Principles of Taxation Final Notes

WHEREAS it is provided by section 45(l) of the Companies Income Tax Act, section 38(1) of the Personal Income Tax Act and section 61(l) of the Petroleum Profits Tax Act that if the Minister of Finance by Order declares that arrangements specified in the Order have been made with the Government of any country outside Nigeria with a view to affording relief from double taxation in relation to taxes imposed under the provisions of the Companies Income Tax Act, the Personal Income Tax Act and the Petroleum Profits Tax Act, and any tax of a similar character imposed by the laws of that country and that it is expedient that those arrangements shall have effect notwithstanding anything in those enactments:

AND WHEREAS by an agreement dated 20th November, 1989 between the Government of the’ Federal Republic of Nigeria and the Government of the Kingdom of Belgium arrangements were made among other things for the avoidance of double taxation: NOW, THEREFORE, the following Order is hereby made – 1. It is hereby declared -(a) that the arrangements specified in the agreement set out in the Schedule to this Order shall apply between the Government of the Federal Republic of Nigeria and the Government of the Kingdom of Belgium and those arrangements have been made with a view to affording relief from double taxation in relation to Income Tax, Corporation Tax, Petroleum Revenue Tax or Capital Gains Tax and taxes of a similar character imposed by the laws of kingdom of Belgium and the Federal Republic of Nigeria;

(b) that those arrangements include provisions with respect to the exchange of information necessary for carrying out the domestic laws of Nigeria and the laws of the kingdom of Belgium concerning taxes covered by the arrangements including, in particular, provisions about the prevention of fiscal evasion with respect to those taxes; and (c) that it is expedient that those arrangements should have effect. 2. This Order may be cited as the Double Taxation Relief (Between The Federal Republic Of Nigeria And The Government Of kingdom of Belgium Order 1997 and shall be deemed to have come into force on lst January 1990. SCHEDULE Section 1.

AGREEMENT BETWEEN THE GOVERNMENT OF THE KINGDOM OF BELGIUM THE GOVERNMENT OF THE Federal Republic Of Nigeria FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL GAINS The Government of the Federal Republic of Nigeria and the Government of the Kingdom of Belgium . Desiring to conclude an Agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains. Have agreed as follows: Article I Personal Scope This Agreement shall apply to persons who are residents of one or both of the Contracting States. Article 2 Taxes Covered 1.

The taxes, to which this Agreement shall apply are – (a) In Nigeria – (i) the personal income tax, (ii) the companies income tax, (iii) the petroleum profits tax, and (iv) the capital gains tax, (hereinafter referred to as ‘Nigerian tax’). (b) In Belgium -(i) the individual income tax, (import des personnes phusiques Personen belasting); (ii) the corporate income tax (impot-des societes Vennootschapsbelasting’); and (iii) the income tax on legal entities (impot des personnes “morales’ rechts) personenbelasting; (iv) the income tax on non-residents (impot des non-“residents” belasting der niet-verblijfhouders);

(v) the special levy assimilated to the individual income tax (cotisation special assimillee, a I ‘impot des personnes physiques’ met de personenbelasting gelijkgestelde bijzondere heffing), (hereinafter referred to as ‘Belgian tax’). including the prepayments, the surcharges on these taxes and prepayments, and the supplements to the individual income tax; (hereinafter referred to as ‘Belgian tax’). 2.

This Agreement shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of this Agreement in addition to, or in place of, the existing taxes. referred to above. The competent authorities of the Contracting States shall notify each other of any substantial changes which have been made in their respective taxation laws. 3. This Agreement shall not apply, in the case of Belgium, to the corporate income tax to the extent that such tax is payable, in accordance with Belgian law, by a company which is a resident of Belgium in the event of the repurchase by that company of its own share or in the event of the distribution of’ its assets. Article 3 General Definitions 1.

