On Monday, April 27, 2015, the Intellectual Property Committee of the Nigerian Bar Association in conjunction with the Federal Ministry of Industry, Trade and Investment hosted the 2015, World Intellectual Property Day Celebration, themed “Get Up, Stand Up, for Music” at Chelsea Hotel, Central Business District, Abuja.

The event was well received and had in attendance Dr. Olusegun Aganga, Honourable Minister of Industry, Trade and Investment, Mr. Afam Nwokedi, Managing Partner, Stillwaters Law Firm and Chairman, Intellectual Property Committee of the NBA, Allan Tousignant, Counsellor for Affairs, Embassy of the USA (representing the US Ambassador), Mrs. Nima Salman-mann, Registrar General of Trade Marks, Patents and Design, Mr. Chinedu Chukwuji, CEO, Copyright Society of Nigeria who delivered the keynote address, Engr. Umar Bindir, Director General of NOTAP, Mr. Joel Kopp, Economic adviser, US Embassy, Mr. Agada Elachi (who represented the SBL,NBA Chairman) as well as other industry practitioners and government agencies.

The keynote address focused on the relevance of IP to the growth and development of the Nigerian economy and the need to continuously sensitize the general public and stakeholders on the importance of Music, as a tool for re-engineering relationships, promoting cooperation amongst individuals and nations; a money earning venture.

The Honourable Minister, Dr. Aganga clearly acknowledged the pivotal role played by the NBA Section on Business Law (SBL) in the development of IP in recent years and thanked the leadership of the Council and IP Committee for a job well done. In conclusion, he urged his Ministry and SBL to develop robust and comprehensive strategic plans to transforming the IP sector for sustainable contributions to the nation’s GDP. He also promised to include in his hand over note, the need to establish an IP Charter within the Ministry of Trade and investment.

The high point of the event was the award of Face of Intellectual Property Nigeria 2015 to iMike, winner of MTN Project FAME Season 2 and crooner of the hit song Adaure.

Intellectual Property Owners Association: 43rd  Annual General Meeting

The Intellectual Property Owners Association (IPO) established in 1972, is holding its next annual meeting on September 27-29, 2015 at the Hyatt Regency Hotel, 151 East Wacker Drive Chicago, IL   USA. For more information please visit their website: http://www.ipo.org/

International Chamber of Commerce Launches Two Antitrust Advocacy Tools at the 7th Annual ICC Roundtable on competition policy held on April 27, 2015

At the 7th Annual ICC Roundtable on Competition Policy held on April 27, 2015 in Sydney Australia, the organization announced the publication of its new antitrust compliance toolkit for small and medium-sized enterprises (SMEs) named: “Why Complying with Competition Law is Good for Your Business” (ICC SME Toolkit) and the ICC Recommendations on Pre-Merger Notification Regimes.

Mobile Companies not liable for users’ Copyright Infringement by the E.U Court

According to the E.U Court, mobile companies are not liable to pay compensation to copyright holders for the inclusion of legally acquired music or film on their devices for private use. This judgment is the product of a Danish case against Nokia by Copydan.

WordPress wins in court over fraudulent copyright takedown notices

This judicial precedent prevents any future devious copyright take down notices against mobile companies for their failure to withdraw particular publications

New gTLD issued by ICANN

The Internet Corporation for Assigned Names and Numbers (ICANN), the body charged with the registration of Internet Protocol (IP) addresses have continued to roll out new generic top-level domains (gTLDs) for registration. Since January 12, 2012 when ICANN began accepting applications for new gTLDs, some gTLDs like .adult and .porn have attracted public comments. However none has attracted much commercial interest like the recently launched .sucks gTLD. Many corporations and businesses have started working toward registering their trademarks within the sunrise phase.

Interestingly, while many businesses are working to register the .sucks gTLD in their name, it is a registration primarily meant for protection and not for use.

The sunrise phase for the registration of the .sucks gLTD ends on May 29, 2015

2015 SBL Annual Conference

The 9th annual conference of the Section on Business Law (SBL) of the Nigerian Bar Association (NBA) is slated to hold from June 7th to 9th, 2015 at Eko Hotel & Suites. The conference is themed, “Regulators as Catalysts for Economic Growth”.

INTA 2015

Reputed to be the largest annual meeting of its kind in the last 137 years, trademark professionals from about 150 countries all around the world would be gathering at San Diego, United States of America from May 2 -6 2015 for the International Trademarks Association’s annual meeting.

