Common Reporting Standard Compliance in Nigeria: What next to consider?

Overview of Common Reporting Standard As taxpayers approach another Automatic Exchange of Information (AEOI) - Common Reporting Standard (CRS) returns filing season, 

financial institutions in Nigeria will need to take 

note of their CRS reporting obligations as provided in the Income Tax (Common Reporting Standard) Regulations, 2019 (CRS Regulations) and the Income-tax (Common Reporting Standard) Implementation and Compliance Guidelines, 2019 (CRS Guidelines).

CRS is an information standard that provides a set of rules for the automatic exchange of financial account information relating to customers of Reporting Financial Institutions (RFIs) between tax authorities across the world. RFIs include depository institutions (such as commercial banks, savings and loan associations, and credit unions), custodial institutions (e.g., custodian banks, stockbrokers), investment entities (portfolio and asset management companies), and specified insurance companies (e.g., life insurance companies). 

The purpose of the standard is to improve transparency, thereby making information of persons (i.e., individuals and entities) holding various investments across the world visible and available to tax authorities of relevant jurisdictions, with the ultimate aim of combating tax evasion. 

On 17 August 2017, Nigeria signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC) and the Multilateral Competent Authority Agreement (MCAA) on AEOI that provides a legal framework for exchanging CRS information. In August 2019, the Federal Inland Revenue Service (FIRS) released the CRS Regulations and CRS Guidelines. 

Under the CRS regime, tax authorities of relevant jurisdictions are required to obtain certain specified information from RFIs and 

Automatically exchange such information with tax authorities of other participating jurisdictions every year. RFIs are required to report specific categories of financial accounts that qualify as reportable accounts, such as; high-value accounts, lower value accounts, pre-existing accounts for entities, new accounts for individuals and entities, and inflows (i.e., incomes/proceeds) to the tax authority in each CRS participating jurisdiction.

CRS obligations of RFIs. Generally, the CRS Regulations require all RFIs to obtain information from their account holders and report, every year, specific information to the FIRS in an electronic format. 

The CRS Regulations also the completeness of CRS returns filed and confirm that the due diligence procedures adopted on reportable accounts were in line with the CRS Regulations. The exercise is also to obtain feedback on the challenges encountered by RFIs during the last CRS filing cycle, including the ease of filing through the designated portal.

Challenges encountered during the first filing cycle of CRS returns. As with most new policies, the implementation of CRS came with challenges, some of which are highlighted below: 

• RFIs could not obtain specific information from customers, making it challenging to complete the due diligence necessary to determine reportable accounts and submit accurate CRS returns. 

For instance, there were difficulties in retrieving 

information on the tax residency of account holders and controlling persons. To aid the collection of information from account holders, the FIRS introduced the CRS self-certification forms to be administered by RFIs to their customers. However, this has not solved incomplete information as some account holders were unable to provide the required information, and the RFIs have not been able to enforce compliance.

• Some RFIs are mindful of the additional documentation burden and are therefore yet to adopt the CRS self-certification forms to collect information from account holders. 

The issuance of the new set of self-certification forms designed by the FIRS also duplicates some information which the RFIs would have already obtained from the account holders. • RFIs also faced some difficulties in filing their CRS returns as the AEOI-CRS’ online portal experienced several downtimes, which may have been due to the high number of RFIs aiming to file before the deadline stipulated by the FIRS. • From the regulator's perspective, it appears that the awareness and compliance level of RFIs concerning CRS obligations is still low. 

The FIRS had organized several web-based workshops/programs to sensitize RFIs on their compliance obligations under the CRS Regulations. However, this appears not to have had the desired impact on the compliance level of RFIs. The following CRS reporting is due by 31 May 2021, and FIRS has notified RFIs of an upgrade to the version of the CRS template adopted for filing last year. FIRS has also advised RFIs to commence their CRS filings with the new template effective 1 April 2021 to ensure errors are effectively corrected with the assistance of the FIRS’ AEOI team before the filing deadline.

While the challenges noted above may not be resolved before the next CRS filing deadline, it is expected that FIRS will begin to put in place measures to manage these, such as:

• Working with the regulators of RFIs (such as Central Bank of Nigeria, Security & Exchange Commission, and National Insurance Commission) to enforce compliance of account holders in the provision of the required information to RFIs. This can be included as a mandatory KYC requirement for opening accounts. • Increased sensitization of RFIs and their customers on CRS obligations to boost awareness and level of compliance •Reducing/eliminating system downtime issues by opening the reporting portal timely and performing routine system upgrades •Organising periodic stakeholder engagement sessions to obtain feedback on the challenges encountered by RFIs in the CRS compliance process

Further, given the significance of the administrative penalties and the recent drive by the FIRS to ensure CRS compliance, RFIs are advised to file their CRS returns on or before the due date, provide the necessary due-diligence procedures are performed, and the information submitted is prepared based on the CRS implementation guidelines.

Written by: Tosin Adedoyin and Oyindamola Agu

Deloitte Insights