February 13, 2018
The Base Erosion and Profit Shifting (BEPS) project was launched in 2013 by the Organisation for Economic Cooperation and Development (OECD) and the G20 countries with an objective to prevent Multinational Enterprises (MNEs) from using current legislation to shift profits into tax advantaged jurisdictions with the aim of decreasing the effective tax rates of the Group. In 2015, the OECD/ G20 countries delivered 15 Action Plans to tackle tax avoidance, improve the coherence of international tax rules and ensure more transparent tax environment. Action 13 of these Action Plans requires the development of rules with respect to Transfer Pricing (TP) documentation and reporting that will enhance transparency for tax administrations. The Action plan was developed to require MNEs to provide certain information on their global operations which will be used by tax administrators for high-level risk assessment.
Specifically, a three (3) tiered approach consisting (i) a master file which will include information regarding MNEs’ global business operations, TP policies and other standardised information relevant for all members of the Group; (ii) a detailed local file containing information on specific material related party transactions, the amounts involved and analysis of the TP determinations; and (iii) Country by Country (CbyC) report that will provide information on the global allocation of the MNE’s income, taxes paid and economic activities in each jurisdiction.
Nigeria has progressed in its implementation of the OECD recommendations by signing the Multilateral Competent Authority Agreement (MCAA) on the 27th January 2016 which was ratified by the Federal Executive Council on the 3rd August 2016. Furthermore, there is an indication that The Income Tax (Country by Country Reporting) Regulations (the Regulations) will soon be gazetted by the Federal Government.
When the Regulations are eventually released, it will require MNE Groups headquartered in Nigeria with annual global turnover equal to or exceeding € 750 million (or near equivalent in local currency) to prepare and file a CbyC report (in a stipulated format) with the relevant tax authorities in Nigeria on an annual basis. Information such as revenue, profit before tax, income tax paid and accrued, number of employees, retained earnings, tangible assets may be required for each entity within the Group.