Double-taxation agreement and their implications for the inflow of foreign direct investment into Nigeria

Abstract

This mini-dissertation titled 'Double taxation agreement and the implications for the inflow of foreign direct investment into Nigeria' will discuss the concept of foreign direct investment and its impact on the economic growth of host country and subsequently linking the inflow of foreign direct investment to the availability of double taxation treaties. The impact of foreign direct investment to host countries cannot be over emphasized. It amongst other improves the overall economic growth, creates access to international market, improve infrastructural facilities, creation of employment, transfer of technology and capacity building of citizens. The numerous benefits that accompany the inflow of FDI have made countries compete with each other in their efforts to attract foreign investment to their countries. The factors that contributes to the inflow of FDI are numerous, they include; friendly investment policies, ease of doing business regulations, economic and political stability, absence of corruption, tax incentives to mention a few. Despite all the advantages of foreign investment and the several factors put in place by countries to attract it, the menace of double taxation remains its greatest impediment. Double taxation occurs when an entity or individual is taxed on the same income by different countries at the same time. Double taxation is an impediment because it devours the main purpose for which an investor is investing which is to maximize profits The problem of double taxation was resolved by the enactment of double taxation treaties between countries. These tax treaties are set of rules that guide the taxation of income between two countries. Since the evolution of double tax treaties, there have been limited international taxation conflicts. Despite the fact that there are several factors that contribute to the inflow of FDI, this research argues that the availability of a double tax treaty is top on the list of factors and it is important for countries to enact them for a smooth cross-border transaction. It is against the backdrop i.e. the impact of FDI inflow to economic growth and the availability of a double tax treaty as an important factor that this research proposes to the Nigeria government to focus on attracting more FDI into its country as a means to resolving its ongoing economic crisis and recession. Likewise, this research also proposes that Nigeria enact more double tax treaties as the current number of tax treaties in Nigeria is a far cry.