May 30, 2018
Multinational Enterprises (MNEs) have, over the years, structured their transactions to avoid creating a tax presence or permanent establishment (PE) in operating countries by either taking advantage of double tax treaty safe harbour provisions or ensuring that very limited activities are carried on directly in operating territories. Under Article 5(4) of the Organisation for Economic Cooperation and Development (OECD) and United Nations (UN) Model Treaties, activities that are auxiliary or preparatory in nature should not create a PE for an enterprise.
Recent developments, particularly in the area of the Base Erosion and Profit Shifting (BEPS) and the changing practices of Nigerian tax officials, suggest that careful tax planning would be required to ensure that a PE is not created for a non-resident company (NRC) via activities that were thought to be auxiliary or preparatory in nature.
In this piece, we examine the pertinent questions regarding the meaning of what constitutes preparatory or auxiliary activities under Nigeria Double Tax Treaties (DTTs) with other countries and when such activities would be deemed to create a PE for a NRC.