Nigeria’s Federal Inland Revenue Service (FIRS) has declared the automatic exchange of information on financial accounts with 105 countries. International co-operation between tax administrations is essential in reducing tax evasion and enhancing the reliability of tax systems. For instance, if taxpayers refuse to comply with local tax obligations, then monies kept overseas may not be taxed. Several tax administrations across the globe aim to lower cross-border tax evasion through the use of the Income Tax (Common Reporting Standard) Regulations 2019 (CRS Regulations). The CRS Regulations provide guidelines that financial institutions must follow when reporting information on bank accounts of tax residents in Nigeria. In the same way, FIRS will be required to disclose comparable information to other signatories to the agreement.
Furthermore, the guidelines are split into general reporting and due diligence requirements. General reporting requirements consider the taxpayer’s profile and bank account details such as account balance and tax identification number. Due diligence requirements specify when and how an account should be reported. The scope of CRS regulations also includes reportable accounts and reportable persons; subject to specific exemptions. First, a reportable account is the Nigerian bank account of a person who is a tax resident in another jurisdiction as well as a signatory to the agreement on the mutual exchange of information. Second, a reportable person is a person other than a public limited company, related entity, public enterprise, central bank, financial institution, and an international organization. The CRS Regulations have an effective date of 1 July 2019.
Beginning from the 2019 calendar year, Nigerian financial institutions will submit an annual information return to FIRS. The return is due on May 31 of the year following the year in which the information relates. To ensure compliance, the CRS regulations therefore contain penalties for non-compliance the guidelines such as
- Failure to comply with CRS Regulations: an initial sum of ₦10 million plus ₦1 million per month
- Failure to file the stipulated return: an initial amount of ₦10 million plus ₦1 million per month
- Providing false or incorrect information: ₦5 million
- Failure by Financial Institution or any person to adhere with FIRS’ requirement: ₦1 million in the first instance and ₦100,000 each month
- Failure by Financial Institution to keep proper records: an initial amount of ₦10 million and ₦1 million every month
FIRS may, however, waive administrative penalties where there is a reasonable reason for omission or default. With the adoption of the CRS Regulations in Nigeria, the tax compliance of residents with local and foreign tax laws can improve.
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