₦airaland Forum

Introduction
In May 2021, the Federal Inland Revenue Services (FIRS) issued a public notice suspending the local filing of Country-by-Country (CbC)
reports by Nigerian subsidiaries and permanent establishments whose headquarters are not in Nigeria. This was in order to
complete the review of Nigeria’s confidentiality and data safeguard processes, and the review of Nigeria’s submission for reciprocal
exchange of CbC reports. Following the completion of the review, the FIRS in January 2022 has issued a public notice reinstating the local filing of CbC reports by such companies and permanent establishments.

Background
In 2018, Nigeria introduced Country-by-Country Reporting (CbCR) Regulations. The CbCR Regulations are effective for financial years
commencing after 1 January 2018 and apply to multinationals with operations in two or more jurisdictions and whose consolidated group
revenues exceed ₦ 160billion (or € 750million) in any given year.

Based on the Regulations, under certain circumstances, a Nigerian subsidiary or permanent establishment of a foreign multinational group
that meets the revenue threshold may be required to file the CbC report directly with the FIRS. Local filing is applicable for such entities
where: a) the ultimate parent entity (UPE) is not obligated to submit the CbC report in its home jurisdiction (b) the tax authority of the UPE and the FIRS do not have an activated CbC report exchange relationship at the time of the filing deadline c) the tax authority in the UPE’s
jurisdiction has suspended automatic exchange of CbC reports with Nigeria.

As a general rule this meant that Nigerian subsidiaries or permanent establishments were required to file the CbC report with the FIRS if
they belonged to a foreign multinational group (meeting the threshold) and the country of the UPE was not on the list of countries for which
Nigeria had activated the exchange relationship.

Objectives of the CbC report
The objectives of the CbC report and consequently its filing is that it:
(a) provides the tax authorities with information about the global taxes, profits and activities of multinational enterprises
(b) provides tax authorities with information for efficient assessment of the risks of tax avoidance
(c) improves transparency in the tax practices of
multinationals d) prevents tax avoidance or evasion through base erosion and profit shifting.

Who is impacted by the notice?
Based on the withdrawal of the prior suspension, the local filing requirement under Regulation 4 of the CbCR Regulations is now active.
It is applicable to Nigerian subsidiaries and permanent establishments belonging to foreign multinational groups that exceed the ₦ 160billion (or € 750million) revenue threshold; and the country of the ultimate parent entity (UPE) [or the country of the group member that will file on behalf of the UPE] is not on the list of the 78 countries, which Nigeria has activated its exchange relationship with.

Regulatory Reporting, timeline and penalties
Regulatory Reporting
The CbC report must be filed in a form identical to and applying the definitions and instructions contained in the model template set out in
the First Schedule to the CbCR Regulations and the guidelines on CbCR issued by the FIRS. The report will also need to be filed online
using the FIRS’s designated portal.

Timeline
In line with Regulation 9 of the CbCR Regulations, the CbC report must be filed not later than 12 months after the last day of the
reporting accounting year of the multinational group and for which the CbC report relates. i.e. filing on or before 31 Dec 2022 for the CbC
report for accounting year end of 31 Dec 2021.

Penalty
Non-compliance with the local filing requirements attracts a penalty of ₦10 million in the first instance, and ₦1 million for every month in
which default continues.

Takeaway
The public notice has an effective date 1 January 2022, therefore all constituent entities of foreign multinational groups that meet the
relevant conditions are expected to comply with the CbC local filing requirements going forward. Taxpayers must ensure they prepare
well in advance to avoid the penalties for non-compliance.
On the tax authority side, it would appear that the FIRS has made strides in increasing the number of activated relationships to 78 from
the previous number of 55 prior to the suspension of the local filing requirement. More importantly, what would be more interesting to see
is how the data received from tax authorities in other jurisdictions as well as the local filing will be used by the FIRS to curb tax evasion or
avoidance practices.

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The Federal High Court (FHC or "the Court" Lagos Division, on Monday 28 September 2020, overturned the judgment of the Tax Appeal Tribunal (TAT or "the Tribunal) in the appeal between the Federal Inland Revenue Service (FIRS or "the Appellant" and Total E&P Nigeria Limited (Total or "the Respondent" by ruling that petroleum investment allowance (PIA) should be included in the computation of balancing charge on disposal of assets used for petroleum operations.

Specifically, the FHC held that PIA granted by Paragraph 5 of the Second Schedule to the Petroleum Profit Tax Act Cap P13, Laws of the Federation of Nigeria (LFN), 2004 (as amended) (PPTA) should be added to annual allowance claimed on the assets for the purpose of computing balancing charge for disposed assets.

