The world has become a global market whereby individuals and organizations transact with other from another country.Income and profits are generated from such transaction and are subject to taxing power of the state in which it is received, derived or accrued from.Every country tax any profit from any income derive from businesses conducted within it's territory.
Taxation is one reliable source of generating income for Government for proper discharge of it's responsibility towards it's citizenry.The Court of Appeal in ENGINEER SAMUEL AKINBIYI V.LAGOS ISLAND LOCAL GOVERNMENT,Saulawa J.C.A state that taxation is vis-a-vis revenue generation and is interwoven with Goverance as a matter of fundamental imperative.Contemporary democracies rely on citizen financial contribution for the sustainance of Government and public good.
Taxing systems differ amongst states with their own peculiarities.Every country exercise taxing power and guard this power jealously.Tax systems often come in contact with each other when a person engages in cross border transaction which make such income generated from such transaction liable to tax in two or more countries where the transaction has link with. This gave rise to INTERNATIONAL TAXATION.
It is a fallacy to assume that because of the nomenclature used"International taxation" there is a superior body determine the interest of states when a transaction is subject to the taxing power of two or more states.The word "international taxation "denote taxation beyond domestic or national sphere. The essence of international Taxation is the issue of whether and to What extent a country can exercise it's taxing power over an individual or company who is subject to two or more national Tax Law.The main issue is the division of the tax revenue among countries for the purpose of avoiding tax avoidance and double taxation.
There are different principles which is operative under international taxation. They include:
1.Tax jurisdiction:
This deal with who has jurisdiction over the Tax.In dealing this,the question is whether it is source base approach or residence base approach that is adopted.Under a source based approach, the source country is entitled to tax the income of both residents and non residents which is earned within it's territory. Source country is the country in which the income is derived from.However under residence based approach, a country assert jurisdiction to tax the worldwide income of it's residents.The question of whether the income is earn within its territory is irrelevant. Nigeria adopt the residence base approach as Nigerian income whether earned in Nigeria or not is subject to paying tax on such income.Only Eritrea and United State of America tax it's non-resident citizens on their foreign income.
2.Activities of Multinational companies:
Multinational companies are one of those who in most times are subject to international law issue.Multinational companies controls about 70% of the world economy.They are basically interested in making income for themselves and their shareholders and prefer if possible not to be liable to any tax liability whatsoever.Their allegiance is to their sharholders and not any country in which their business is connected to.They try to reduce their Tax liability by using some tax avoidance techniques such as transfer pricing,artificial transaction, transferring their businesses to countries which are regarded as tax haven.
3.The use of Treaties:
Treaties are bi-lateral agreement between Countries as regards transaction or issues affecting both countries. Many countries have entered into bilateral treaties with other countries refered to as DOUBLE TAX TREATIES which aim to define which country a taxpayer will be consider to be a resident for tax purpose and how tax are to be divided between countries having the right to tax.Countries can enter a tax treaty to determine how their tax system would work together so as to ensure that residents of each countries get the double tax relief they are entitled to and prevent hardship on their citizens when their transaction move beyond their own country. Nigeria has a double tax treaties with United Kingdom,China,Germany amongst others.
A treaty can only come into force after it has been ratified by each member state.Each state has its different method for ratifying treaties in their individual domestic Law. In Nigeria,SECTION 12 of the 1999 Constitution of the Federal Republic of Nigeria provide that before a treaty can become binding in Nigeria,it must have been passed as Law by the National Assembly. The position was applied in the case of SANI ABACHA V. CHIEF GANI FAWEHINMI, Where the court held that Nigeria is not bound any international treaty until and unless it has been domesticated and pass as Law by the National Assembly.
4.The role of OECD and United Nations:
One of the most active organization in the field of international taxation is the ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD).One of it's aim is to promote trade between it's member states of which Nigeria is one. An important facet of it's work is to assist in removing barrier to trade posed by taxation issue.It's convention and guideline is not binding on any country but is usually used as a guidelines for bi-lateral treaties.Some has argued that the guideline provided by the OECD favoured the developed countries than the developing or under-developed countries.This lead to United Nations providing it's own guidelines for issue of international taxation which had been said to favoured both the developing and under developed states.
One major advantage of OECD model is that it provide a valuable tool of interpretation which is of international acceptance.Under the OECD model convention which is the model Nigeria used for it's bilateral treaty agreement with other countries, the basis for taxation is "permanent establishment". Article 5 of the OECD model, permanent establishment means a fixed place of business or an established business at a distinct place with a degree of permanence.