The Federal Inland Revenue Service (FIRS) in exercise of powers conferred on it by Section 61 of the Federal Inland Revenue Service (Establishment) Act No.13 of 2007, and all other powers enabling it, has issued the Income Tax (Country by Country Reporting) Regulations, 2018 (the CbCR Regulations).
The CbCR Regulations take effect from 1 January 2018, and form part of the enhanced tax disclosure requirements set out by Action 13 of the Base Erosion and Profit Shifting (BEPS) project. The Regulations aim at providing tax authorities with improved information to enable them better assess international tax avoidance risks.
Under the CbCR Regulations, where the Ultimate Parent Entity (UPE) or a Constituent Entity (CE) of a Multinational Enterprise Group (MNE Group) is tax resident in Nigeria, such Nigerian resident entity will be required to file a Country-by-Country Report (CbC Report) with FIRS for an accounting year where the Group has a total consolidated revenue of ₦160,000,000,000 or more in the immediate preceding accounting year.
The CbC Report is expected to contain the following information:
- Aggregate information relating to the amount of revenue, profit or loss before income tax, income tax paid, income accrued, stated capital, accumulated earnings, number of employees, and tangible assets other than cash or cash equivalents with regard to each jurisdiction in which the MNE Group operates;
- An identification of each CE of the MNE Group, setting out the jurisdiction of tax residence of such CE, and where different from such jurisdiction of tax residence, the jurisdiction under the laws of which such CE is organised, and the nature of the main business activity or activities of such CE.
Other highlights of the CbCR Regulations are as follows:
- The official language for CbC Reports is English
- Filing deadline for CbC Reports falls due on or before 12 months from the last day of the reporting accounting year of the MNE Group
- Penalty for late filing of CbC Reports is set at ₦10,000,000 for the first month of default and ₦1,000,000 for every month the default continues
- Penalty for incorrect/false report is ₦10,000,000
- Penalty for failure to notify FIRS of the MNE Group's UPE, Surrogate Parent Entity or identity & residence of the Group's reporting entity is set at ₦5,000,000 for the first month of default and ₦10,000 for every day the default continues
With the issuance of the CbCR Regulations by FIRS, companies in an MNE Group structure must take strategic measures to ensure full compliance given that the cost of non-compliance is very significant. Companies may also consider carrying out Transfer Pricing (TP) diagnostic reviews to evaluate and obviate any attendant tax and TP risks that may arise from the application of the CbCR Regulations by FIRS.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.