Regulation of Income and Profit Shifting to Tax Haven Countries: A Suggested Approach for Nigeria

Abstract

One of the major strategies usually employed by companies to avoid taxation in Nigeria is to shift their income or profit to their subsidiaries located in low or no tax countries usually referred to as ‘tax haven countries’ where it will be subjected to low or no tax. This is a result of globalization of international trade and economy which made it possible for companies to extend their business activities to countries other than where they are headquartered. Companies, therefore, usually set-up shell corporations in tax haven countries to shift income and profit to avoid taxation in high tax countries. The rate at which companies shift income and profit out developing countries to tax haven countries is regarded as one of the major problems undermining development of developing countries. Yet, there are no clear rules in Nigeria to prevent income and profit shifting which had resulted in substantial revenue loss. The objective of this article is to examine the international regulations developed to prevent income and profit shifting to tax haven countries. This is to assist policy makers in the country to put in place necessary legal framework to tackle tax avoidance through income and profit shifting.