The Federal Inland Revenue Service (FIRS) recently released the Income Tax (Common Reporting Standard) Regulations (The Regulations). The Regulations seek to give effect to various international conventions, treaties and guidelines between Nigeria and other contracting States with respect to mutual administrative assistance, automatic exchange of financial account information and compliance with common reporting standards and the relevant provisions of the FIRS (Establishment) Act and Companies Income Tax Act relating to FIRS’ power to call for returns and access taxpayer’s records.
The Regulations apply primarily to all Nigerian Financial Institutions, excluding government entities, international organisations, central banks and any other entity that presents a low risk of being used to evade tax and is defined in the domestic law as a Non-reporting Financial Institution.
Pursuant to the Regulations, the affected Nigerian Financial Institutions (referred to as Reporting Financial Institutions – RFIs) are required to:
- Establish, maintain and document due diligence framework in line with Sections II-VII of the Common Reporting Standards (CRS) to enable them classify, determine the extent of background information requirements and reporting obligations of “Reportable Accounts” maintained by the institutions. Reportable Account is an account held by an individual or entity (including partnerships) that is tax resident in any country other than Nigeria or United States of America
- Prepare annual information return relating to Reportable Accounts, in a specific format with effect from 2019 calendar year
- Submit the returns electronically using a technology provided or approved by FIRS no later than 31 May of the year following the calendar year which the returns relate. In essence, the first return is due to be submitted on or before 31 May 2020. RFIs are mandated to submit “Nil” returns, where no “Reportable Accounts” have been identified
- Store records relating to the returns, for at least 6 calendar years from the last year in which the records were relevant.
The Regulations also contain anti-avoidance mechanisms to ensure that RFIs do not avoid any obligation imposed under the Regulations by engaging in arrangements and/or compromises with a purpose of avoiding such obligation. Furthermore, there are stiff penalties for non-compliance with obligations under the Regulations as described below:
It is pertinent to note that FIRS has the discretion to exempt RFIs from the imposition of any of the above penalties where there is a reasonable excuse for the non–compliance or default. Exemption due to reasonable excuse shall remain valid even after the excuse has ceased provided that the failure was remedied within a “reasonable time”.
However, failure as a result of fund insufficiency or reliance on another party, will not be considered a reasonable excuse.
With the release of the Regulations, Nigeria joins other countries in striving towards a more transparent and global approach to taxation. Nonetheless, the impending implementation of the Regulations raises concerns such as:
- Possible breach of confidentiality and safeguard of data at operational level
- Subjectivity in interpreting what constitutes “reasonable excuse” for the purpose of granting for exemption from the administrative penalties
Overall, all Nigerian Financial Institutions are urged to review the Regulations in detail, to ascertain applicability and compliance obligations.