August 17, 2018
The Federal Inland Revenue Service (FIRS) has commenced an exercise for the review of taxpayers’ unutilised withholding tax (WHT) credit balances. We understand that the FIRS’ request is aimed at ensuring that taxpayers present all unutilised WHT credits for confirmation, reconciliation, and approval for usage.
Section 81 (5) of the Companies Income Tax (CIT) Act provides that “Income tax recovered under the provisions of this section by deduction from payment made to a company shall be set off for the purpose of collection against tax charged on such company by an assessment.” Thus, taxpayers have typically utilised accumulated WHT credits to offset their tax liabilities and some currently have excess credits with the FIRS.
Consequently, the FIRS has decided to review all taxpayer’s usage of WHT credits to off-set their tax liabilities and validate any unutilised credit balances. We understand from the FIRS’ request that taxpayers are required to present relevant documentary proofs to support their WHT credit claims. In addition, all agreed and verified WHT positions (arrears and unutilized WHT credits) would be summarized and sign-off by the FIRS and taxpayers. The FIRS has also indicated the timeline for the exercise and noted that failure to present the necessary supports for reconciliation will close all reconciliation options and taxpayers will have to accept the FIRS’ position based on its internal records.
We also understand that there may be a requirement to audit formal requests for WHT credit utilization that were made three or more years ago.
Notwithstanding the apparent concerns regarding the requirement to conduct audits for WHT credit utilization requests that are more than three years, it is imperative for companies to take advantage of the opportunity to reconcile their tax position given the exigency of keeping real time records.
We are able to provide additional information and discuss with taxpayers on the reconciliation process.