The Court, on the other hand, upheld the TAT's decision that tertiary education tax (TET) is not chargeable on balancing charge. It also upheld the Tribunal's decision that interest paid on intercompany loan qualifies as tax deductible expenses for petroleum profit tax (PPT) purposes, provided that the interest rate is at arm's length under terms prevailing in the open market.

Facts of the Case
Total held 10% interest in Oil Mining Leases (OMLs) 4, 26, 38, 41and 42. In 2010 and 2011, Total sold its interests in OMLs 4, 38 & 41 and 2 & 42, respectively. However, in computing the balancing charges applicable to the disposal, Total split the sales proceeds between tangible and intangible assets and computed balancing charge on only the tangible assets. The tangible assets included wells, infield pipelines, flow lines, manifolds and flow stations while intangible assets comprised hydrocarbon accumulation data, right to win, work and exploit petroleum in the OML area.

The FIRS challenged the split and argued that all the assets were qualifying expenditure in line with Paragraph 1 of PPTA. The FIRS also included the related PIA on the assets in determining the allowance claimed thereon and computed additional TET on the resulting balancing charge.

Further, the FIRS disallowed the interest on loan obtained by Total from Total Finance, a related party, on the basis that Section 13(2)(c) of PPTA precluded related party loans as allowable expense for petroleum profit tax (PPT) purpose.

Total had declared dividends out of its oil and gas profits without separating the profits. The FIRS maintained that dividend declared out of the Respondent's gas profits was liable to withholding tax (WHT) since gas profits were taxable under the Companies' Income Tax Act, C21, LFN, 2004 (as amended) (CITA) and dividend paid thereon was not exempt from WHT.

Total, aggrieved with the FIRS' position, filed an appeal at the TAT. In May 2016, the Tribunal, after reviewing the issues and arguments submitted to it by both parties, held that:

interest paid on inter-company loan qualifies as deductible expenses under Section 10(1) (g) of the PPTA provided that the interest rate conforms with the arm's length principle. The interest paid by Total to Total Finance conforms with the arm's length principle and therefore qualifies as tax deductible expenses for PPT purpose.
Total was liable to pay WHT on the dividend attributable to profits from its gas income as the company failed to separate the dividend attributable to its gas income from oil income. Therefore, Total must rely on FIRS' diligence and fairness mechanism to arrive at the percentage of the dividend attributable to its gas income and compute the WHT payable thereon.
Total was not liable to include the assets purchased and disposed of in the same accounting period in the calculation of balancing charge as no capital allowance had been validly claimed in respect of the assets.
PIA and annual allowance are separate and distinct allowances. Therefore, PIA should not be added to annual allowance for the purpose of computing balancing charge under Paragraph 9 of the PPTA.
Assessable profit on which TET is charged is not inclusive of balancing charge. Thus, Total was not liable to pay any additional TET.
However, the FIRS was dissatisfied with the TAT's decision, and appealed the judgement at the FHC.

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The Corporate Affairs Commission (CAC) recently announced the upgrade its website and online registration portal ("the Portal" to include features, which allow for the automation of some selected services and processes, in line with the Federal Government's mandate of improving the ease of doing business in Nigeria. The selected services and processes include:
Electronic search of company records: Companies can now visit the CAC's portal (https://search.cac.gov.ng/home) to confirm their corporate information in the CAC's registry, for an application fee of ?1,000.
Upgraded Companies Registration Portal for:
Pre-incorporation filings: the upgrade allows investors and professionals to complete and submit pre-incorporation filing documents for new companies via the Portal (https://pre.cac.gov.ng/home) for approval. Once the application is approved, users can download an electronic certificate of incorporation (E-Certificate) as the CAC would no longer issue physical certificates.
Post incorporation filings: the upgrade also allow companies to make changes to their existing information with the CAC via the Portal (https://post.cac.gov.ng/login), including changes to their constitutions, structures and the mandatory annual returns of the companies, amongst others.
Comments
We commend the CAC for upgrading its registration portal to include additional functionalities that will improve its administrative processes. This innovation comes on the heels of the publication of the Companies' Regulations, 2021, which encourages the use of technology for service delivery and demonstrates the Federal Government's resolve to automate the processes of its agencies to align with global best practices and improve the ease of doing business in Nigeria.
With the impact of Covid-19 on global administrative procedures, it is imperative that the CAC embraces technology to improve its services and discontinue manual pre-incorporation and post-incorporation procedures. It is hoped that the CAC's website and online registration portal will continue to remain accessible and closely monitored to prevent system downtime which has plagued such initiatives in the past. Further, the CAC should ensure that adequate measures are put in place to protect companies' data and guarantee the integrity of corporate information in its custody.
Our dedicated Corporate Secretarial Services Team are available to support you with your regulatory compliance needs, including company incorporation, miscellaneous statutory filings and general regulatory compliance with Nigerian corporate law.

