The Federal Inland Revenue Service (FIRS) considered that financial institutions may face various challenges as a result of Covid-19 which may delay fulfilment of their obligations to report relevant financial information.
To this end, FIRS extended the deadline for submission of 2019 reports on financial accounts under the Income Tax (Common Reporting Standard) Regulations 2019 (the Regulations) from 31st May, 2020 to 30th September, 2020.
The FIRS enjoined all financial institutions to take advantage of the extension and also assured taxpayers of its continued commitment to providing support that will ease tax compliance obligations at all times and especially during the pendency of the Covid-19 restrictions.
What this Means in English
The taxman is interested in all your money. Yes, you. And when you are resident in Nigeria, the income you earn/ or that you stashed abroad can be liable to tax in Nigeria (subject to certain exceptions).
To get your income abroad, the taxman needs to find someone abroad to give him your information.
The countries that have signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAATM) and the Multilateral Competent Authority Agreement for the Automatic Exchange of Financial Account Information (MCAA) cooked up something to make the taxman’s dreams come true.
These countries are about 105. They have a framework that gives a fellow country that has signed the MAATM and the MCAA access to the bank/financial information of that country’s residents in any of the other 104 countries. This means that Nigeria which has signed the MAATM and the MCAA can access specific information on bank/financial accounts of Nigerian residents in any of these 104 other countries. The FIRS will be able to receive this information from the tax bodies of these other countries.
This entire framework can be called a Common Reporting Standard (CRS) framework. The effect of signing the ‘M’ documents is that the country which signed can automatically access and exchange financial account information between the tax authorities of countries in the CRS framework. This is some sort of tax sync.
To facilitate this give and take process, the FIRS issued the Income Tax (Common Reporting Standard) Regulations 2019 (the Regulations) which mandates designated entities called Reporting Financial Institutions (RFI) to collate information of tax residents of any country that is in the CRS framework. This is what the other countries will also do – they would also tell their RFIs to collate financial information that they have of Nigerian residents and then share this information with the FIRS.
The FIRS also issued the Income Tax (Common Reporting Standard) Implementation and Compliance Guidelines, 2019. They are guidelines on the automatic exchange of information between the CRS countries and they largely provide more details on the provisions of the Regulations.
RFIs include banks, insurance companies, asset/portfolio managers, investment funds/ trusts, etc. The deadline for filing of the required information by the RFIs is 31st May of the year after the year that the information relates to.
Large penalties for failure to comply with the Regulations will apply to defaulting RFIs. For starters, the penalty for non-compliance with the Regulations is 10,000,000 (Ten Million Naira) and 1,000,000 (One Million Naira) for every month that the failure continues.
We also enjoin RFIs to take advantage of the Covid-19 extension and set their houses, or offices, in order so that they don’t drink some penal tea.