Counterfeiting and Piracy are presently acknowledged as one of the greatest global threats to creativity. Counterfeiting is the act of unlawfully imitating or reproducing items/works protected by the law of trademarks, patents, or copyrights (Intellectual Property- IP), while portraying them as originals. This is usually represented in goods illegally bearing registered/well-known trademarks. Piracy on the other hand is the unauthorized reproduction and distribution of such protected items/works without necessarily representing them as original. This is more common in copyrighted works for example the reproduction and sale of books or CDs containing video recording. For the sake of convenience these two terms will be used interchangeably in this paper.

Nigeria like many other states has various laws and regulatory measures against counterfeiting.  Nevertheless, this illegal trade has not only grown over the years but has metamorphosed into a formidable, sophisticated, and largely ignored sector. For instance in Nigeria, pirated items are presently being sold openly on the streets.

The International Federation of Phonographic Industry (IFPI), upon a research conducted in ten individual music markets including United Kingdom, Germany, and the United States, reported that approximately Twenty billion songs were illegally downloaded in 2005. More recently, on March 19 and 21, 2015 it was recorded that the U.S Customs and Border Protection (CBP) officers seized over $430,000 counterfeit perfumes at the Champlain Port of Entry and $65,200 dollars in fake 100 dollar bills coming from Ecuador at John F. Kennedy’s International airport respectively.  The Business Action to Stop Counterfeiting and Piracy (BASCAP) has estimated the value of these illegal trades to be globally worth $1.7 trillion by 2015.^[1]

It is therefore incontrovertible that Counterfeiting is a global issue. However, what is worrisome is that Nigeria has become a dumping ground for counterfeit goods and a safe haven for perpetrators of this vice; a situation which can largely be attributed to the lack of sensitization and weakness of the Nigerian IP enforcement regime.

Due to the transnational nature of counterfeiting, one of the most effective ways to control it is employing an effective border control measure to prevent the importation and circulation of these counterfeits. This article does not seek to analyze the entire IP enforcement regime but focuses on the enforcement of IP through border measures.

Nigeria’s Border Control Regime

Enforcement of IP at Nigeria’s international borders is undertaken by several regulatory bodies which include the: National Agency for Food and Drug Administration and Control (NAFDAC), Nigerian Customs Service (NCS), Standards Organization of Nigeria and the Nigerian Copyright Commission. These bodies are governed by various national and international laws/treaties and they include the: Customs and Excise Management (Disposal of Goods) Act- (CEMA); Trade Related Aspects of Intellectual Property Agreement popularly referred as the TRIPS Agreement; and Paris Convention for the Protection of Industrial Property.

The Trips Agreement

The TRIPS Agreement was established primarily to address the insufficiency of the international IP enforcement regime. A significant innovation of this Agreement is the introduction of border measures. The Agreement allowed genuine manufacturers or right holders, reasonably suspecting the importation or exportation of pirated/counterfeited versions of their works, to make applications to the appropriate authorities (administrative or judicial) for the seizure of such counterfeits at the borders by customs officials.

Nigerian Customs Service and Other Relevant Agencies

The Customs is principally the “gatekeeper” of every nation. Being the agency in charge of all goods entering, transiting and leaving the country through the international borders, its role in combating smuggling and more specifically counterfeiting, can never be overemphasized.

In discharging this function the Nigerian Customs Service has an “Enforcement, Investigation, Inspection, and Intelligence” department which amongst others organizes all anti-smuggling measures at the international borders. It should be noted that irrespective of the NCS’s corroboration with various agencies in this regard (as will be examined shortly), the Service performs the lead role.

The NCS sets out various guidelines to assist in implementing its mandate. In 2010 the Presidential Task Force for 100% Inspection was established to inter alia prevent the importation of contraband goods and ensure the complete inspection of all consignments selected for physical examination.  It involves a strategy where inspections are intensified on consignments with more tendencies to default, than on every shipment. The NCS has additionally established an independent unit- the Customs Intelligence Unit (CIU) – with trained officials who are responsible for obtaining and gathering information necessary to combat counterfeiting and piracy.