In this Agreement, unless the context otherwise requires – (a) the term ‘Nigeria” means the Federal Republic of Nigeria including any area outside -the territorial waters of the Federal Republic of Nigeria which in accordance with international law has been or may hereafter be designated, under the laws of the Federal Republic of Nigeria concerning the continental shelf, as an area within which the rights of the Federal Republic Nigeria with respect to the sea bed and subsoil and their natural resources may be exercised; (b) the term ‘ Belgium ‘ means Kingdom of Belgium when used in a geographical sense, it means the national territory and any area beyond the territorial sea of Belgium within which under Belgian law and in accordance with international law Belgium exercises sovereign rights or its jurisdiction;

(c) the term “national” means – (i) in relation to Nigeria, any citizen of Nigeria and any legal person partnership association or other entity deriving its status as such from the laws in force in Nigeria (ii) in relation to Belgium any individual possessing the Belgian and any legal person, partnership association or other entity deriving its status as such from the laws in force in Belgium (d) the terms ‘ Contracting State” and “the other Contracting State’ means Nigeria or Belgium as the context requires, (e) the term “person” means an individual, a company or any other body of persons; (f) the term ” company ” means any body corporate, or any entity Which is treated as a body corporate for tax purposes under the laws of each Contracting State;

(g) the term ” enterprise of a Contracting State’ and “enterprise of the other Contracting State’ “, means respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State’, (h) the term ‘international traffic” means any transport by a ship or aircraft operated by an enterprise of a Contracting State’: except where the ship or aircraft is operated solely between places in the other Contracting State’ (i) the term ‘competent authority’ means-(a) in the case of Nigeria, the Minister of Finance or his authorised representative;

(ii) in the case of Belgium, the Minister of Finance or his authorised representative 2. As regards the application of this Agreement by a Contracting State’, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the laws of that State concerning the taxes to which this Agreement applies. Article 4 Resident 1. For the purpose of this Agreement, the term resident of a Contracting State’ means any person who, under the laws of that State’, is liable to tax therein by reason of his domicile, residence, place of incorporation or management or any other criterion of a similar nature. 2.

Where by reason of the provisions of paragraph I of this Article an individual is a resident of both Contracting States, then his states shall be determined in accordance with the following rules – (a) he shall be deemed to be a resident of the State in which he has a permanent home available to him if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests);

(b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode; (c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be resident of the State of which he is a national (d) if he is a national of both States, or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement ;- 3.

Where by reason of the provision of paragraph I of this Article a person other than an individual is a resident of both Contracting States, then the competent authorities shall endeavour to resolve the case by mutual agreement, due regard being had to its place of effective management or incorporation or to any other relevant criterion. Article 5 Permanent Establishment 1. For the ‘purpose’ of this Agreement, the term “permanent establishment’, means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term ‘permanent establishment’ includes especially – (a) a place of management; (b) a branch; (c) an office. (d) a factory; (e) a workshop; (f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources;.

(g) a building site or construction or assembly project which exists for more than three months; (h) the provision of supervisory activities for more than three months on a building site or construction or assembly project; (i) installation or the provision of supervisory activities in connection with such installation incidental to the sale of machinery where the charge payable for such installation exceeds 10 per cent of the sale price of the machinery or equipment free-on-board.

3. Notwithstanding the Preceding provisions of this Article, the term “permanent establishment’ shall not be deemed to include – (a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage display or delivery; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise; (e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character. 4. The term “permanent establishment” shall include a fixed place of business used as a sales outlet notwithstanding the fact that such-fixed place of business is otherwise maintained for any of the activities mentioned in paragraph 3 of this Article.

5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such persons are acting in the ordinary course of their business. 6.

A person (other than an agent of an independent status to whom the provisions of paragraph 5 of this Article apply) who acts in a Contracting State on behalf of an enterprise of the other Contracting State shall be deemed to be a permanent establishment of that enterprise in the first mentioned- Contracting State if – (a) he has, and habitually exercises in that State, an authority to conclude contracts or carries on any business activities on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 3 of this Article;

or (b) he habitually secures orders for the sale of goods or merchandise in the first-mentioned State exclusively or almost exclusively on behalf of the enterprise or other enterprises controlled by it or which have a controlling interest in it. Article 6 Income from immovable Property 1. Income from immovable property including income from agriculture or forestry may be taxed in the Contracting State in which such property is situated. 2.

The term ‘immovable property’ shall have the meaning which it has under the law of the Contracting State in which the, property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of the general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposit, sources and other natural resources. Ships, and aircraft shall not be regarded as immovable property. 3. The provisions of paragraph I of this Article shall apply to income derived from the direct, use, letting or use in any other form of immovable property. 4.

The provisions of paragraphs I and 3 of this Article shall also apply to income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services. Article 7 Business Profit 1. The profits of an enterprise of a Contracting State shall be taxable only in that States unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to- (a) that permanent establishment;

(b) sales in that other State of goods or merchandise of the same or similar kind as those sold through that permanent establishment; or (c) other business activities carried on in that other State of the same or similar kind as those effected through that permanent establishment; 2. Subject to the provisions of paragraph 3 of this Article, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. 3.

