The Federal Inland Revenue Service (FIRS) recently released the Income Tax (Common Reporting Standard) Regulations (the Regulations), which is effective from 1 July 2019. The Regulations gives effect to the provisions of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC), the Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of Financial Account Information and the Common Reporting Standard (CRS), alongside its commentaries, as approved by the Council of the Organisation for Economic Co-operation and Development (OECD.
The Regulations provide guidance on how Reporting Financial Institutions (RFIs) should identify Reportable Accounts (RA), how to perform due diligence on the relevant financial information to be disclosed, outline compliance obligations, mode of compliance and specify penalties for non-compliance. RFIs include depository institutions, investment entities, custodial institutions and specified insurance companies as defined by the CRS Guidelines, and such that are resident in Nigeria or with a branch in Nigeria.
In 2017, Nigeria became a signatory to the OECD's Common Reporting Standard Multilateral Competent Authority Agreement (CRS MCAA). The CRS MCAA is based on Article 6 of the OECD's Multilateral Convention on MAC. Both the Convention and CRS MCAA aim to implement the automatic exchange of financial information among over 100 jurisdictions.
The Regulations was issued pursuant to the power of the FIRS under Section 61 of the FIRS (Establishment) Act. Some of the key provisions of the Regulations include the following:
- RFIs are required to carry out comprehensive due diligence procedures for both old and new accounts in order to identify 'Reportable Accounts' pursuant to Section II – VII of the CRS Guidelines;
- Reportable Accounts are limited to Entity Accounts of legal persons such as Corporation, Partnership, Trust or Foundation. This is unlike the recommendation of the CRS Guidelines, which requires reporting on both individual and Entity Accounts;
- RFIs are required to file an Information Return (with specified financial information of certain persons as provided by the CRS Guidelines) to the FIRS on an annual basis. This information is required to be filed on or before 31 May of the year following the calendar year to which the returns relate. For instance, information relating to 2019 financial year (2019 FY) is expected to be filed on or before 31 May 2020;
- RFIs may use service providers to carry out the reporting and due diligence obligations required in the Regulations, but these obligations remain the responsibility of the RFIs;
- Offences in the Regulations and the applicable administrative penalties include the following:
- Failure by a person to comply with duty/obligation imposed by the Regulations: ₦10 million in the first instance plus ₦1 million for every month the failure continues;
- Failure by an RFI to file information return: ₦10 million in the first instance plus ₦1 million for every month the failure continues;
- Furnishing false or incomplete information: ₦5 million;
- Failure by an RFI or any person to comply with the FIRS' requirement in the exercise of its powers: ₦1 million in the first instance plus ₦100,000 for every day the failure continues;
- Failure by an RFI to keep records: ₦10 million in the first instance plus ₦1million for every month the failure continues.
The Regulations introduces new filing and compliance obligations for RFIs. The implementation of the Regulations, emphasizes the FIRS' commitment to the global drive for tax transparency and will facilitate the automatic exchange of financial information between Nigeria and other jurisdictions. In addition to this, tax authorities will be equipped with relevant financial information on taxpayers that will aid the fight against tax evasion and improvement of compliance by taxpayers.
However, given that the FIRS (Establishment) Act that was relied upon by the FIRS for the issuance of the Regulations does not provide for the penalties contained in the Regulations, there are concerns as to whether the Regulations can introduce such huge penalties outside the express provisions of the Principal Act. Notwithstanding, it is necessary for RFIs to be mindful of the obligations under the CRS Regulations and liaise with relevant professionals in order to avoid undue penalty exposures.
Detailed analysis of the Regulations will be issued in a subsequent newsletter.
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.