digital economy and that they should also identify the main difficulties in the application of the existing international tax rules to the digital economy with the hope of finding a solution.73 As part of the tax framework proposal for digital commerce, the OECD has suggested that an enterprise engaged in fully dematerialised digital activities will have a permanent 60 See, for example, US Department of the Treasury, Selected Tax Policy Implications o f Global Electronic Commerce (1996), pp.3-4; European Commission, A European Initiative in Electronic Commetve (1997); OECD, “Dismantling the Barriers to Global Electronic Commerce”, Background Paper for Turku Conference (October 1997). 61 This was initiated at an International Conference and Business-Government Forum, “Dismantling the Barriers to Global Electronic Commerce”, held in Turku, Finland (19-21 November 1997) organised by the OECD and the Government of Finland in co-operation with the European Commission, Japan and BI AC. "OECD, “Electronic Commerce: Taxation Framework Conditions”, presented at the OECD Ministerial Conference in Ottawa in 1998 with the theme: “A Borderless World: Realising the Potential of Electronic Commerce”. 63 See OECD Model Tax Convention, Commentary on art.5 at para.42. 64 See HM Treasury and HMRC Report, “Tackling Aggressive Tax Planning in the Global Economy: UK Priorities for G-20—OECD Project for Countering Base Erosion and Profit Shifting” (UK Report on BEPS) (March 2014). See also Gringras, The Laws o f the Internet (2003), pp.404-405. 6'OECD, “Public Discussion Draft: BEPS Action 1: Address the Challenges of the Digital Economy” (March 2014). Available at: http://www.oecd.org/ctp/tax-challenges -digital-economy-discussion-draft-march-2014.pdj [Accessed 31 March 2016]. 66 See the UK Report on BEPS (March 2014), para.2.9. 67 See the Indian Income Tax Act 1961 (ITA) s.5(2) 6X See the case o f ITO v Right Florists Pvt Ltd ITA No. 1336/Kol./2011, where the Tribunal applied the deemed source provision of s.9(l)(vii) o f the Indian ITA while rejecting the fact that a search engine does not constitute permanent establishment. 69 Australian Treasury, Scoping Paper on the Risks to the Sustainability o f Australia s Corporate Tax Base (July 2013). Available at: http://www.treasury.gov.au /PublicationsAndMedia/Publications/2013/Aus-Corporate-Tax-Base-Sustainability [Accessed 31 March 2016]. 7<)OEDC, “Public Discussion Draft: BEPS Action 1” (March 2014). Available at: http://www.oecd.org/ctp/tax-challenges-digital-economy-discussion-draft-march-20l4 [Accessed 31 March 2016]. ' Virtual currencies are not legal tender issued by any government but are used for the exchange of goods and services in the virtual world, and in some cases the currencies can be exchanged for real currencies and used to purchase real goods and services. 72 See OECD, “Public Discussion Draft: BEPS Action 1” (March 2014). 73 OECD, “Action Plan on Base Erosion and Profit Shifting” (2013), p. 14. [2016] I.C.C.L.R., Issue 6 © 2016 Thomson Reuters (Professional) UK Limited and Contributors UNIV ERSIT Y O F IB ADAN L IB RARY http://www.oecd.org/ctp/tax-challenges http://www.treasury.gov.au http://www.oecd.org/ctp/tax-challenges-digital-economy-discussion-draft-march-20l4 Taxation of E-commerce in Nigeria: Treading the Global Pathway 213 establishment if it maintains a “significant digital presence in the economy of another country”. Such a significant presence is deemed to exist if, for example: “• A significant number of contracts for the provision of fully dematerialised digital goods or services are remotely signed between the enterprise and a customer that is resident for tax purposes in the country; • Digital goods or services of the enteiprise are widely used or consumed in the country; • Substantial payments are made from clients in the country to the enterprise in connection with contractual obligations arising from the provision of digital goods or services as part of the enterprise’s core business; or • An existing branch of the enterprise in the country offers secondary functions such as marketing and consulting functions targeted at clients resident in the country that are strongly related to the core business of the enterprise.”74 Alternatively, a significant digital presence can be found where such an enterprise does significant business in the country using personal data obtained “by regular and systematic monitoring of Internet users in that country through the use of multi-sided business models”.75 A double taxation treaty sometimes eases the tension between taxation based on residence and the one based on source. Where taxation is made from source by a non-resident company or business, tax reliefs are often given by the resident jurisdiction of the company or business. It has been shown from past experience that the most viable method of collecting VAT from non-resident businesses is to require the non-resident suppliers to register and account for VAT on the supplies made to consumers within the jurisdiction in business-to-consumer transactions. Experience from some countries has shown this approach to be the most efficient and effective means of collecting VAT from non-resident businesses. Owing to the many contacts online businesses will have with customers in many jurisdictions, it has been suggested that the registration approach by such non-resident businesses should be simplified to reduce the compliance burden.76 However, the problem associated with this approach is that of administration and compliance by non-resident businesses. It is difficult, for instance, to establish when supplies have been made; it is also administratively difficult to follow up enforcement actions. It may therefore be necessary for an international approach to be adopted through bilateral or multilateral co-operation in the form of a convention to ensure compliance. Conclusion Having discussed the problems that e-commerce can create for the traditional tax system, it is important to categorise the solutions to taxing e-commerce transactions by addressing the problems created under the transactions that relate