A very significant development which has gained countless success is the NCS’s partnership with other federal agencies such as the Standards Organization of Nigeria (SON), National Agency for Food and Drugs Administration and Control (NAFDAC), National Drug Law Enforcement Agency (NDLEA)  and Nigeria Copyright Commission (NCC), in carrying out joint inspection of cargoes at the borders. For instance it was reported in 2012 that with the combined efforts of the NCC and NCS, thirteen containers stacked with pirated items were confiscated at different seaports in Nigeria. Similarly in 2015 NAFDAC, along with the NCS impounded over five (5) containers containing suspected counterfeit drugs worth N270 million (approximately 13,567,851 US Dollars).

Challenges in the Border Control Regime

The various strategies employed to prevent the importation of counterfeits seem insufficient in the light of the prevailing circumstances. Some of the key challenges encountered in the enforcement of these measures are worthy of mention.

1. Integrity

Low integrity amongst the staff of most of the key agencies involved in this process is one of the greatest challenges faced in the enforcement of border measures.  Integrity is not only limited to bribery and corruption but also includes the inefficacy of the services provided. This has resulted in the loss of public trust, noncompliance by stakeholders, unnecessarily obstacles in supposedly normal processes, loss of trade and investment, consequential revenue loss and so much more.

2. Paucity of legislative frameworks

The NCS presently operates under the CEMA which is largely outdated and fails to provide adequate legal frameworks for the discharge of its functions. There are no legal basis for the implementation of major international agreements to which Nigeria is signatory to.  Unlike Nigeria, states like Australia, Canada, New Zealand, Republic of Korea, Switzerland, Turkey, South Africa, Indonesia , United States etc., have included similar provisions in their substantive IP laws and/or have enacted special laws too. The Canadian Combating Counterfeit Products Act and The South African Counterfeit Goods Act are few examples in this regard. As a result, modern techniques and enforcement procedures such as the TRIPS Agreement provisions on border measures which have gained tremendous success internationally have not been effectively implemented in Nigeria.

3. Unreasonable delay

The collaboration of the NCS with other federal agencies is unarguably very beneficial for the purpose. However this strategy has been heavily criticized for amounting to needless duplication of process resulting in unnecessary delays and reduction in the efficiency of these agencies.

Ignorance and/or unwillingness of right holder to enforce their IPRs and explore available remedies are also part of the challenges

For instance, at the just concluded World IP Day seminar (April 26, 2015) sponsored and widely publicized by the IP Committee of the Section of Business Law branch of the Nigerian Bar Association, where information and knowledge about IP protection is shared, only a few rights holders were present.

4. Financial constraints and Inadequate experience of officers at the relevant agencies.

Conclusion and Recommendations

The fight against counterfeiting is largely multifaceted with border control being just one arm. Still, it is more effective to seize a consignment of counterfeit or pirated goods at the borders or in transit than after circulation of the goods in the market. Providing a successful border control system would go a long way in curbing Counterfeiting and Piracy as the large number of counterfeits currently being flooded into the country would be contained.

To achieve this, the gaps in the present borders control regime must be addressed. There is an eminent need for an overhaul of the current NCS legislation; an improvement in the funding and training of the relevant agencies and their officers respectively; provision of regulatory and supervisory measures to checkmate corruption and integrity issues; creation of massive public awareness of the dangers of Piracy and Counterfeiting, the existence of IPRs as well as the remedies and enforcement measures available; adequate sensitization of stakeholders such as the officers of the relevant agencies;  and the adoption of the Single Window System(SWS- which requires customers to deal with a single agency at the customs rather than different agencies) to curb unnecessary delays. 

In the alternative, an improved coordinated border management scheme is highly recommended between the relevant agencies to improve communication between them and facilitate more efficient risk management procedures.

The importance of coordination of border control measures in this regard, can never be over flogged.  Nevertheless, this strategy is more likely to succeed if it goes beyond federal agencies to include other relevant stakeholders such as manufacturers, right holders, exporters, importers, carriers etc. Such coordination if achieved will go a long way in addressing most of the hiccups encountered in the present regime and ultimately strengthening the Nation’s stance in combating counterfeiting and to a very large extent the importation of pirated materials.

An independent assessment of the investment market will reveal that foreign investors are increasingly willing to invest in businesses run by Nigerians who have better understanding of the local terrain as opposed to setting up and running them personally. The last decade witnessed a meteoric rise in entrepreneurship and birthed several start-ups in Nigeria. Venture Capital for Africa (VC4Africa), a new start-up funding platform reports that in 2014 alone, $26.9 Million was invested in African start-ups under its platform.

