Based on international trade convention, every country is allowed to adopt laws, rules and regulations that govern its trade relationships with other countries in a way that enables it achieve the desired strategic objectives. One key aspect of such trade laws is the taxation regulations, which govern how the income derived from the different countries is subjected to tax. Since the laws of one country can be different from that of another country, there can be potential conflicts that can expose the same income to tax in different countries. This creates the need for international agreements or treaties to set out terms on which residents of different countries can conduct trade with one another with minimal conflict and reduce the incidence of double taxation on their income.

Under the Treaties (Making Procedure, Etc.) Act1 (TMPA), treaties are defined as instruments whereby an obligation under international law is undertaken between the Federation and any other country and includes "conventions", "act", "general acts" "protocols", "agreements" and "modi-vivendi", whether they are bilateral or multi-lateral in nature. Therefore, a treaty is a contract between sovereign states which may be bilateral; where it is binding between two states, or multilateral; in which case it is binding on more than two states.

Typically, every country seeks to subject the income generated within its territory to tax based on domestic taxation rules. Tax treaties are enacted to mitigate double taxation problems that occur where the "resident country" has domestic tax laws that seek to tax foreign income that is liable to tax in the "source country". Double Tax Treaties (DTTs) or Double Tax Agreement (DTAs) determine, among other things, how such income should be taxed for the benefit of both countries.

This article examines the DTAs' framework in Nigeria, their effectiveness over the years and suggests possible changes to the status quo.

DTTs and their enactment process in Nigeria

The objectives of tax treaties include- prevention of double taxation; combating tax evasion and double non-taxation; assignment of primary taxing right to one country; and creation of reciprocal assistance in administering and enforcing tax laws between countries. These objectives ensure that both countries benefit from the resultant increase in trade and investment. In all circumstances, the conclusion of any treaty is usually preceded by negotiations between the countries involved.

In order to fairly examine treaties and their enactment process in Nigeria, the provisions of the 1999 Constitution of the Federal Republic of Nigeria (as amended) (CFRN); the TMPA; and Companies Income Tax Act 2007 (CITA) must be considered. A review of these provisions show some inconsistencies regarding the treaty enactment process. Section 12 of the Constitution2 and Section 3 of the TMPA provide that the National Assembly must ratify all treaties before they become effective. Meanwhile, Section 45 of the CITA provides that the Minister of Finance (MoF) may by order give effect to any DTT between Nigeria and another country. The above notwithstanding, it is common knowledge that the Constitution takes precedence over all other laws, so it has been the practice that treaties do not become effective until they are ratified by the National Assembly.

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