Thursday, 29 November 2018 07:04PM / Oserogho & Associates
Introduction and Objectives
In furtherance of enforcing the existing Tax Laws and Regulations, while also promoting global best tax practices, the Federal Inland Revenue Service (“FIRS”) with the approval of the Federal Minister of Finance recently published the Income Tax (Country–by–Country Reporting) Regulations, 2018 (“CbCR”).
As with other recent Tax Regulations, the CbCR has as one of its key principal objective the collection of data on global commercial taxable transactions by Multinational Enterprises (“MNES”), with their Constituent Entities that are tax resident. This data collection objective will enable FIRS to better assess these entities tax obligations thereby reducing, if not eliminating, Tax Evasion, Tax Avoidance Schemes and other International Transfer Pricing Risks.
MNEs CbCR Filing Obligations
The CbCR requires every MNE, with its Subsidiary or Constituent Entity (“CE”) that is tax resident, to file a Country–by–Country Report (“CbC Report”) with the FIRS not later than twelve (12) calendar months after the last reporting day of the MNE and or of its CE accounting year end.
A CE of a MNE that is not the ultimate Parent Entity or the Surrogate Parent Entity is also required to notify FIRS of the identity and the tax residence of its MNE or Reporting Entity.
Some of the exceptions to the CbC Report Filing obligations includes MNEs that are not obligated to file such Report in their tax resident jurisdiction; or a MNE that is a tax resident of a country with whom an International Multilateral Qualifying Competent Authority Agreement has been signed, or the jurisdiction of the MNE tax residence has not notified FIRS of any systematic failure in such a jurisdiction.
Signatories to the latter Agreement can be found here https://www.oecd.org/ctp/exchange-of-tax-information/CbC-MCAA-Signatories.pdf
Contents of CbC Report
A CbC Report is required to disclose, for each jurisdiction in which the MNE or CE carries on business, amongst other things the aggregate of its stated capital, revenue or turnover, profit or loss before income tax, any Income tax paid, any income tax accrued/outstanding, its accumulated earnings, number of employees and tangible assets other than cash or cash equivalent.
All CbC Reports must be filed not later than Twelve (12) Months after the last day of the MNE’s Accounting Reporting Year end. CbC Reports are not however to be used for Transfer Pricing adjustments.
Non-Compliance and Penalties
Where a MNE or other Reporting Entity fails to file its CbC Report within the stipulated timeframe already disclosed above, FIRS is entitled to impose an Administrative Penalty of N10,000,000 (Ten Million Naira) in the first instance and N1,000,000 (One Million Naira) for each subsequent month in which the default continues.
Similar Administrative Penalties as stated above will apply to other cases of incorrect or false CbC Reporting, and to not providing CbCR notification to FIRS.
Statutes vs. Regulations
It is very commendable that global economies are now collaborating with each other, more than ever before, in collating data of international commercial transactions especially where the intent of such multinational transactions are to evade or avoid tax obligations.
It is however an elementary principle of Law that Statutory Provisions take precedence as Superior Law to any Regulations, Guidelines or Circulars issued in furtherance of such a Statutory Provision.
There are already Statutory Provisions in the Companies Income Tax Act (“CITA”) regarding the identification of tax resident and non-resident Companies, the returns and disclosures that must be filed by these Companies, the Penalties for the non-filing or delay in filing these Returns, including the making of false statements in the returns filed.
The Monetary Penalties in CITA for disclosure and filing defaults are arguably much less than the Administrative Penalties in the CbCR. It will be therefore very interesting to receive some Judicial Pronouncement when some of these CbCR Administrative Penalties are challenged on which penalties for none compliance will be applicable.
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