3. Qualification for Treaty Benefits

To qualify for the benefits above in Nigeria, the following conditions must be fulfilled: i. The taxpayer must be liable to tax in the treaty country of which he is a resident; ii. The income in question is not

exempted from tax in Nigeria; iii. The tax for which that individual is seeking benefit is covered by the treaty; iv. The benefit is not specifically excluded

under the treaty; and v. The benefit is claimed within the time stipulated by the treaty or domestic laws.

Notwithstanding the above conditions, a taxpayer may be denied the benefits set out in item 4 above where it is discovered that: i. its residency of one of the treaty countries was principally for the purpose of accessing that treaty benefit (treaty shopping); or ii. that one of the principal purposes of the arrangement of a transaction or business is to take advantage of the treaty or abuse its provisions (Principal Purpose Test “PPT”).

4. Process for claiming Treaty Benefits

Step 1: Completion of Certificate of Residence: Two types of Certificate of Residence exist: a. Certificate of Residence for Nigerian

residents: The certificate is to be endorsed by the FIRS on behalf of the Competent Authority (CA) before it is submitted to the tax authority of the country where the claim is to be made. b. Certificate of Residence for non-residents:

The certificate is to be duly endorsed by the tax authority of the country of residence of the non-resident taxpayer.

Step 2: Submission of Formal Application to the Relevant Tax Authority

Step 3: Submission of Claim for Tax Credit

Salient Issues in FIRS Circular on Enjoyment of DTA Benefits

1. Denial of Treaty Benefits: In line with global conversation around profit shifting and base erosion, the Circular emphasizes the possibility of denial of DTA benefits in cases of treaty shopping or when the principal purpose of the arrangement of a transaction or business is to take advantage of the treaty or abuse its provisions. The question then is how treaty shopping will be determined and how the FIRS will ensure that legitimate claims for the DTA benefits will not be thwarted.

2. Applicability of DTA WHT to NonResidents with Permanent Establishment: Paragraph 4.2.2.2 of the Circular states that for the DTA WHT rate to apply, the income must not relate to a PE, which the nonresident beneficiary has in Nigeria. However, considering that the basis for the exposure of the non-resident to Nigerian tax, in many instances, will arise when the non-resident has created a PE in Nigeria (without which no tax liability should arise), it follows that WHT/DTA WHT (being an advance payment of income tax) should become applicable at that point when a PE was established. Therefore, there is a need for FIRS to clarify what it intends to achieve with this provision.

3. Procedure for Claiming Tax Credit: While the FIRS sets out the procedure for claiming the treaty benefits such as