to local supply of goods and services and foreign supply of goods and services within the jurisdiction. In the case of the former, there is local supply of goods and services to customers within the jurisdiction, which could be tangible or intangible, by a supplier who has his business within the jurisdiction. By the application of the residence or permanent establishment rule to this type of transaction for the purpose of taxation, there will be a need to determine whether the supplier has a permanent establishment as required by the law in the jurisdiction which may be in terms of having a physical office or an agent within the jurisdiction. This may be necessary for a supplier who sells tangible goods, but where the nature of the goods supplied is intangible it may not be necessary for such a supplier to have a physical structure within the jurisdiction. However, for the person to be a local supplier, he needs to have an affiliation whether by himself or through an authorised agent with the jurisdiction. The actual tax revenue loss through e-commerce cannot be determined in Nigeria as the actual transactions done electronically cannot yet be determined. The problem with the taxation of resident businesses engaged in e-commerce in Nigeria can be reduced if the failure to make adequate tax returns is specifically and sufficiently criminalised. There may also be a need to establish a cyber-monitoring body to ensure the sanctity of cyber activities, and as much as possible to plug the loophole of the anonymity of activities on the internet. When setting out penalties or charging the taxpayer for criminal liability, the relevant tax statutes in Nigeria do not provide for situations where tax returns are not made at all. In the CITA and PITA, the major offences for taxpayers are in relation to false statements, and returns that are made do not really capture the failure to make tax returns at all.77 It is therefore imperative that the tax -*> law should be strengthened by addressing such issues, especially because of those who might want to escape paying tax under the cloak of anonymity. Also, there is a need to develop a body of tax policies for e-commerce in Nigeria to respond to the challenges created by e-commerce generally, and specifically by tax avoidance through the haven created by the internet and other e-facilities. A technical approach can also be adopted by developing or acquiring software that can monitor the audit trail of financial activities on the internet. Plugging the tax loopholes in e-commerce transactions would encourage economical growth and development. For instance, the EU implements a system 74 OECD, “Public Discussion Draft: BEPS Action 1” (March 2014), pp.65-66. 75 OECD, “Public Discussion Draft: BEPS Action 1” (March 2014), p.66. 76 OECD, “Public Discussion Draft: BEPS Action 1” (March 2014), p.66. 77 See CITA s.92 and PITA s.96. [2016] I.C.C.L.R., Issue 6 © 2016 Thomson Reuters (Professional) UK Limited and Contributors UNIV ERSIT Y O F IB ADAN L IB RARY 214 International Company and Commercial Law Review that requires an internet retailer to collect VAT on internet sales.™ On the whole, it is important to realise that the current tax system was not developed for e-commerce but for traditional commercial transactions. Therefore, there is a need to develop a legal and regulatory framework for e-commerce in Nigeria, which is conspicuously absent. Hence, there is a need for a complete restructuring of the tax system in Nigeria to accommodate the peculiarities of e-commerce. To base the taxation of e-commerce transactions of foreign companies on “source” may be pretty difficult, as revealed above. According to CITA, the profits of a non-Nigerian company are taxable in Nigeria only when such is derived from Nigeria, where the company has a permanent establishment in Nigeria or operates through a representative in Nigeria.78 79 The determination of whether a company is a Nigerian company or a foreign company depends on the place or country of incorporation. In the interpretation section of CITA, “Nigerian company” means any company incorporated under the Companies and Allied Matters Act 1990of Nigeria or any enactment replaced by that Act.80 A “foreign company”, on the other hand, means “any company or corporation (other than a corporation sole) established by or under any law in force in any territory or country outside Nigeria”.81 This goes to show that the basis for taxing foreign companies is when they have permanent establishment in Nigeria or operate through authorised agents in Nigeria. Intangible goods sold or services82 rendered by foreign companies that do not require physical establishment may therefore fail the “source based” test. A whole lot of revenue may be lost by basing tax liability of companies on permanent establishment, especially if the goods that the companies deal with are intangible goods that may be supplied using the internet or other electronic media. The supply of goods and services must be done in the UK to be liable for VAT, but the supply of goods by UK suppliers to customers outside the EU are zero-rated, as the same goes for the electronic supply of goods through a website.83 84 Similarly, the supply of goods by a UK supplier who is registered for VAT in the UK to a customer" within the EU who is also registered for VAT in another EU Member State is also zero-rated. However, the supply of services, which are mainly intangible, by UK registered businesses to private customers in other Member States is subject to VAT in the UK.M The legal or economic philosophy for this dichotomy between goods and services is not very clear. The taxation of supplies of intangible goods and services by foreign suppliers with no fixed base within the jurisdiction ought to be predicated on the volume of business contact the suppliers have with consumers or retailers within the. jurisdiction, or on how constantly the companies supply such products or services to consumers within the jurisdiction, which should suffice to satisfy the requirement of permanent establishment for e-products and services, though such establishment