In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses shown to have been incurred for the purposes of administrative expenses so incurred, whatever in the State in which the permanent establishment is situated or elsewhere. However, no such deduction shall be a1lowed in respect of amounts, if any, paid (Otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way-of royalties, fees or Other similar payments in return for the use of ‘patents or other rights, or by way of commission, for specific ‘ services performed for management, or by way of interest on moneys lent to the permanent establishment.

Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts charged (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other officers, by way of royalties, fees or other similar payments in return for use of patents or other rights, or by way of commission for specific services performed or for management, or by way of interest on moneys lent to the head office of the enterprise or any of its other offices. For the purpose of this paragraph, interest payable to a banking enterprise by its permanent establishment or vice versa shall be allowed, as deduction to the extent that it represents a reimbursement of actual expenses. 4.

No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise: Provided that where that permanent establishment is also used as a sales outlet for the goods or merchandise so purchased the profits on such sales may be attributed to that permanent establishment. 5. Where profits include items which are dealt with separately in other Articles of this Agreement, then the provisions of those Articles shall not be affected by the provisions of this Article. Article 8 Shipping and Air Transport 1.

A resident of a Contracting State shall be exempted from tax in the other Contracting State in respect of profits or gains derived from the operations of ships or aircraft in international traffics. 2. However, no exemption shall be granted if such operations in international traffic are carried on by an enterprise of only one of the Contracting State.

In such a case, the tax charged shall not exceed I per cent of the earnings of the enterprise derived from the other Contracting State. For the purpose of this paragraph, the term “earnings” means income from freight, mails and sale of tickets and other such income less refunds and payments of wages and salaries of ground staff. 3. Notwithstanding the provisions of paragraph 2 of this Article, the provisions of paragraph I of this Article shall also apply to profits derived from the participation in a pool, a joint business or an international operating agency in which residents of both Contracting States take part. Article 9 Association Enterprises 1.

Where -(a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or (b) the same Persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State, and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from the which would be made between independent enterprises, then any profit which would, but for those conditions, have not so accrued to one of the enterprise but, by reason of those conditions,-have not so accrued, may be included in the profits of that enterprise and taxed accordingly. 2.

Where a Contracting State includes in the profits of an enterprise of that State and taxes accordingly ‘profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the profits so included are profits which would have accrued to the enterprises of the first’ mentioned State if the conditions made between the two enterprises, had been those which would have been made between independent enterprises, then that other State shall make such adjustment as it considers appropriate to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be had to the other provisions of this Agreement and the competent authorities of the Contracting States shah, if necessary, consult each other.

Article 10 Dividends 1. Dividends derived from a company which is a resident of a Contracting State by a resident of the other Contracting State may be taxed in that other State. 2.

However, such dividend may also be taxed in the Contracting State of which the company paying other dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident and according to- the laws of that State, the tax so charged shall not exceed (a) 12. 5 per cent of the gross amount of the dividends if the recipient is a company which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends; (b) 15 per cent of the gross amount of the dividends in all other cases. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. 3.

The provisions of paragraph I or 2 of this article shall not apply where the beneficial owner of the dividends, being a resident of a Contracting State, has in the other Contracting State a permanent establishment or performs in that other State independent personal services from a fixed base situated therein and the holding by virtue of which the, dividends are paid is effectively connected with the business carried on through such permanent establishment or fixed base. In such a case, the provisions of Article 7 or 14, as the case may be, shall apply- 4.

Where a company which is a resident of a Contracting, State derives profits or income from the other Contracting State, that order State may not impose any tax on the dividends paid , by the company and beneficially owned by persons who are residents of the other State, nor subject the company’s undistributed profits to a tax on undistributed profits, even if the dividends paid no the undistributed profit consist wholly or partly of profits or income arising in that other State. 5.

The provisions of, this Article shall not apply if the right giving rise to the dividends was created or assigned for mainly for the purposes of taking advantage of this article and not for bona fide commercial reasons. 6. The term ‘dividends’ as used in this Article means income from shares or other rights not being debt-claims, participating in profits, as well as income from other corporate- rights which is subjected to the same taxation treatment as income from shares by the taxation law of the State of which the company making the distribution is a resident, and also any other item (other than interest relieved from tax under the provisions of Article II of this Agreement) which, under the law of the Contracting State of which the company paying the dividends is a resident, is treated as ‘a dividend” or distribution of a company.

