Wednesday <strong>28</strong> <strong>Mar</strong>ch <strong>2018</strong> A7 C002D5556 BUSINESS DAY Tax Issues Multinationals to get little opportunities for tax avoidance …as multilateral BEPS convention enters into force on July 1 IHEANYI NWACHUKWU The multilateral convention to implement tax treaty related measures aimed at preventing Base Erosion and Profit Shifting (BEPS) will enter into force on July 1, <strong>2018</strong>. This development marks a significant step in international efforts to update the existing network of bilateral tax treaties and reduce opportunities for tax avoidance by multinational enterprises. Base erosion and profit shifting refers to tax planning strategies used by multinational companies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity. Revenue losses from BEPS are conservatively estimated at $100billion to $240 billion annually, or the equivalent of 4percent to 10percent of global corporate income tax revenues. Over 110 countries and jurisdictions are currently working in the inclusive framework on BEPS to implement BEPS measures in their domestic legislation and bilateral tax treaties. The entry into force of the Convention, just one year after the first signature, underlines the strong political commitment to a multilateral approach to fighting base erosion and profit shifting (BEPS) by multinational enterprises. The entry into force of the Convention on 1 July <strong>2018</strong> will bring it into legal existence in these five jurisdictions. In accordance with the rules of the Convention, its contents will start to have effect for existing tax treaties as from 2019. The Convention, negotiated by more than 100 countries and jurisdictions under a mandate from G20 Finance Ministers and Central Bank Governors, will modify existing bilateral tax treaties to swiftly implement the tax treaty measures developed in the course of the OECD/G20 BEPS Project. The entry into force follows from the deposit of the fifth instrument of ratification by Slovenia on <strong>Mar</strong>ch 22, <strong>2018</strong>. Earlier, the Republic of Austria (September 22, 2017), the Isle of Man (October 19, 2017), Jersey (December 15, 2017), and Poland (January 23, <strong>2018</strong>) deposited their instruments with the Organisation for Economic Co-operation and Development (OECD). “The entry into force of this Multilateral Convention marks a turning point in the implementation of OECD/G20 efforts to adapt international tax rules to the 21st Century,” said OECD Secretary-General Angel Gurría. “We are translating commitments into concrete legal provisions in more than 1,200 tax treaties worldwide. Thanks to this drive by the international community, we are ensuring that multinational companies pay their fair share when it comes to fulfilling tax obligations, like citizens do,” Gurría said. The Convention is the first multilateral treaty of its kind, allowing jurisdictions to transpose results from the OECD/ G20 BEPS Project into their existing bilateral tax treaties, transforming the way tax treaties are modified. The Convention has been designed to strengthen existing tax treaties concluded among its parties without the need for burdensome and time-consuming bilateral renegotiations. The OECD/G20 BEPS Project delivers solutions for governments to close the gaps in existing international rules that allow corporate profits to (disappear) or be artificially shifted to low or no tax environments, where companies have little or no economic activity. Treaty measures that are included in the Convention include those on hybrid mismatch arrangements, treaty abuse and permanent establishment. The Convention also strengthens provisions to resolve treaty disputes, including through mandatory binding arbitration, which has been taken up by <strong>28</strong> signatories. The OECD is the depositary of the Convention and is supporting governments in the process of signature, ratification and implementation. The positions that each signatory and party under the Convention has adopted are available on the OECD website, together with an interactive database that provides insight into the likely impact on covered tax treaties. Prescriptions for an effective tax regime in Nigeria Since the approval of the revised National Tax Policy (NTP), a new air of expectations of a simplified tax compliance regime has been awaited with baited breath. Such expectations has not happened by accident but is rather a culmination of fervent yearnings for a systemic shift to a saner tax regime at all tiers of government if only to blunt the backward slide in Nigeria’s ease of doing business as well as ease of paying taxes. The urgency to birth such a tax system also finds its voice in incidences of multiple taxation as well as the impact of disruptive technologies and advanced innovations which has redefined how commerce and other related activities are undertaken for taxation purposes. The exigency of the current situation and the need to address same provides fodder for identifying the issues that continue to plague the tax system and the likelihood of recommendations that could mitigate or outrightly tackle the identified issues. Some challenges A lack of robust framework for the taxation of informal sector and high networth individuals continue to limit the revenue base creation. This is inspite of the fact that the informal sector is quite large and its activities are largely uncaptured for tax purposes. Secondly, the inordinate drive by all tiers of Government to grow internally