may not be in terms of the physical presence of bricks and mortar or human presence, but rather some forms of electronic presence for the purposes of economic gains. For example, incomes realised from subscriptions to educational databases, such as JSTOR, LexisNexis etc provided by foreign resident companies, ought to be subject to taxation in Nigeria depending on the volumes of the subscriptions made and the constant supply of such products and services to consumers in Nigeria as against one-off supply. Another level of problem is the identification of the location where a consumer actually derives or consumes a service rendered, otherwise called intangible goods. In a situation where intangible goods are electronically supplied, for instance to an email account, or downloaded into the computer system of the consumer, it may be difficult to state with assurance that such goods are consumed in a definite jurisdiction. This problem was addressed by the OECD by stating that where there is no regular or established relationship between the supplier and the consumer, the jurisdiction of the consumer may be founded by the consumer’s self-identification, which can be proven by ancillary factors such as payment information, tracking and geographical location software and digital certificates.85 In the UK, withholding tax is levied on payments made periodically on foreign copyright materials if the “usual place of abode” of the owner of such copyright is not within the UK. Hence, downloading and subsequent licensing of such materials by a single user for a one-off payment would not be subject to withholding tax.86 The application of this rule in the UK varies depending on the circumstances of each case. This will basically depend on the nature of the double taxation agreements that the UK has entered into with the place of residence of the copyright owner, since the UK has many such agreements with many countries.87 It is suggested that Nigeria should also borrow a leaf from the UK’s book by engaging in treaties with countries so as to ease the burden of double taxation on taxpayers, and to identify the taxing or collecting state in any given instance’. It is also important that the tax treaties should be as far as possible standardised to encourage uniformity and predictability in the taxing regime. 78 D. Huenink, “Eliminating the E-commerce Sales Advantage in the United States by following in the Footsteps o f the European Union” (2013) 31(1) Wisconsin International Law Journal 65, 67-68. Available at: http://hosted.law.wisc.edu/wordpress/wilj/files/20l4/0l/Huenink_fmal_v2.pdf [ Accessed 31 March 2016]. 79 CITA s. 13. 80 CITA s. 105. 81 CITA s. 105. 82 Such as legal or accounting services. 83 Gringras, The Laws o f the Internet (2003), p.412. 84 Gringras, The Laws o f the Internet (2003), p.403. 85 OECD, “Public Discussion Draft: BEPS Action 1” (March 2014), p.81. 86 Gringras, The Laws o f the Internet (2003), p.403. 87 Gringras, The Laws o f the Internet (2003), p.403. [2016] I.C.C.L.R., Issue 6 © 2016 Thomson Reuters (Professional) UK Limited and Contributors UNIV ERSIT Y O F IB ADAN L IB RARY http://hosted.law.wisc.edu/wordpress/wilj/files/20l4/0l/Huenink_fmal_v2.pdf Taxation of E-commerce in Nigeria: Treading the Global Pathway 215 VAT is a system of taxation that requires producers of goods and services to collect tax on behalf of the national taxing authorities. The taxes are actually paid by the consumers on the consumption of the goods and services. Tax administration is the key to effectively collecting tax by tax authorities and proper and adequate remittances to the appropriate quarters. Collecting and remitting tax dues to a country on the consumption of goods and services made in that country may prove difficult if there is no proper understanding between the countries involved, therefore creating an administrative bottleneck. It might also be important that countries should develop a standardised tax regime to solve the problems raised by e-commerce taxation and the need for the countries to have tax co-operation among themselves. This will go a long way to resolve the problem of revenue shrink or erosion in the system of taxing e-commerce. It could also comprise the features of a good tax regime as enunciated by the OECD, which are simplicity, equality, certainty and fairness. Another tax administrative problem is the identification of the taxpayer in time and space in electronic transactions. It is easy to keep track of taxpayers in the traditional commercial setting because they often operate through physical locations. Section 10 of CITA deals with the identification of companies for the purpose of taxation and provides that the incorporation number of a company shall serve as the identification number of the company and shall be displayed by the company on all its business transactions and every other document relating to the financial or other activities of the company.88 Many websites that are accessible within a country for business purposes may not have their real identity or physical location displayed on the website, which may make it rather difficult to locate the real business operating the website. Even where it can be identified, it may be difficult to determine the volume of transactions engaged in any given commercial year of assessment. It may be required that websites that establish a business presence should be made to register within the jurisdiction for the purpose of tax. This will lessen the problem of identification of online businesses for tax purposes. By and large, tax co-operation at the international level will be the most feasible weapon to adopt in order to avoid the nagging challenges experienced in e-commerce taxation. This would bring about harmony in e-commerce tax law and simplify the tax system, thereby avoiding unnecessary administrative bottlenecks in the collection of tax dues across borders. This international approach will be more viable than a purely national approach. [2016] I.C.C.L.R., Issue 6 © 2016 Thomson Reuters (Professional) UK Limited and Contributors UNIV ERSIT Y O F IB ADAN L IB RARY