Tax & Business Matters - Nigeria

Draft TP Regulations

The latest draft of the soon-to-be-published Transfer Pricing Regulations for Nigeria is now available for download. You may post your comments on the draft regulations on this blog or via email to [email protected].

Download FIRS Draft TP Regulation_April 2012

Self assessment regulations and CITA 5th Schedule amendment

You can download a copy of the Tax Administration (Self Assessment) Regulations 2011 and the recent amendment to the 5th Schedule of the Companies Income Tax Act via the links below:

Download Tax Administration Regulations 2011

Download CIT Amendment - 5th Schedule

Self assessment is no longer business as usual

On December 12, 2011 the Management Board of the Federal Inland Revenue Service (the Board) in exercise of the powers conferred on it by Section 61 of the Federal Inland Revenue Service (Establishment) Act 2007, with the approval of the Minister of Finance gazetted a Regulation (Tax Administration [Self Assessment] Regulations 2011) dated 19 December 2011 modifying the processes and procedures for self assessment returns.

The Regulations cover tax returns under CITA, ETA, PPTA, PITA, NITDA, VATA and though not specifically mentioned CGTA given that all taxes under the FIRS Establishment Act are stated as falling under the scope of the Regulations.

Broadly under the self-assessment regime, taxpayers are required to compute their tax liabilities, file and make payment concurrently on or before the due dates. Any breach is liable to fines and interest as prescribed under the Regulations or the relevant laws.

The following and the key changes introduced by the Regulations:

1. Filing of tax returns to be done by the taxpayer in person or through an accredited agent being a person certified by ANAN, CITN or ICAN. To perform the filing, the agent must have the accompanying seals of the relevant professional bodies, and must be tax compliant (has paid taxes as and when due as evidenced by production of current tax clearance certificate). The relevant tax authority may assess the competence and professionalism of the agent in accordance with standards of the relevant professional body.
2. For income tax returns, the taxpayer must sign the forms in person in the case of an individual while for companies the returns can only be signed by a Director or the Company Secretary.
3. With respect to Personal Income Tax (PIT) the due date for filing self assessment returns (SAR) is 31 March of every year while in the case of PAYE (for employment income), tax deducted must be paid with appropriate returns (showing total emolument and tax deducted for each employee during the month) within 10 days of the end of every month. Annual returns showing total annual emolument, tax relief, total tax deducted for each employee and a declaration under oath on the relevant forms must be filed by the employer.
4. For companies income tax (CIT) returns, due date is 6 months after the financial year end date, while for petroleum profit tax (PPT) estimated tax returns must be filed for each accounting year within 2 months of the accounting year while installment payment must commence one month thereafter with final returns made within 5 months after the end of relevant accounting period along with evidence of payment of final instalment.
5. With respect to VAT, payment and returns are due not later than the 21^st day of the month after the month of transaction with evidence of payment.
6. A taxpayer may apply for extension of time to file returns but specific circumstances to be considered by the relevant tax authority as stated in the Regulations are (1) Death of taxpayer in the case of an individual or death of a principal officer such as the Chairman, Director or Company Secretary in the case of a company or (2) A natural disaster. Both circumstances are to be supported by verifiable evidence. Late filing outside extension granted regardless of whether tax due has been paid will be liable to a penalty.
7. Any extension of time for filing returns shall not be construed as to alter the time for payment of tax due under the relevant law. This implies that taxes must be paid as and when due regardless of any approval for extension of time for filing granted by the tax authority. Such tax payments may have to be estimated given that in many cases the actual amounts may not be known. There is no extension for the filing of VAT returns.
8. A taxpayer is required to notify the relevant tax authority of intention to make instalment payment and pay the tax due by instalment commencing in the relevant year of assessment before the due date in a manner that the final instalment payment shall be made not later than the due date together with the returns. The tax authority may grant approval for instalment payment in a manner that the last instalment is paid not later than 2 months after the due date subject to a maximum of 3 instalments from the due date. Any taxes unpaid as at the due date shall attract interest. Note that due date is defined as the day prescribed by the law for the filing of returns and making of payments by taxable persons. This means that whether extension has been granted or not any payment after the due date is liable to interest. This clearly defeats the purpose of seeking an extension as envisaged in the relevant laws.
9. Tax authority may issue administrative assessment where a taxpayer fails to file returns or as a result of underpayment arising from a tax audit or investigation. Minimum notice period to conduct an audit is 7 days. No notice period is stated for an investigation.
10. Administrative assessment to include penalties and interests imposed as part of the liability due, effective from the time the returns became due.
11. All relevant tax authorities are required to apply uniform procedures to all taxes administered as set out under the Regulations.
12. Where a taxpayer fails to file returns or pay the tax due, the relevant tax authority shall impose penalties and interest on the taxpayer, agent or employer from the due date of filing as provided in the applicable laws or regulations issued by relevant tax authorities.
13. Any appeal against an administrative assessment may be lodged with the appropriate tax office of the relevant tax authority responsible for the assessment. If dissatisfied, further appeal may be lodged directly to the Executive Chairman of the relevant tax authority (or its equivalent) and thereafter to the Tax Appeal Tribunal and then the Federal High Court.
14. Taxpayer information to be treated as confidential and not disclosed to any third parties or government agencies other than as provided in the Laws of the Federal Republic of Nigeria.