generated revenue has led to the arbitrary exercise of regulatory powers for revenue under various guise. This drive, in itself, leads to increased cost of tax compliance and administration without necessarily bringing about com- mensurate increase in revenue. This also provides fodder for stakeholders that are under the yoke of multiple taxation. Another protacted issue is that of database fragmentation of taxpayers and weak structure for exchange of information by the Tax Authorities, resulting in revenue leakages and inefficiencies. The taxpayer is therefore able to skirt around the system with little or no risk of detection. A lack of clarity on taxing powers of each level of Government and encroachment on the powers of one level of Government by the another is also a subsisting challenge. This is despite the best of efforts by government through the enactment of the taxes and levies (Approved list for Collections), Laws of Federation of Nigeria, Cap. T2, 2004, as amended. Another challenge is the case of insufficient information to taxpayers on tax compliance requirements thus creating uncertainty and increasing noncompliance for policy action for the tax system. Conditions of insufficiency in, capacity with respect to personnel and training has led to delegation of powers of revenue officials to third parties by some tiers of government, thereby creating complications for the tax system; Other issues include: Use of Aggressive and Unorthodox Methods of tax collection; Failure by Government to appropriate funds to honour tax refund obligations to taxpayers; The non-regular review of Tax Laws to reflect economic realities; Lack of strict adherence to tax policy direction and procedural guidelines for the operation of various tax authorities. Self-employed taxpayers have 24 hours to file PIT returns for 2017 STEPHEN ONYEKWELU Self-employed taxpayers have 48 hours to file their Personal Income Tax (PIT) returns for 2017 tax year as provided in Section 41(1) of the Personal Income Tax (PIT) Act. The deadline for filing PIT returns for the 2017 tax year is 31 <strong>Mar</strong>ch <strong>2018</strong>. By virtue of Section 41 of PITA, a taxpayer is required to file, along with the return, a true and correct statement of the amount of income from every source (that is, earned and unearned income) computed in accordance with the provisions of the PIT Act and the associated regulations. The form of return shall contain a declaration which shall be made by or on behalf of the taxpayer that the particulars given in the return are true and complete. Although the provision of Section 41 is directed at all taxable persons under the PIT Act, many self-employed persons have failed to comply with the requirements of this section. “Furthermore, it has become acceptable for employers to fulfil this obligation on behalf of their employees, in practice. Nonetheless, it is important to note that there is no legal basis for the assumption that the requirements of Section 41 apply directly to employers alone and not employees” Tax Alert, a regular publication by Andersen Tax, a tax firm headquartered in San Francisco, California, United States stated. Besides, the only category of employees exempted from filing the annual returns, based on the PIT Act, are those whose only source of income is employment from which they earn N30, 000 or less in any particular tax year. “<strong>Mar</strong>ch 31 deadline is for self-employed people. For employees of corporates organisations, theirs was due January 31. Now, self-employed taxpayers will be required to file their PIT returns latest <strong>Mar</strong>ch 29, because, <strong>Mar</strong>ch 30 is Good Friday” Chukwuemeka Eze, lecturer at Faculty of Law, Nassarawa State University, Lafia told <strong>BusinessDay</strong> on telephone interview. “Defaulters will be liable to a penalty of 10 percent of the amount due after the deadline and 21 percent interest rate. Beyond this, defaulters are liable to prosecution. However, because Nigeria is still fighting to improve the tax culture, prosecutions are less likely” Eze added. It is also important to note that the requirement for employers to file returns of emoluments paid to their employees under Section 81 is different from the requirements under Section 41. Hence, taxpayers who have not complied with the provisions of Section 41 by themselves or through their employers should do so before the expiration of the deadline. Although the PIT Act does not provide specific penalties for failure to file returns in accordance with Section 41 of the PIT Act, the provisions of Section 94(1) of the Act may apply given its omnibus nature. Moreover, Section 94(4) of the PIT Act empowers a relevant tax authority (RTA) to institute proceedings or impose penalties of an amount equal to the income tax chargeable on persons who fail to comply with the requirements of a notice given by the RTA under the provisions of Section 41 of the PIT Act. Given the government’s recent drive for increased revenue collection, it may not be surprising to see tax authorities enforce possible penalties on erring employees, particularly those who have other sources of income apart from their employment income. More so, the coincidence of the deadline for the Voluntary Assets and Income Declaration Scheme (VAIDS) and the filing of annual return of income and claims may just be unusually symbolic.
Wednesday <strong>28</strong> <strong>Mar</strong>ch <strong>2018</strong> A8 BUSINESS DAY
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