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The Central Bank of Nigeria (CBN) has called for greater policy coordination and synchronisation of efforts to enhance economic growth in the country.

The Deputy Governor, Operations Directorate, CBN, Mr. Edward Adamu, made this call in his personal statement at the January 2020 Monetary Policy Committee Meeting, a copy of which was obtained at the weekend.
“To be clear, I view policy coordination across economic management institutions at the federal level as essential as response coordination across the tiers of government,” he said.

In his contribution, Adamu, stated that data presented highlighted some important downside risks, which included insecurity and rising inflation, especially food. Among other consequences, he pointed out that inflation beyond a certain threshold could undermine the output recovery gains.
Yet, to effectively address inflation, its origin and character must be well understood, the CBN Deputy Governor said.

“Among others, I could see the dominant influence of high production cost and distribution bottlenecks in the current inflation dynamics.
“Of course, the effect of the easy stance of monetary policy cannot be completely discounted. However, given that food prices have remained the major driver of the overall domestic price pressure, the role of money can be assumed to be minimal. As such, the correct policy-mix must continue to include a focus on alleviating supply from both production and distribution sides,” he said.

He noted essentially, there is no one policy instrument that can mitigate all the risks in the horizon.
On her part, the Deputy Governor, Financial System Stability, CBN, Mrs. Aishah Ahmad, noted that notwithstanding the positive outlook for the banking sector, the CBN must remain vigilant given the uncertain macro environment.

According to her, the CBN would continue to monitor risks and vulnerabilities in the economy and their impact on financial system stability.
“In this respect, it should continue monitoring restructured and unrestructured industry loan
portfolios, sustain dynamic stress testing and ensure banks build operational resilience by strengthening their cyber defenses and business continuity planning.
“Consolidating the industry’s earnings profile will also be critical to grow capital buffers; which will be important to enable it to manage likely financial and macroeconomic headwinds,” she explained.

Ahmad noted that rising prices coupled with negative/low growth was a serious challenge confronting monetary policy in Nigeria and many African countries.
She pointed out that structural, long term policy initiatives to diversify the economy remains critical, saying that containing the pandemic immediately would be paramount to economic resilience and recovery.

“Thus, a proactive and coordinated vaccine procurement and distribution strategy is required to improve business sentiment and promote a positive macro-economic outlook. “Policy priorities must also include continued financial support to sectors most impacted by the pandemic and those most fundamental to recovery,” she added.
In his contribution, the Deputy Governor, Economic Policy Directorate, CBN, Dr. Kingsley Obiora, said the banking system has also maintained its stability and resilience during this crisis.

He disclosed that total gross credit rose to N20.48 trillion in December 2020, an increase from N19.72 trillion in November 2020 and from N17.57 trillion in the corresponding period of 2019.
Also, non-performing loans (NPLs) stood at 6.01 per cent in December 2020, compared to 6.06 per cent in the corresponding period of 2019. This, he said reflected strengthening of risk management practices, the Global Standing Instruction (GSI) policy and regulatory forbearance that had allowed banks to restructure credits impacted by COVID-19.

“But even as the domestic economy begins to recover, imbalances remain. COVID-19 infections have resurged, with 123,000 confirmed cases and 1,500 deaths.
“Inflation pressure has also persisted, as headline inflation increased to 15.75 percent in December 2020 from 14.89 percent in November 2020 and is at its highest level since December 2017. The upward pressure has been largely driven by food inflation, which rose to 19.56 percent in December 2020 from 18.30 percent in November 2020.

“This appears to be attributable to structural factors arising from disruptions to supply chains, insecurity in food producing areas of the country, infrastructural deficiencies and increases in both the pump price of Premium Motor Spirit (PMS) and electricity tariffs. Such inflationary pressures emphasise the critical,” he added.

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With the arrival of fintechs and other innovators on the banking scene, the way we bank and carry out financial transactions is constantly changing. Some of these developments led to considerations for the creation of a seamless system that would lead to the sharing of financial data through an open banking system.

These developments, facilitated by the European Union's Payment Services Directive (PSD 2), led to the creation of open banking on the global scene.

What is open banking?
Open banking forms part of the emerging areas within the fintech ecosystem and is presently in use in Europe, the United Kingdom, China, Japan and Singapore.

It grants third-party providers (TPPs) open access to consumer banking, transactions, and other financial data from banks and non-bank financial institutions (NBFIs) through the use of Application Programming Interface (API).

With open banking, customers can share their financial data with different financial institutions. In order for this to be effected, the institution require the express consent of the customers. Open banking represents a shift from a closed model, where financial institutions operated in silos, to one in which data is shared between different members of the banking ecosystem with authorization from the customer.