Konga, a Nigerian e-commerce start-up, recently attracted the investment of about $40 million by Swedish investor company Kinnevik and Jumia, another e-commerce platform was able to reel in over $70 million in foreign investment funding from MTN, Rocket and Millicom. These ambitious enterprises have by far raised the bar for competition and business innovation and are gradually beginning to understand the importance of branding and brand protection as an indispensable tool in the fierce arena of modern day marketing.

Search Engine Optimization

One formidable tool employed by businesses in modern day advertising and brand marketing is Search Engine Optimization (SEO). Businesses now rely on search engines like Google, Bing, and Yahoo! etc. for visibility to their target demographic. Naturally, ranking higher in search results on these sites translates to better business. SEO is the process of improving visibility and ranking of a website on search engine result pages, by incorporating search engine friendly elements into the website.

These elements could include keyword-rich title tags, meta tags, or web content (textual, image or links) featuring frequently searched words. SEO techniques are broadly categorised into “White Hat” and “Black Hat” techniques with the distinguishing factors bordering mainly on the ethicality, morality and even legality of the technique applied.

White Hat SEO is generally SEO practice within the search engine’s terms of service and guidelines and is considered ethical. Black Hat on the other hand employs aggressive SEO techniques that not only flout search engine guidelines but in some cases also break constituted laws and authority.

Most businesses engage professional SEO service providers to boost their online presence, but only a few bother about the ethicality or legality of the strategies employed by these agencies. The reality however, is that certain SEO techniques have raised disturbing questions as to their legality and the ability of intellectual property (IP) laws to prevent IP infringement in the realm of SEO.

Intellectual Property Concerns

One of such techniques is the use of another business’ trademark (usually trade name) by a competitor as a tag, key word, title or homepage content of its website in a bid to increase visibility or in extreme cases, create a false representation of identity or origin. For example, a relatively unknown retail business could include the trade names of retail giants Konga or Jumia in its SEO plans such that when customers key “Konga” or “Jumia” into search engines the retail business’ name shows up on the same page.

The borderless nature of SEO is a challenge and the fact that IP laws and precedents have been inadequate and slow to catch up with ever advancing technology further compounds this problem. The American case of Brookfield Communications Inc. v. West Coast Entertainment Corp. 174 F.3d 1036 (9^th Cir. 1999) was one of the first cases to broach this issue. Unfortunately the decision in the case could not catch on especially because the trademark laws of most common wealth countries do not recognise the principle of initial interest confusion which was the crux of the American court’s decision in that case. Another notable attempt at tackling black hat SEO techniques under trademarks law was the case of Playboy Enterprises Inc. v. Terri Welles Inc. 50 U.S.P.Q.2d 1545, 99 Cal. Daily Op. Serv. 2899 (1999) which held that the defendant’s use of the plaintiff’s trademark was only in a nominative capacity and thus did not amount to infringement.

The uplifting thing about these cases however is that they inadvertently acknowledge that certain black hat SEO techniques, especially the unauthorised use of a competitor’s trademark as meta-tags etc., could amount to trademark infringement.

Fortunately the recent 2014 Australian case of Lift Shop Pty Ltd v Easy Living Home Elevators Pty Ltd [2014] FCAFC 75 examined the lawfulness of certain SEO techniques and has begun capturing the attention of shrewd business owners regarding these techniques.

Lift Shop Pty Ltd (Lift Shop) and Easy Living Home Elevators Pty Ltd (Easy Living) are fierce competitors in the elevator sales market. In 2012, Easy Living as a marketing strategy engaged the services of an SEO service provider who was authorised to (a)include the word “liftshop” in its title page, (b)adopt “lift shop” as a keyword, and (c)include the words “lift” and “shop” in several portions of its website, particularly the home page. In effect, the website contained phrases like “we’re a lift shop in our 14^th year” and “looking for a lift shop?”

Resultantly, whenever a search was entered in search engines using the keywords “lift shop”, the search results would display Easy Living’s entry next to Lift Shop’s.

Lift Shop, owner of the illustrated trade mark therefore sued Easy Living for trademark infringement. Certain issues were crucial to the determination of the suit according to Australian Law.

