Tax news

Summary On 11 December 2018, the Court of Appeal (COA or the Court), in the case between Best Children International Schools Limited (BCIS Limited or the Company) vs Federal Inland Revenue Service (FIRS), held that the Company is liable to Companies Income Tax (CIT), regardless of its claim to be an educational institution.  The Court reached this decision on the grounds that BCIS Limited failed to prove that it qualified as an educational institution entitled to the tax exemption granted under Section 23(1)(c) of the CIT Act.   Details BCIS Limited is an educational institution registered as a private company limited by shares under the Companies and Allied Matters Act (CAMA).  On 1 September 2014, the FIRS issued an assessment of over N30 million to BCIS Limited consisting of CIT, Education Tax (EDT), Withholding Tax, and PAYE tax for 2008 to 2012. BCIS Limited instituted an action at the Federal High Court (FHC) challenging the said assessments on the grounds that it is exempted from paying corporate tax under the CIT Act because it is an educational institution.  However, the FHC ruled in favour of the FIRS holding that BCIS Limited, is a company limited by shares, was liable to the tax as assessed by the FIRS because only companies limited by guarantee qualify for tax exemption under Section 23(1)(c) of the CIT Act. Dissatisfied with the decision of the FHC, BCIS Limited appealed to the COA.   The crux of the issues before the COA was whether BCIS Limited qualified for corporate tax exemption under Section 23(1)(c) of the CIT Act. The COA ruled in favour of the FIRS, affirming the decision of the FHC. Specifically, the Court held that BCIS Limited is a profit-making company limited by shares and is therefore liable to tax. In delivering the Judgment, the Court held that BCIS Limited has to prove that it is a company engaged in ecclesiastical or charitable or educational activities of a public character to qualify for tax exemption under Section 23(1)(c) of the CIT Act.  In addition, the Court held that BCIS Limited has to prove that its profits are not derived from any trade or business it carries on. Furthermore, while the FHC had ruled that only companies limited by guarantee, which are prohibited from distributing profits by CAMA, are entitled to the tax exemption, the COA simply affirmed the decision of the FHC. According to the COA, the Company failed to adduce evidence to demonstrate that it is a company limited by guarantee and failed to prove that it is an academic institution or an institution of public character qualified for tax exemption under the CIT Act.   Implication The Judgment, in this case, implies that only companies limited by guarantee can be exempted from CIT under Section 23(1)(c) of the CIT Act.  Thus, educational institutions, charitable organization and ecclesiastical bodies that are registered as companies limited by shares or other forms of companies other than companies limited by guarantee may not enjoy tax-exempt status under Section 23(1)(c) of the CIT Act. This Judgment is a departure from established practice that a company solely engaged in educational activities should be exempt from CIT.  In a similar case between American International School of Lagos (AIS) v FIRS, the Tax Appeal Tribunal held that AIS, being an educational institution of a public character, was not liable to pay corporate tax.  Although AIS is a company limited by guarantee, the crux of the issues, in that case, was whether AIS was an educational institution of public character and not the form in which AIS was registered under the CAMA. While Section 26 of the CAMA provides that a company, which is to be formed for the purpose of promoting education should be registered as a company limited by guarantee where it does not intend to distribute its profits to its members, the clear words of the Section 23(1)(c) of the CIT Act makes no reference to the form of the company in granting tax exemption.  Thus, one would have expected that Section 23(1)(c) should ordinarily apply to all forms of companies given that tax laws are to be construed narrowly and strictly and the ordinary meaning of words used in tax laws should be applied. Nevertheless, this Judgment stands as a Judicial Precedent until it is overturned by the Supreme Court, even though it is open to debate from taxpayers and practitioners.  It is important for affected taxpayers to engage their tax and legal advisers to review their peculiar situation and provide relevant advice to them on how to mitigate tax liabilities that may arise from the enforcement of this judgment on taxpayers with similar structures.   Source: Brand Spur

