CbC Reporting Regulations in Nigeria: Potential Implications For Taxpayers

By Josh Bamfo (Partner & Head, Transfer Pricing Services, Andersen Tax, Nigeria)

Since the signing of the Multilateral Competent Authority Agreement by the Federal Inland Revenue Service (FIRS) and its subsequent ratification by the Federal Executive Council in 2016, most Nigerian taxpayers and tax practitioners have been keenly waiting for the implementation of a country-by-country (CbC) reporting requirement, developed under Action 13 of the base erosion and profit shifting (BEPS) project. Nonetheless, we were still surprised by the FIRS’ communication via its official Twitter handle on 24 January, 2018, that the Income Tax (Country-by-Country Reporting) Regulations, 2018, (CbC Regulations) has now been signed by the Federal Government of Nigeria, and will be gazetted soon.

Once gazetted, multinational enterprises (MNEs) headquartered in Nigeria that meet a specified threshold of global revenue, likely to be the Naira equivalent of EUR750m as of January 2015, should disclose necessary information on their global allocation of income, economic activities, and taxes paid in countries where the MNEs have economic footprints. According to the CbC reporting implementation guidelines, taxpayers are likely to be given a year after the first reporting fiscal year of the MNE Group to submit the annual CbC report to the FIRS. The information will be automatically made available to other signatory jurisdictions that have implemented CbC reporting. Likewise, the FIRS will have access to relevant information of MNEs with subsidiaries in Nigeria.

Employing the necessary resources

The Nigeria CbC Regulations will usher the Nigeria transfer pricing regime into an era of unprecedented level of transparency with some anticipated consequences, as discussed briefly here. Firstly, Nigerian-headquartered MNEs that will meet the threshold of global revenue should start tracking the relevant information for all their global operations and employ the necessary in-house resources or outsource such responsibilities to qualified tax advisors to ensure that they meet the submission deadline. During last year’s TP Minds Conference held in Johannesburg, a number of taxpayers in South Africa shared their experiences about challenges in tracking and compiling such large volume of data locally as well as globally. Thus, Nigerian taxpayers should take cue from the experiences of their South African counterparts and be proactive in employing the necessary resources to help compile the relevant information in a timely manner.

Secondly, one of the biggest concerns about the FIRS’ access to such large volume of data on the global operations of MNEs in Nigeria is how they use such information. The OECD has recognized the possibility of tax administrators using information of MNEs’ global operations as a basis to make transfer pricing adjustments audits, as opposed to the objective of using the information as part of tax administrators’ transfer pricing risk assessment in identifying taxpayers for further investigation or review. This will be an area of major concern and could be highly contentious and litigious.

Managing and mitigating risks

Thirdly, considering the high level of transparency in the post-CbC reporting era in Nigeria, MNEs in Nigeria should proactively take steps to mitigate their transfer pricing risk exposures by employing independent tax advisors to perform a thorough review of their transfer pricing documentation, supporting documents, and transfer pricing practices to ensure consistency in what has been documented and what is going to be disclosed.

Finally, the CbC Regulations is a clear indication that Nigeria is finally entering into a post-BEPS era, which will impact the treatment of a wide range of transactions or arrangements going forward. The CbC Regulations is the implementation of only one of the 15 BEPS Action Items. Although not all 15 BEPS Action Items are relevant to Nigeria, a BEPS readiness diagnostic review is a prudent approach for taxpayers to proactively mitigate their risk exposure going forward.

As we await the Federal Government of Nigeria to gazette the CbC Regulations that will formally usher us to a post-BEPS era in Nigeria, rather than taxpayers sitting on the fence playing the waiting game, we recommend a proactive approach by taxpayers that seeks to review all relevant documents and practices to help mitigate their potential tax risk exposure going forward.