Since the advent of the internet and advancement of technology, the conduct of business worldwide has seen significant changes. Almost forgotten are the days when businesses and organisations needed to have a physical presence in the countries where they operated. Large corporations such as Google, Amazon, Twitter, and Facebook now have a global reach without needing to set up shop in all the countries where they operate. The goods and services offered by such organization are digital, enabling them to bypass the need to have a fixed base.

For governments, foreign or non-resident companies (“NRC”) without a fixed base in their territories, but clearly providing services into their territories through the internet posed a tax and regulatory challenge. Most governments had outdated laws that made it difficult to tax the enormous revenues generated remotely from their territories by companies based in other territories.

As a result of this challenge, entities like the Organisation for Economic Cooperation and Development (OECD) have sought to devise a consensus-based approach to taxation of NRCs. This led to the development of the concept of Significant Economic Presence (“SEP”) as a basis for determining the taxability of NRCs. As the concept is still relatively new, the few jurisdictions where it has been incorporated into law have construed it differently. In India, an NRC would be deemed to have significant economic presence if:

i. a transaction in respect of any goods, services or property is carried out by a non-resident with any person in India (including provision of download of data or software in India), if the aggregate of payments arising from such a transaction exceeded the prescribed amount; or

ii. a systematic and continuous solicitation of business activities or engaging in interaction with such number of users in India as may be prescribed.

In Nigeria, this concept has been included in our Finance Act 2019 and through the publication of the Significant Economic Presence Order. Section 4 of the Finance Act 2019 amended Section 13(2) of the Companies Income Tax Act (“CITA”) and introduced an additional paragraph (c) which now subjects digital and online transactions of NRCs to Companies Income Tax (“CIT”) in Nigeria. Specifically, it provides that an NRC will be taxable and deemed to have derived profits from Nigeria if it –

“transmits, emits or receives signals, sounds, messages, images or data of any kind by cable, radio, electromagnetic systems or any other electronic or wireless apparatus to Nigeria in respect of any activity, including electronic commerce, application store, high frequency trading, electronic data storage, online adverts, participative network platform, online payments and so on, to the extent that the company has significant economic presence in Nigeria and profit can be attributable to such activity”.