Apple said on Tuesday it had reached an agreement with French authorities to settle 10 years of back taxes, becoming the latest US company to reach a deal with France which has led a European push for higher taxes on tech giants. French news weekly reported that Apple had paid nearly 500 million euros ($570 million) to resolve the case in a confidential settlement reached in December. Apple declined to disclose the amount paid, but a source familiar with the case confirmed the figure to AFP. “The French tax administration recently concluded a multi-year audit on the company’s French accounts and an adjustment will be published in our public accounts,” Apple said in a statement. “We know the important role taxes play in society and we pay our taxes in all the countries where we operate, in complete conformity with laws and practices in force at the local level,” added the company. French authorities declined to comment further, citing the confidentiality of tax matters.   – French tech tax looms – Apple is one of several American technology giants in the line of fire in Europe over their tax strategies, which see them route their income through low-tax nations such as Ireland or Luxembourg. In 2016, it was ordered by the European Commission to pay 13 billion euros in back taxes to Ireland. The European Commission said Apple paid an effective corporate tax rate of just 0.005 per cent on its European profits in 2014 — equivalent to just 50 euros for every million. The deal in France comes as the government prepares to push ahead with its own unilateral “GAFA tax” — named after Google, Apple, Facebook and Amazon — faced with the failure of EU members to agree on how to get technology companies to pay more tax on their European operations. The tax, to be put to parliament in a bill later this month, would affect companies with global sales of more than 750 million euros and 25 million euros in France, according to the government. It would be retroactive to January 1 and is expected to raise 500 million euros this year. French Economy Minister Bruno Le Maire has called the question of how and where global companies pay their taxes “a major issue in the 21st century”. But an agreement among EU members has proved elusive. Ireland, Denmark and Sweden have all blocked plans for a levy for fear of dissuading investment and Germany has proved lukewarm on the issue, fearing US retaliation against its car industry. The issue has been referred to the OECD, which aims to come up with an international tax by 2020.   – Scramble to settle – Apple is the second major technology company to reach a tax deal with French authorities within the past year, reflecting the growing pressure from voters on governments to bring foreign companies to book. In February 2018, Amazon said it had settled a French claim for nearly 200 million euros and would start declaring all its earnings in the country, ending a dispute that had dragged on for years. In 2017, however, France’s tax collection drive suffered a setback with a local court ruling that Google was not liable to pay 1.1 billion euros in taxes claimed on revenues transferred from France to Ireland. According to L’Express, the deal between France and Apple was clinched after several months of talks, and concerned the small amount of revenue the firm booked in France while the sales it reported in Europe ballooned. The report said Apple’s European revenues exploded seven-fold, from 6.6 billion euros in 2008 to 47.7 billion in 2017, most of which was booked in Ireland where it has its European headquarters.     Source: Punch

The Federal Inland Revenue Service (FIRS) on Saturday urged Small and Medium Enterprises (SMEs) to pay taxes to attract investors. FIRS Deputy Director, Mrs Angel Fadahunsi, made the appeal at the Techpoint Build expo held in Lagos. The News Agency of Nigeria (NAN) reports that Techpoint Build is a conference and exhibition that connects startups and SME community with industries, bringing together people from across Nigeria and neighbouring countries. According to her, taxes are collected from business owners to sustain the nation and to provide amenities that will enhance both lives and businesses. “SMEs need to pay taxes, firstly because it is the law, needed for the development of the nation, provision of social amenities like road, hospital, taxes are needed to sustain these things. “Lots of SMEs are looking for investors that will invest in their business but an investor will only invest in businesses that pays tax to avoid being shut down,” she said. Fadahunsi also adviced the SMEs that in planning for their business, they needed to factor paying of bills like taxes into it.    She said that complaining that taxes paid were too much was not the case as tax payment whether with the federal, state or local government was essential to avoid business closure. She listed some basic steps that would guide the SMEs as to first register the business immediately to get the Tax Identification Number (TIN) which she added was free. She urged them to keep proper records of their business expenses as much as possible , so that when they start making profit, they would be able to make the right tax payment. She pointed out that the Value Added Tax goes with goods and services and grace period was not attached to it, adding that once profit was made, tax was required. “Tax is laid on profit between 20 to 30 per cent and that is why proper business records is required. “If the business did not make any profit in a year, it behoves the owner to file the returns so that the FIRS will know,” she said. Also Mrs Kemi Balogun, Team Lead, Tech and Service Partnership, AXA Mansard Insurance PLC., said that insuring businesses was to protect it from unforseen events. According to her, an SME is not expected to have so much money to put, so when one sets up their business, the first insurance policy to do has to do with the persons and employees health. “Insurance is affordable for an SME and is key to making the business stand against all odds. “Having good health is paramount and you cannot run your business well if you are sick, so the need to insure against accident and others. “The next is insuring the equipment and structure, the assets that so much money was put in to start the business against theft, flood, fire and others,” she said.   Source: Guardian

The Executive Chairman, Federal Inland Revenue Service, Mr Babatunde Fowler, has said that the service will this year surpass the N5.3tn revenue generated in the 2018 period. He said this during a chat with finance journalists on Thursday in Abuja. Fowler said that the service had embarked on a series of reforms aimed at making it easier for taxpayers to pay their taxes. He said the reforms had started yielding results as the service was able to generate its highest ever tax revenue of N5.3tn in 2018. The FIRS boss explained that while huge revenue could be generated from oil, such revenue was unsustainable due to the volatile nature of the crude oil prices. Fowler said the government recognised the importance of non-oil revenue to economic development, adding that this was why the service was being positioned to generate adequate revenue for the distribution by the three tiers of government. He said, “We recorded some improvements last year as well made the sum of N5.3tn which is the highest in the history of the service. “But it’s not about that but on what it can do. Many people believed that if we are generating so much money, then the Federal Government budget has no problem being funded. “But they tend to forget that what we generated is shared between the three tiers of government. “We generated N5.3tn and the highest before then for the country was N5.07tn.  But the difference here is that in 2012, the oil revenue tax accounted for 64 per cent while in 2018 oil revenue accounted for 46 per cent.” He said as a result of the dwindling oil revenue, the FIRS was working hard in ensuring taxes were collected and remitted for the benefits of the nation and all the three tiers of the government by targeting non-oil revenue. In carrying out its mandate within the dynamic economic environment, the FIRS boss said the service had adopted initiatives to ensure a robust tax administration that was beneficial for all stakeholders. Source: Punch 