1. Misrepresentation, and
2. Use of the allegedly infringing words “as a trademark”.

Misrepresentation

Whereas Lift Shop argued that Easy Living intentionally caused itself to be misrepresented in the search engines so as to mislead the public into believing that there existed an association between them or even believing that the website was that of Lift Shop, the Judge agreed with Easy Living’s argument that “lift shop” is generic and generally understood as describing a shop that sells lifts, as such there was no possibility of confusion to the public in respect of the search results.

Use of words as a trademark

An essential element of infringement in Australia’s Trademark Act is that the infringing mark must be used as a trade mark; similar to the requirement of “use in the course of trade” in Section 5(2) of the Nigerian Trade Marks Act. It was therefore pertinent to determine whether Easy Lift had used “lift shop” in its capacity as a trademark or as a generic word, merely describing their business. Predictably, the Judge surmised that the words “lift shop”, as used by Easy Living, were not intended to cause misrepresentation but rather to only describe the character of the business and the nature of services it engaged in.

The court found in favour of the defendant and even upon appeal, the judgment of the trial court was upheld.

The Lift Shop case is remarkable because it strongly highlights that the unauthorised use of another proprietor’s trademark in SEO may amount to infringement as long as it is established that such use amounts to use as a trade mark.

Conclusion

Black Hat SEO techniques also extend into the copyright and plagiarism terrain because an important aspect of SEO is creating content for a website. Such content could be logos, text, images, streaming music or videos etc. The temptation to lift already finished articles or photographs to boost a website’s content quality without recourse to the copyright owner should be strongly resisted as it is even an easier endeavour to establish a copyright infringement in SEO than an infringement of trade mark.

It is therefore pertinent for shrewd business owners to be wary of the techniques applied by their SEO providers or IT team. One cannot, of course, over underscore the need for a business to register all of her intellectual property with the appropriate agencies.

Historically, commercial transactions were undertaken with the traditional perception of a market in mind and taxation of these market activities has been a source of government revenue. Global industrialization and efficiency in the factors of production and distribution of goods and service has significantly altered the primordial perception of a market from being a designated location for exchange of goods and services to boundless geography underpinned by daily human interactions in search for ways to meet their basic needs. This trend is the same with both developed and developing economies like Nigeria.

Unsurprisingly, technology has led the way in providing a platform for these voluminous and boundless transactions to happen leading to the birthing of a system of trade known as e-commerce which has made international trade easier, faster and less cumbersome while at the same time boosting the per capita income of participants therein. Not without its casualties, the laws on taxation in several jurisdictions have fallen prey to the fluidity of such transactions making it apt to give the subject a critical examination through the lenses of relevant statutes.

Some Relevant Taxes Applicable to Commercial Transactions Under Nigerian Laws

The participants to these transactions may be:

1. Business entities;
2. Individuals

Value Added Tax

In some quarters, VAT is considered an alternative to business income tax and  is territorial in nature. The Federal Inland Revenue Service Information Circular 9304[1] states that “supplies made outside Nigeria” are outside the scope of Nigerian VAT. It is payable in the jurisdiction where consumption rather than production occurs; thus, it has the intended effect of making exports exempt or zero rated for VAT purposes. Therefore, locally manufactured products are the main beneficiaries.

Section 2 of the Value Added Tax (Amendment) Act 2007 provides that tax shall be charged and payable on the supply of all goods and services excluding some specified goods.

In its interpretation section, the Act defines supply of goods to mean “any transaction where the whole property in the goods is transferred or where the agreement expressly contemplates that this will happen and in particular includes the sale and delivery of taxable goods or services used outside the business, the letting out of taxable goods on hire or leasing, and any disposal of taxable goods”[2]. It is therefore evident that the supplies of goods relates to physical goods. The same interpretation section also provides for the definition of supply of services to include any service provided for a consideration.

In considering the provisions of the Act, we observe that VAT is to be included in the price of the taxable goods or services[3]. Where the transaction is for the supply of taxable goods for consideration other than cash, the value shall be deemed to be its market value[4]. In this instant and bearing in mind the fundamentals of VAT, it can be safely assumed that VAT is payable at the location of supply. Following this, it is also logical to conclude that the fact that an order is made via the internet does not obliterate the incidence of VAT where there is a delivery of the goods.

Subsequently, the Act further provides that the value of imported taxable goods shall be equal to its price which is inclusive of all taxes as well as other charges levied outside Nigeria apart from the VAT and all costs by way of commission and other related costs up to the place of importation be equal to the price.

