The Federal Inland Revenue Service (FIRS) launched the electronic Transfer Pricing (TP) filing portal (e-TP platform or the platform) in March 2020 to promote the ease of filing the annual TP returns, Country-by-Country (CbyC) Reporting notification form and CbyC Reports. It was also to reduce taxpayers' cost of compliance. The platform which took effect from June 2020 not only encouraged taxpayers to adopt a paperless filing policy, but also played significant role in ensuring smooth filing of TP returns given that the COVID-19 pandemic resulted in a nationwide lockdown.
In keeping with its mandate to digitize tax administration in Nigeria, the FIRS now requires all taxpayers to file Companies Income Tax (CIT) and Value Added Tax (VAT) returns exclusively on the updated FIRS TaxPro-Max platform.
In April 2020, the FIRS also issued a communique to tax consultants and taxpayers that it would only accept hard copies of TP returns upon completion of a company's registration on the e-TP filing platform. This article looks at the effectiveness and challenges of the e-filing and makes recommendations on how the FIRS can improve the process.
Registration and filing process
In order to integrate taxpayers on the portal, the tax authorities require the taxpayer to provide information such as a designated email address, the company's Tax Identification Number, and phone number. These could either be provided directly to the FIRS or through the completion of an e-TP application form. Once the company is registered, a password is generated and shared via the email address provided to the FIRS upon registration.
The major challenge with the registration process is the inability of registered companies to obtain their login details to the e-TP platform via the designated email address used for registering. Other associated issues include inability to change default password, invalid password generated by the FIRS, etc.
In order to successfully file the TP returns, each company is required to complete the TP Declaration form (where applicable), the TP Disclosure form, Income statement and Statement of financial position extracts online. Prior to June 2021, the FIRS allowed taxpayers to simply upload the TP Declaration and Disclosure forms on the portal. The support documents such as the Audited Financial Statements, evidence of Income tax and Tertiary education self-assessment forms and Income tax computations are still to be uploaded.
Lessons learnt from the June/July 2021 filing
One of the major drawbacks is the time it takes to input the relevant information online. This is largely due to the fact that the interface is not user friendly and as such, would require more time to navigate and complete the filing successfully. To guide against the risk of late filing, taxpayers commenced the process of filing at least a month before the deadline date and escalated challenges encountered to the FIRS dedicated team.
Another setback with the implementation of the e-filing for TP is that the taxpayer do not receive prompt feedback on the status of their filing. Unlike the traditional filing method where the documents submitted are immediately acknowledged by the FIRS, the electronic filing requires that the FIRS either accepts or rejects the TP returns. Where a TP return is rejected, taxpayers may not be aware in due time to ensure that the issues are sorted, and this may lead to further complications with the tax authorities. Although taxpayers have no control over this process, they must ensure that all the necessary documents are complete and submitted to avoid filing rejections by the FIRS.
Based on our compilation of rejection notifications received from the FIRS in respect of June/July 2021 filings, some of the reasons given for rejection are:
- Profit and Loss and Balance Sheet forms not completed online
- Supporting documents such as signed audited financial statements, Tax and Capital allowance computations not uploaded
- Self-assessment forms and e-ticket not uploaded.
The FIRS also gives the taxpayers 7 days from the receipt of the rejection notification to make the required updates without stating the implications of not meeting the timeline. Taxpayers are advised to communicate any extended deadline obtain from their tax offices to the FIRS TP unit as the FIRS teams operate in siloes.
Conclusion and recommendation
The tax and TP space in Nigeria would continue to change to catch up with global trends and taxpayers are expected to adapt as soon as possible. The one-month extension granted by the FIRS to June 2021 filers in response to stakeholders' concerns on the technical challenges experienced with TaxPro-Max is commendable. Meanwhile, the FIRS can show more compassion to taxpayers who are experiencing delays in finalizing their audited financial statements due to challenges posed by the pandemic. We have seen tax authorities in other jurisdictions grant 3 - 6 months extension to taxpayers due to the impact of COVID on their operations.
Also, we await FIRS' position on taxpayers who are unable to upload audited financial statements and other support documents online. Unlike Section 55 of the Companies Income Tax Act (2004) as amended which expressly states what a CIT return should contain, Regulations 13 and 14 of the Nigerian TP Regulations only requires the filing of the Declaration and Disclosure forms, respectively. Therefore, we are of the view that the inability to upload these documents by due date should not trigger late filing penalties.
In order to improve user experience and streamline the filing process, the FIRS should consider synchronizing the portals for filing CIT and TP returns. This would ensure that the FIRS TP team have automatic access to the CIT returns filed on TaxPro-Max by each taxpayer.
In the meantime, taxpayers are encouraged to work efficiently with their statutory auditors to finalize their respective financial statements in good time. Those that are yet to be on-boarded on the e-TP filing platform should register with the FIRS immediately, and any difficulties experienced with the platform are escalated to the relevant FIRS team to enable a hitch free filing in September 2021.
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.