October 15, 2019
In the last few years, the international tax space has experienced an unprecedented drive to achieve increased transparency in the tax practices of Multinational Enterprises (MNEs) and individuals in order to curb tax avoidance and evasion. In fact, transparency is one of the pillars on which the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) project was developed.
As such, the BEPS project came up with various recommendations geared towards encouraging transparency via increased disclosure of sensitive information by MNEs and individuals. Subsequently, countries have keyed into this initiative and have signed onto various Multilateral Competent Authority Agreements (MCAA), which seek to encourage the automatic exchange of such information among tax authorities.
Nigeria has not been left out of this push for transparency. A major constraint faced by the Federal Inland Revenue Service (FIRS) during the early years of implementing the Transfer Pricing (TP) Regulations was access to relevant taxpayer’s information. Thus, it became imperative for the FIRS to put in place mechanisms to ensure access to such information.
Specifically, Nigeria has signed up to the MCAA on the automatic Exchange of Country-by-Country Reports (CbC MCAA), the MCAA on Automatic Exchange of Financial Account Information (AEOI MCAA) and has released two Regulations which give effect to both MCAAs. This has significantly changed the playing field for taxpayers in Nigeria as the disclosure of taxpayers’ information has been raised to unprecedented levels.
This article provides an overview of the relevant Regulations, examines their objectives and the potential implications for taxpayers.
In June 2018, the FIRS published the Income Tax [Country-by-Country Reporting] (CbCR) Regulations. The main objective of the CbCR Regulations is to provide the FIRS with key information on the global activities of MNE Groups for the purpose of risk assessment.
The CbCR Regulations are only applicable to MNE Groups with a consolidated revenue of ₦160bn and above, if headquartered in Nigeria or the equivalent of €750m if headquartered outside Nigeria.
The compliance obligations for taxpayers include filing of the CbCR Notification form by the financial year-end and the filing of the CbC report by the Ultimate Parent Company (UPE) on or before 12 months after the year-end. Failure to file the CbCR Notification Form attracts a penalty of ₦5m at the first instance and ₦10,000 for every day the failure continues while the penalty for failure to file the CbC report is ₦10m at the first instance and ₦1m for every month the failure continues.
The CbC report discloses financial information about the jurisdictions where the MNE operates including related party and third-party revenues, profits and taxes paid and indications of the level of economic activities performed such as number of employees. The CbC report therefore provides tax authorities with information on where value is created within a group. This information is relevant for the FIRS’ risk assessment procedures.