As in the case of Companies Income Tax, the Value Added Tax Act provides for the registration of a taxable person within six months of the commencement of business[5]. A non-resident company is expected to register for tax using the address of the person with whom it has a subsisting contract[6].

The Act further provides that the value of imported taxable goods shall be equal to its price which is inclusive of all taxes as well as other charges levied outside Nigeria and all costs by way of commission and other related costs up to the place of importation must be equal to the price[7]. Furthermore, the Act provides for the inclusion of tax in the invoice for the supply of goods and services in Nigeria by a non-resident company subject to the condition that such tax shall be in the currency of the transaction[8].

From the foregoing, where there is a supply of goods irrespective of whether the order was made via the internet or through physical contact, we can safely presume that such transaction is VATable. The challenge now becomes taxing the supply of intangible services or goods.

Withholding Tax

This is the deduction of tax by a party making payment on behalf of the receiving party. Such tax may be deducted from rent, interest/royalty[9], dividend, directors’ fees and income from source[10]. This form of tax is more restrictive in nature as it is limited to certain transactions. In the case of deductions on received income, there arises a challenge where both parties are in varying jurisdictions as the paying party who may be in another country is plagued with the problem of remitting the sum to the relevant tax authority. In this case, the principle of withholding tax may not be applicable.

In applying this form of tax to e-commerce transactions, this may be more practical in transactions performed within the country where taxable persons are more inclined to comply with tax legislation.

Income Taxes

It is a matter of fact that government generates revenue via taxation of all economic activity conducted within it. Ideally, before such income is subject to tax there must be a link between the government and such income. The development in the ICT sector as well as its enormous effect on and contribution to e-commerce portends the need for an upgrade of the tax system of any forward looking country to accommodate this new trend. This industry in its own right heralds an opportunity to yield enormous revenue; it therefore behoves on the government to explore the prospects inherent therein.

In tandem with development, oftentimes comes challenges and this emerging market is no exception. The current debate on taxation of e-commerce is sufficient proof to this effect.  Though e-commerce to some extent is testament of growth and advancement in very positive ways; on the flip side, it has succeeded in compounding the existing or traditional tax structure in terms of source of Income and residence principle.

Income taxes are premised on structure as imposition of same is limited to a particular geographical location of a taxable entity with the basic consideration of source of income and fixed base. Section 3 of Personal Income Tax Act 2011 (as amended) Laws of the Federation of Nigeria (PITA) provides for the taxation of income of a taxable person from a source within or outside Nigeria basically from or on in the course of trade. Section 9 of the Companies Income Tax Act 2004 (CITA) expounds on this by subjecting all profits of any company from any trade accruing in, derived from, brought into or received in Nigeria.

Section 6 of PITA, subjects the gains or profits derived from any business or trade carried on both home and abroad to tax with the exclusion of any gains derived from the foreign operations with no fixed based locally. Section 7 PITA and section 13 of CITA 2004, further provide for the tax assessment of a non-resident/non-Nigerian company where the taxable entity has a fixed base for business purposes, does business through an authorized agent and operates a business (contract for surveys, deliveries, installation or construction) in Nigeria.

The above is a clear limitation on the assessment and imposition of tax on a non-resident in Nigeria. The express restriction imposed by “fixed base in Nigeria” has strong tax implications on e-commerce. How then does the Nigerian government impose income tax on a foreign business/individual transacting business via the internet with a Nigerian wherein:

• The non-resident has no fixed place of business;
• Has no agency relationship with any person; and
• The objects of the business do not conform with the relevant income tax legislations.

These queries posit obvious answers that where the above conditions do not exist; the only logical conclusion is that gains from such transaction are a loss to the government tax-wise.

While local transactions are wholly chargeable to tax except where allowances and pioneer status apply, the ability of the relevant tax authority to access and assess chargeable income is put to test. This is the stiffest of all tests as the relevant tax authority is saddled with the responsibility of tracking e-transactions which is a herculean task.

The principles of source and residence have formed the basis for taxation internationally.

The nature of e-trade, whether it is for tangible or intangible goods and services is a key consideration in administering tax on e-commerce related transactions. The European Commission for instance had previously worked on a review of the tax rules of the 6th VAT Directive irrespective of the mode of sale[11]. Subsequently another working paper was done for a review to apply VAT to transactions relating to Internet delivery among others[12].

