TAX – May 2024 – L2 – SA – Q3 – Taxation of Non-Residents

Discuss significant economic presence in digital transactions and calculate the taxable income for Alhaji Yanko Abdulahi’s trust.

Question

a. Section 6 (6A) of the Personal Income Tax Act Cap P8 LFN 2004, as amended by the Finance Act 2020, states that the Minister by Order can determine what constitutes the significant economic presence of a non-resident, executor, or trustee.

Required:
i. In relation to what constitutes a significant economic presence, discuss Digital transactions (4 Marks)
ii. Discuss Services (4 Marks)

b. Alhaji Yanko Abdulahi was a successful businessman in Kano before he died. He is survived by two children, Yahaya and Binta.

A trust was created for the benefit of his two children. The trustee’s records for the year ended December 31, 2021, revealed the following information:

Item	Amount (N)
Rental income (gross)	2,400,000
Profit from trading activities	32,160,800
Interest received (gross)	840,000
Other income	630,500

Additional Information:

Yahaya is entitled to a fixed annuity of N148,000 per annum.
Allowance for trustee expenses: N62,000.
Capital allowance agreed with the Revenue: N1,260,000.
Trustee remuneration per trust deed:
- Fixed – N25,000 per annum
- Variable – 2% of computed income
Provision made for payment of N150,000 as discretionary payments to each child.
60% of distributable income is shared between Yahaya and Binta in the ratio 55:45, respectively.

Required:
Compute the income of the trust assessable to tax in the hands of the trustee. (12 Marks)

Answer

a. Significant Economic Presence

i. Digital Transactions
According to Section 6(6A) of the Personal Income Tax Act (PITA), significant economic presence is established if a non-resident company earns income from Nigeria through digital transactions that involve streaming or downloading services, transmission of data collected about Nigerian users, provision of intermediation services, provision of goods or services directly through digital platforms, and the use of Nigeria’s domain name or a sustained interaction with Nigerian users.

ii. Services
Non-resident entities providing services like technical, professional, management, or consultancy services in Nigeria, and deriving income from such, also establish a significant economic presence. Exemptions apply if payments are for employee services or educational purposes by Nigerian entities or foreign branches of Nigerian firms.