The Alliance for New Nigeria (ANN) has condemned the plan by the Federal Government to increase Value Added Tax (VAT) from the current 5 to 7.5 percent, adding that the proposed increase smacked insensitivity on the part of government to the suffering of Nigerians.      Lanre Oyegbola, Director General, ANN 2019 Presidential Campaign, in a press statement, said, “An additional 2.5 percent of VAT would automatically increase the shelf price of most items from the moment it is implemented and this would create a ripple effect across both the formal and informal sectors of the economy.” The campaign director general noted that the All Progressives Alliance (APC) government is one that gives with one hand and takes it away with the other given the timing of the increase in the VAT.            He said one could not explain the fact that while the President Muhammad Buhari-led government was yet to agree to the minimum wage deal with labour, the same government was at the same time increasing the VAT, adding that it was a show of deception and insensitivity to the plight of Nigerians. Oyegbola called on Nigerians to reject every form of deceit the government might bring to the table. He also called on the people of Nigeria to vote against the APC and the Peoples Democratic Party (PDP) in the February 16 2019 presidential election. Source: Independent 

a. Introduction The Federal Inland Revenue Service (FIRS) has published the Income Tax (Country-by-Country Reporting) Regulations, 2018 (CbCR Regulations). The CbCR Regulations was made public on 19 June 2018 and have an effective date of 1 January 2018. The Country-by-Country reporting is a response to evidence-based research on the direct consequence of harmful tax practices that result in profits being moved away from where they were made to the ultimate benefit of the taxpayer. b. Implications of CbCR The CbCR is one of the three-tiered transfer pricing documentation approach recommended by the Organisation for Economic Cooperation and Development (OECD) in the Action 13 report of the Base Erosion and Profit Shifting (BEPS) project unveiled in October; 2015. The CbCR contain information on the location of revenue, profits, taxes, employees and economic activity within large MNE Groups, based on a standard template. The objective of the CbCR is to allow tax administrations to perform high-level transfer pricing risk assessments and to evaluate other BEPS related risks. In Nigeria, the ultimate parent entity (UPE) of an MNE Group that is resident for tax purposes in Nigeria  would be obliged to file the CbCR, where the consolidated revenue of the Group is N160 billion or above.  As provided in the Regulations, the CbCR must be filed within 12 months following the MNE Group’s accounting year end.  An MNE Group member (Constituent Entity) whose UPE is not tax resident in Nigeria, is required to notify the FIRS of the identity and tax jurisdiction of the entity responsible for filing the CbCR. This notification must be made no later than the last day of the reporting accounting year of the MNE Group. c. Notification and Consequence for Non-Compliance To show commitment to driving compliance with the Regulation, the FIRS has subsequently released guidelines for completing the CbCR template and more recently, a Public Notice reminding MNE Groups operating in Nigeria of their obligation to make the above notification to the FIRS. The public Notice serves as a wake-up call for MNE Groups to comply and avoid stiff administrative penalty imposed by the Regulations for non-compliance. Penalty for late filing of CbCR has been determined at N10,000,000 for the first month of default and N1,000,000 for every month the default continues while penalty for incorrect/false report is N10,000,000. Penalty for failure to notify FIRS of the MNE Group’s UPE, Surrogate Parent Entity or identity & residence of the Group’s reporting entity has been determined at N5,000,000 for the first month of default and N10,000 for every day the default continues.

The Federal Inland Revenue Service, FIRS, made a whooping N300.4 billion in three years, between 2016 and 2018 as the cost of collecting taxes. According to the law setting up the revenue collection agency, FIRS is allowed to deduct four percent as cost of revenue collection from non oil taxes before remitting the remaining to the Federation Account. According to data from the FIRS, a breakdown of the N300.4 billion cost of revenue collection by the FIRS showed that N85.99 billionwas received in 2016, which is about 2.6 per cent of the total actual taxes of N3.30 billion collected in 2016. In 2017, the FIRS received N100.3 billion as the cost of revenue collection out of the N4.02 trillion it generated, while in 2018 fiscal year, the service got N114.1 billion as the cost of revenue collection out of the N5.32 trillion revenue it generated for that year. Source: Vanguard  www.innerkonsult.com