As part of its efforts, the European Union’s directive requires a non- EU company engaged in the trade of digital goods and services to undertake a VAT registration in an EU member state[13]. Thereby engaging in tax collection and remittance. Though it is conducted on a temporary basis, it is finalized when the EU member state via a “special scheme” arrangement shares the remitted VAT among the different EU states participatory in the sale[14].

The application of the VAT Directive is geared towards ensuring that e-trade is VATable. This system is not without its own challenges, the primary issue being the usual difficulty of observing to self-assessment obligations[15].

Conclusion

E-commerce is an industry patronized by different classes of business because of its wide coverage and the latent revenue inherent in it. Apart from the ever growing size of its revenue, it can also be considered an income injection into the economy. Taxation of e-commerce is however still a grey area in Nigeria. This is evident in the lacuna in our tax legislation.

It is notable that the ease with which e-commerce is transacted poses a major challenge to tax authorities with particular reference to tax enforcement and collection; the sometimes indeterminate location of trading parties complicates issues. The tax payer is not immune to challenges as they often suffer the fate of double taxation and the incomplete provisions of VAT Act has not helped. The latter is the case because Nigeria’s tax structure is physical trade based. Even our direct taxes have not helped as taxation is premised on permanent establishment.

In spite of the arguments in favor of the global nature of e-commerce, it would be foolhardy to ignore the threat posed by this form of trade to unstructured tax regimes. While celebrating globalized and decentralized trade via e-commerce, it is important that besides its ability to cut across cultural, socio-political and varying time zones, we must understand that taxation of e-commerce is an economic necessity which if not properly managed would constitute a revenue loss/leakage to the national income of an economy rather than be of benefit.  The only logical resolve would be a liaison between the e-payment systems, banks, the authority themselves and the annual returns filed by the taxable person.

Further to this, where possible Nigeria’s VAT legislation needs to be adumbrated upon to accommodate the scope of e-commerce while entrenching some of the provisions of the OECD regulations.

[1] .FIRS Information Circular No. 9304  of August 20, 1993

[2] .Section 45  Value Added Tax (Amendment) Act 2007.

[3] .Section 5 (1)(a) supra

[4] . Section 5 (1)(b) supra

[5] .Section 8 of the Value Added Tax Act

[6] .section 10 supra

[7] .Section 6 supra

[8] .section 10(2) supra

[9] .Royalties are subject to Withholding Tax under the Personal Income Tax (Amendment) Act but are excluded under the Companies Tax Act

[10] .Sections 69 – 73 of the Personal Income Tax (Amendment) Act 2011 and Sections 78 – 81 of the Companies Income Tax Act 2007.

[11] .European Commission, Directorate General XXI, Working Paper No 1 ‘Harmonization of turnover taxes’ Working Paper, 8 June 1999. <www.europa.eu.int>

[12] .Proposal for a regulation of the European Parliament and of the Council amending regulation (EEC) No. 218/92 on administrative co-operation in the field of indirect taxation (VAT) and proposal for a Council Directive amending Directive 77/388/EEC as regards the Value Added Tax arrangements applicable to certain services supplied by electronic means’(2000) 349 final, June 7, 2000, Brussels.

[13] .Council Directive 2002/38/EC amending Directive 77/338/EECD; EU (2002), Official Journal of the European Communities.

[14] .Commission Proposal for a Council Directive Amending Directive 77/388/EEC; EU (2002), Official Journal of the European Communities

[15] .Charles E. McLure Jr., ‘The Value Added Tax _in the European Union’

Notably, all the corporate governance codes in Nigeria prescribe the separation of the chairman of the board of directors from the chief executive officer to avoid concentration of power in a single person among other reasons. A quick review of some key corporate governance codes in Nigeria is pertinent to understand corporate governance framework in Nigeria.

Corporate Governance Code for Nigerian Public Companies

The Nigerian Securities and Exchange Commission’s Corporate Governance Code (SEC Code[1]) applies to the following entitites:

• Public companies with securities listed on the Stock Exchange;
• All companies seeking to raise funds from the capital market through securities issuance or listing;
• All other public companies[2].

The SEC Code spells out the composition and structure of the board of directors and the board committees, the relationship with shareholders as well as other stakeholders. The Code also places the responsibility of risk management and audit of concerned companies on the board. Companies regulated by the SEC Code are required to seek approvals from SEC regarding board appointments and public companies are also mandated to report on the extent of their compliance with the SEC Code in their annual reports.

