Federal Government Releases Income Tax (Country by Country Reporting) Regulations
June 20, 2018
The Federal Inland Revenue Service (FIRS) has released the Income Tax (Country by Country Reporting) Regulations, 2018 (the Regulations) which was published in an official gazette dated 8 January 2018. The objectives of the Regulations are to provide tax authorities with information about Multinational Enterprises’ (MNEs) global activities, profits, and taxes to better assess international tax avoidance risks; improve transparency in the tax practices of the MNEs; and prevent tax evasion or avoidance through base erosion and profit shifting.
Some of the key provisions of the Regulations include the following:
- Each Ultimate Parent Entity (UPE) of an MNE Group having Consolidated Group Revenue of N160 billion or above is required to file a Country-by-Country (CbyC) Report in a specified format with the FIRS on an annual basis, provided that such entity is resident in Nigeria for tax purposes. The CbyC Report should be filed not later than 12 months after the last day of the Reporting Accounting Year of the MNE Group;
- A Constituent Entity which is not the UPE of an MNE Group that meets certain conditions will also be required to file a CbyC Report with the FIRS within the time specified;
- A Constituent Entity will not be required to file a CbyC Report if same has been filed through a Surrogate Parent Entity in the format specified in the Regulations;
- Failure to submit the CbyC Report within the time stipulated would attract a penalty of N10,000,000 in the first instance and N1,000,000 for every month in which the default continues;
- Any Constituent Entity that is resident in Nigeria for tax purposes should notify the FIRS whether it is a UPE or Surrogate Parent Entity. Where it is neither of the two, it should notify the FIRS of the identity and tax residence of the Reporting Entity not later than the last day of the Reporting Accounting Year of the MNE Group. Where a Constituent Entity fails to provide such notification, such entity will be liable to a penalty of N5,000,000 in the first instance and N10,000 for every day in which the default continues.
The release of the Regulations which is pursuant to Action 13 of the Base Erosion and Profit Shifting (BEPS) project will usher the Nigeria Transfer Pricing (TP) regime into a post BEPS era associated with a significant level of transparency in the global tax affairs of MNEs doing business in Nigeria. Thus, taxpayers are likely to be subjected to increased scrutiny through audits and investigations that may result in significant rise in TP disputes. Therefore, MNEs should take proactive steps to mitigate Transfer Pricing (TP) risk exposures by conducting holistic review of their TP practices. We will issue a detailed analysis of the Regulations in a subsequent publication.