Tax avoidance and evasion have long been global concerns, hindering economic growth and limiting the resources available for governments to invest in public services and infrastructure. In Nigeria, combating tax avoidance and evasion has been a top priority for the government. In response to these challenges, the Nigeria Finance Act of 2022 introduces several measures aimed at curbing these practices and promoting transparency and fairness in the tax system. As a leading accounting firm in Nigeria, we present insights into the key provisions of the Nigeria Finance Act 2022 and how they address tax avoidance and evasion.
1. Strengthening Transfer Pricing Regulations:
The Finance Act 2022 places a strong emphasis on addressing transfer pricing abuses, which are often employed as a means of shifting profits to low-tax jurisdictions. To achieve this, the Act aligns Nigeria’s transfer pricing rules with international best practices, as outlined by the Organization for Economic Co-operation and Development (OECD). Multinational corporations (MNCs) engaged in related-party transactions are now required to maintain detailed documentation supporting the arm’s length nature of these transactions. This move enhances transparency and empowers tax authorities to scrutinize intercompany dealings, reducing the potential for profit manipulation and tax evasion.
2. Introduction of Controlled Foreign Company (CFC) Rules:
The Nigeria Finance Act 2022 introduces Controlled Foreign Company (CFC) rules, aimed at preventing tax avoidance through the use of foreign subsidiaries in low-tax jurisdictions. Under these rules, Nigerian-resident companies that control foreign companies are required to include the income of those foreign entities in their tax computation. This measure ensures that profits earned abroad are subject to Nigerian tax, discouraging the shifting of profits to tax havens and encouraging greater transparency in multinational corporations’ global operations.
3. Mandatory Country-by-Country Reporting (CbCR):
In an effort to enhance tax transparency and monitor the global activities of MNCs, the Finance Act 2022 introduces mandatory Country-by-Country Reporting (CbCR). Large multinational groups with a consolidated group revenue above a specified threshold must now disclose financial and tax-related information for each jurisdiction in which they operate. This reporting requirement enables tax authorities to identify potential tax avoidance practices and take appropriate actions to ensure tax compliance.
4. Strengthened General Anti-Avoidance Rule (GAAR):
The Nigeria Finance Act 2022 enhances the effectiveness of the General Anti-Avoidance Rule (GAAR), designed to prevent the misuse of legal structures solely for tax avoidance purposes. GAAR empowers tax authorities to disregard transactions or arrangements that lack commercial substance but are created primarily to obtain tax benefits. By strengthening GAAR, the Act provides a robust mechanism to counter tax avoidance schemes that exploit loopholes in the tax legislation.
5. Whistleblower Incentives:
Recognizing the importance of public participation in combating tax evasion, the Finance Act 2022 introduces whistleblower incentives to encourage individuals with knowledge of tax offenses to come forward. Whistleblowers can now receive rewards for providing credible information that leads to the recovery of tax revenues lost due to evasion or avoidance. This provision is expected to play a crucial role in uncovering tax evasion and deterring potential offenders.
The Nigeria Finance Act 2022 marks a significant step forward in addressing tax avoidance and evasion in the country. With these new provisions in place, Nigeria’s tax authorities are better equipped to tackle aggressive tax planning practices and ensure that all taxpayers, including multinational corporations, meet their tax obligations transparently and fairly. As a leading accounting firm in Nigeria, we emphasize the importance of compliance with these new regulations to avoid potential penalties and reputational risks. By working together to create a more transparent and equitable tax environment, we can foster economic growth and development for the benefit of all Nigerians.
For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036