The Code of Business Ethics and Principles on Corporate Governance for the Insurance Industry

The Code of Business Ethics and Principles on Corporate Governance for the Insurance Industry (the NAICOM Code) recommends various structures and control systems geared at ensuring efficiency and eliminating fraud and self-serving practices by the board and management of insurance companies. The NAICOM Code sets out the composition, duties and responsibilities of the board as well as standards expected of board members. According to the NAICOM Code, the number of directors on the board of an insurance company must not be less than seven and not greater than fifteen[3]. Directors in an insurance company are required to disclose any interest in firms providing service for the insurance company[4].

The business of corporate governance in insurance companies is carried out through committees of the board of directors prescribed by the NAICOM Code. In compliance with the NAICOM Code, an annual board performance appraisal must be carried out by an external consultant to be appointed by shareholders[5]. The assessment report prepared by the external consultant is forwarded to NAICOM who would determine the extent of compliance and issue recommendations or directions on any acts of non-compliance. It is noteworthy that the NAICOM code is prescriptive as it only provides standards to be met without any consequence for failure to meet set standards.

The Central Bank of Nigeria Code

The Central Bank of Nigeria (CBN) regulates and oversees corporate governance in the Nigerian banking sector with the coming into force of the Code of Corporate Governance for Banks and Discount Houses (CBN Code). The recent review of the CBN Code in 2014 underscores the need for corporate governance in the sector to incorporate global best practices so as to arrest any likelihood of a corporate failure. The introduction of the guidelines for whistle-blowing for banks and discount houses as a separate document effective from October 1, 2014 is also a novel development that demonstrates the incorporation of global best practices in the sector. Several amendments were introduced into the reviewed CBN Code. Noteworthy among these are the following:

• Submission by financial institutions of quarterly report of compliance with the CBN Code within a specified deadline.
• Prescription of a minimum of five board members for discount houses whereas the previous code was silent on this. The CBN Code further stipulates that no two members of the same extended family shall occupy the positions of chairman and MD/CEO or executive director of a bank and chairman or MD/CEO of a bank’s subsidiary at the same time.[6] This position was not considered in the previous code.
• CBN’s approval must be granted before certain acts are done e.g increase in shareholding above 5%, approval of board committees’ charter, notification of review of whistleblowing policy after three years, appointment or removal of chief compliance officer or head of internal audit of financial institutions among others.

Penalties for non-compliance with the CBN Code involve imposition of fines on defaulting individuals and organizations and disapproval of specific acts of non-compliance.

Code of Corporate Governance for Licensed Pension Operators

The Code of Corporate Governance for Licenced Pension Operators (PENCOM Code) is the corporate governance regulatory framework for the administration of Pension Fund Administrators and Custodians administered by the National Pension Commission.

Although the PENCOM Code does not have an elaborate outlay when compared with the other codes, it specifically deals with issues that may arise from the board and seeks to ensure transparency in the pension administration sector. The PENCOM Code deals directly with issues ranging from board composition to appointment and responsibilities of directors. It is prescriptive in nature; it enjoins insurance companies to ensure adherence to the provisions of the Code.

The National Code of Corporate Governance

The discrepancies in the standard prescribed by the aforementioned corporate governance codes led corporate governance experts to recommend a harmonized corporate governance code applicable in the different sectors. The harmonized code called the National Code of Corporate Governance (National Code) expected to become operational in the first quarter of 2015 is yet to be released.

Apart from being a comprehensive document that would be applicable across different sectors, the National Code is expected to prescribe higher corporate governance standards and a strong penalty regime. While the motive behind the National Code is laudable, it is reasoned that different sectors may require different modalities in their corporate governance frameworks hence on the long run, applicability of the National Code to novel circumstances in the various sectors may be called into question.

It is therefore submitted that considering the reasons behind the harmonization of the different corporate governance codes, it is expected that compliance with the provisions of the National Code, when it becomes operational, would ensure more business sustainability and corporate success in Nigeria.

[1]The Code became operational in 2003 and was reviewed in 2011

[2]Section 1.1 of the SEC Code

[3] Section 5.04 (I) of the NAICOM Code

[4]Section 5.09 of the NAICOM Code

[5]Section 5.07 (iv) of the NAICOM Code

[6]Section 2.3.3 of the CBN Code