In the case of Belgium the term also means income which is taxable under the head of income on capital invested by the members of a company other than a company with share capital, which is a resident of Belgium. Article 11 Interest 1. Interest derived from a Contracting State by a resident of the other Contracting State may be taxed in other State. 2. However, such interest may also be taxed in the Contracting State in which it arises, and according to the law of that State but if the beneficial owner of the interest is subject to tax thereon in the other State, the tax so charge shall not exceed 12. 5 per cent of the gross amount of the interest. 3.

The provisions of paragraph 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is, effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply 4.

Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the interest, Whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest shall be deemed-to arise in the State in which the permanent establishment or fixed base is situated. 5.

Where owing to a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest exceeds for whatever reason, the amount which would have been agreed upon in the absence of such relationship, the provisions of this Article shall apply only to the last mentioned amount. In that case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regards being had to the other provisions of this agreement.

6. The provisions of this Article shall not apply. if the right or property giving rise to the interest was created or assigned for reasons other than bona fide commercial consideration. 7. The term “interest’ as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor’s profit, and in particular, income, from government securities and income from bonds or debentures including premiums and prizes attaching to such securities bonds or debentures. However The term “interest’ does not include for the purposes of this article income dealt with in paragraph 6 of article 10.

Article 12 Royalties I Royalties derived from a resident of a Contracting State by a resident of the other Contracting State may be taxed in that other State. 2. However such royalties may also be taxed in the Contracting State from which they are derived and according to the law of that State, but where the beneficial owner of the royalties is subject to tax thereon in the other State, the tax so charged, shall not exceed 12. 5 per cent of the gross amount of the royalties.

3, The provisions of paragraphs I and 2 of this Article shall not apply if the beneficial owner, of the royalties, being a resident of a Contracting State, has in the other Contracting State of which the company paying the royalties is a resident a permanent establishment or a fixed base situated therein and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply. 4. Royalties shall be deemed to be derived in a Contracting State where the payer is that State itself, a political sub-division, a local authority or a resident-of that State.

Where, however the person paying the royalties, whether he is a resident of a Contracting -State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties was incurred and such royalties are borne by such permanent establishment or fixed base, such royalties was incurred and such royalties she be deemed-to arise in the Contracting State in which the permanent establishment or fixed base is situated.

5. Where, owing to a special relationship between the payer and the beneficial owner or between both of them and some other person the amount of the royalties, having regard the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and their beneficial owner in the absence of such relationship the provisions of this Article shall apply only to the last- mentioned amount,. In that case, the excess part of the payment shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement. 6.

The provisions of this Article shall not apply if the right or property giving rise to the royalties was created or assigned was mainly for the purpose of taking advantage, of this Article and not for bonafide commercial reasons. 7. In this Article the term ‘royalties’ means payments of any kind received as consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematography films and films or tapes used for radio- and television broadcasting, any patent, trade mark, design, – model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific experience. Article 13 Capital Gains 1.

Gains derived in a Contracting State by a resident of the other Contracting State from the sale or alienation of movable and immovable property including shares in companies may be taxed in each of the Contracting States in accordance with the laws of the respective States 2. Gains derived by an enterprise of a Contracting State from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft in international traffic shall be taxable only in that State Article 14 Independent Personal Services 1. Income derived by a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that State unless he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities.

If he has such a fixed base, the income may be taxed in, the other State but only so much of it as is attributable to that fixed base. 2. The term ‘professional services’ includes especially independent scientific, literacy, artistic, educational or teaching, activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants. Article 15 Dependent Personal Services 1. Subject to the provisions of Articles 16, 18 20 and 21, salaries, wages and other similar remuneration derived by a. resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State.

If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State. 2. Notwithstanding the provisions of paragraph I of this Article, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first mentioned State if (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the year of assessment; and (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and (c) the remuneration is not borne by a permanent establishment or fixed base which the employer has in the other State. 3.

Notwithstanding the preceding provisions of this Article, remuneration in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State may be taxed in that state Article 16 Director’s Fees 1. Director ‘s fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that State. 2. However, any other remuneration which a person to whom paragraph I applies derives from the company in respect of the discharge of day-to-day functions of a ma