Overall the Regulations seek to provide some guidance and introduce some level of consistency in the filing of self assessment tax returns. However, the enabling section 61 of the FIRS (Establishment) Act only grants powers to the FIRS Board to make rules and regulations for giving full effect to the provisions of the law. The Board does not have powers to amend or modify the law. Therefore any provisions of the Regulations which run contrary to the relevant laws will be of no effect.

The list of bodies eligible for tax deductible donations has been expanded

The Minister of Finance, in exercise of powers conferred on the Office by section 25(6) of CITA LFN 2004 (as amended) on 12 December 2011 by an Order (No 1 of 2011) published in the National Gazette on 14 December 2011 amended the Fifth Schedule to the CITA.

In addition to the existing bodies eligible for tax deductible donations listed in the Act, any donation made to institutions, bodies or funds engaged in the following broad categories of activities will now be tax deductible provided such organisations are not set up for the purpose of profits or gains to the individual members of the society, association or person.

1. Promotion or defence of human rights
2. Women empowerment and development
3. Re-orientation, rehabilitation, welfare support service for orphans, widows, physically challenged, refugees and all categories of persons that may require social or economic rehabilitation and transformation
4. Youth empowerment and development
5. Leadership and Resource Development
6. Promotion of National Unity and Patriotism
7. Promotion of Social and Economic Development
8. Accident prevention and control activities
9. Information system development and awareness
10. Creation of awareness for transparency in governance and electoral processes
11. Promotion of national unity and patriotism
12. Museum development and promotion of sports, arts and culture
13. Rendering assistance in the provision of safe water, electricity, infrastructure and agricultural development
14. Any professional body established under an Act of the National Assembly for the regulation and practice of the profession.

The amendment is in line with global best practice and the recently launched National Tax Policy of the government in that tax waivers/incentives are broad based rather than for selected organisations.

The commencement date was stated in the Order as the 12th day of December 2011, hence it should be applicable to tax returns due for filing on or after 12 December 2011.

Transfer Pricing - Nigeria

Are you a member of a multinational group or an entity within a group of companies based in Nigeria? If your answer is yes, then you need to be aware of the impending introduction of Transfer Pricing (TP) Regulations in Nigeria. Like in many countries around the globe, this will have far reaching implications for your business.

From shared services to technical fees, royalty payment to intercompany loans or guarantees and so on, determining the right price for goods and services or transfer of intangibles between related parties is a herculean task.

Transfer mispricing is said to be costing many countries huge losses in tax revenue as profits are shifted from one jurisdiction to another. With tax authorities seeking to maximise their tax revenue, many countries including Nigeria are now introducing TP Rules to preserve their tax base.

It is best practice for corporate groups including multinationals to develop a TP policy that provides a reasonable basis for the pricing of transactions within their group as TP adjustments by the tax authorities can lead to substantial tax liabilities. By considering TP practices carefully, group entities can manage risk of economic double taxation while preserving value.

On Friday 30 March 2012 PwC Nigeria organised a Breakfast Meeting for major companies in Nigeria and other stakeholders including the FIRS and NOTAP. The objective of the meeting was to give participants a unique insight into this important area of taxation and to get the regulators’ perspectives of the subject, as well as update on the status of Nigeria’s TP Regulations, the key requirements and likely effective date.

You can download some of the materials presented at the event using the link below.

Download TP Nigeria Presentation_PwC_30 Mar 12

Download TP Rules_FIRS Presentation

Watch out for further updates on this blog and on our website www.pwc.com/ng.

Based on the annual multi-client independent survey of more than 3,000 key tax decision makers (CFOs and Tax Directors) in key markets worldwide by the Global Tax Monitor, PwC is recognised as the leading adviser globally for transfer pricing by reputation, with a very strong lead over the competition. Talk to us and we will be glad to help you address your transfer pricing needs in a coordinated, efficient and consistent manner.

Tax Calendar – April 2012

The tax calendar for April 2012 is now available for download to assist you keep an eye on the various tax filing obligations and payment deadlines and to serve as a quick reference when in doubt.

Download Tax calendar_April 2012