The Impact of Nigeria’s Rejection of Both Pillar 1 and 2

Nigeria has expressly rejected both Pillar One and Pillar Two. It did not sign the October 2021 Statement and subsequently issued a public notice in May 2022 reiterating its rejection of both Pillars and outlining its approach to the taxation for foreign MNEs. 
Why has Nigeria Rejected the OECD Approach?
The crux of the issue for Nigeria is that the thresholds for both Pillar One and Pillar Two are too high to bring MNEs within the scope of Nigerian taxes. 
Pillar One applies where:
 – the revenue of the group for the period is more than 20 billion euros (this is adjusted if the accounting period is not 12 months); and

 – the pre-tax profit margin of the group is more than 10 percent.

It’s proposed that the 20 billion threshold will be reduced to 10 billion once Pillar One is successfully implemented. 
However, Article 3 of the Progress Report on Amount A of Pillar One provides that profits are only allocated to a jurisdiction if it meets a nexus requirement. 
The general rule is that the revenues sourced to that jurisdiction in an accounting period under the revenue sourcing rules must be 1 Million Euros or more for profit reallocation to apply.  This 1 Million Euro threshold is adjusted if the accounting period is not 12 months. 

For smaller economies with gross domestic product less than 40 Billion Euros, the nexus threshold is reduced to 250,000 Euros.

However, Nigeria’s GDP is significantly higher than 40 Billion euros (440 Billion USD in 2021) and therefore the 1 million euro nexus threshold would apply. 

For Pillar Two, Article 1.1 of the OECD Model Rules provides that the Pillar Two GloBE Rules apply to entities in an MNE Group that have annual revenue of 750 million euros or more in the Consolidated Financial Statements of the UPE in at least two of the four Fiscal Years preceding the relevant Fiscal Year.
Both of these thresholds mean that most MNEs that operate in Nigeria would not fall within the scope of Pillar One or Pillar Two or at least there would be a reduction in tax revenue compared to not implementing the Pillar Rules. 
By contrast, Section 40 of Nigeria’s Companies Income Tax Act provides that companies with taxable profits of between 25 million Naira (around 57,000 USD) and 100 million Naira are liable to corporate income tax at 20% (rising to 30% for companies with taxable income above 100 million Naira). Under Section 23(1)(o) of the Companies Income Tax Act, companies with taxable income below 25 million Naira are exempt from tax.
Nigeria’s Approach
Section 4 of Finance Act 2019 introduces a new Section 13(2)(c) into the Companies Income Tax Act, to provide that