Thus, with open banking, fin-techs and banks are able to communicate seamlessly through the networking of accounts and data across institutions for use by consumers, financial institutions, and TPPs.

Open banking will lead to a situation where regardless of how many accounts and financial products a customer has with multiple institutions, he can manage them from a centralized location without having to check out from one system to another.

For example, a consumer could have a bank account with Zenith Bank PLC, have a mutual fund account with ARM Investments and operate an account with a fintech like Piggyvest. When the customer wants to check his inflows and outflows from his different accounts, he will have to log into the separate platforms.

However, with open banking, the customer can seamlessly operate his investments and track his transactions on the three platforms from a centralized location through the use of APIs. The APIs can also look at the transaction data of the customer and identify the best financial products he can invest in that would yield better interest rates.

Importance of APIs to Open Banking
API is a software intermediary that enables technology platforms or applications communicate with each other. Some popular platforms that use APIs to accelerate the delivery of their services to consumers include Facebook, Google, Twitter and PayPal.

A banking API is an interface through which a financial institution provides data about customers, accounts and transactions. With a banking API, users of payment services will not be solely dependent on the direct services offered by their own bank. They can make use of third-party financial services, which, in turn, access the data required by the original bank via the banking API.

Some of the stakeholders that APIs in open banking are beneficial to include the following:

Bank customers - APIs improve the customer experience, since customers can conveniently complete all transactions in the respective context and under one user interface. Also, the paperwork that would typically apply when running multiple transactions on different accounts would be minimized.
TPPs in the e-commerce sector - With APIs, online providers can offer customers better services that include product selection and real-time arrangement of consumer credits.
TPPs in the technology sector - technology providers whose solutions create interfaces to financial institutions and thereby create the technological infrastructure.
Financial institutions - fintechs and banks will be able to expand their payment services ecosystem and onboard new customers through third party platforms.
Fraud detection companies - APIs enable fraud detection companies effectively monitor customer accounts and identify problems as soon as they arise.
The Regulatory Framework for Open Banking in Nigeria
On February 17th, 2021, the Central Bank of Nigeria (CBN) issued the Regulatory Framework for Open Banking in Nigeria ("the framework".

The framework establishes principles for data sharing across the banking and payment ecosystem. It is aimed at promoting innovation, broadening the range of financial services and products, and deepening financial inclusion.

The framework applies to the following financial services 1:

Payments and remittance services
Collection and Disbursement services
Deposit-taking
Credit
Personal finance advisory and management
Treasury Management
Credit ratings/scoring
Mortgage
Leasing/Hire purchase
Other services as may be determined by the CBN
The framework provides for several issues including data and API access requirements, principles for API, data, technical design, and information security specifications.

We will examine the provisions of the framework and its impact on the operations of banks and fintechs in Nigeria.

Guiding Principles for API Specifications
The framework sets out the guiding principles for API specifications 2 and provides that they shall adhere to the following principles or they will not be accepted:

Openness: accessible to all interested and permission-ed parties
Re-usability: premised on existing standards and taxonomy of technology
Interoperability: supports exchange of objects across technologies, platforms, and organisations
Modularity: loose coupling with provision for flexible integration
Robustness: scalable, improvable, evolvable and transparent
User-Centric: enhances user experience for consumers
Security: ensures data privacy and safe exchanges and transactions
Participants
The framework classifies participants in open banking into 4 categories 3 and each have their roles and responsibilities. It is noteworthy that participants are required to:

maintain a customer service/complaint desk on 24 hours/7 days a week basis to resolve complaints of end-users;
comply with data privacy laws and regulations; and
comply with the provisions of the framework
Some of the responsibilities are captured here with the description of the participants:

S/N Participant Description Responsibilities
1) Provider A participant that uses API to avail data or service to another participant
Publish the APIs and define requirements and technical guidelines.
Define the data and services accessible through the APIs.
Carry out Know Your Partner (KYP) due diligence on partner participants which shall include a comprehensive risk assessment on the partner participant duly singed off by the Chief Risk Officer before executing agreements.
Ensure that the partner participant that owns the customer interface obtains consent of the end-user based on agreed protocols.
Notify the partner participant of intention to terminate relationship within 48hours of breaching the risk thresholds.
Notify the Bank of any terminated relationships with partner participants within 3 business days to update information in the Open Banking Registry where necessary.
2) Consumer A participant that uses API released by the providers to access data or service
Execute a Data Access Agreement and Service Level Agreement with the Provider.
Adhere to the requirements and guidelines set by the Provider.
Obtain consent of the end-user on each action that may be performed on the account of the end user as specified by the provider.
Cooperate with the Provider for the regular monitoring of its control environment.
3) Fin-techs Companies that provide innovative financial solutions, products and services
Ensure that it leverages API to innovate products and solutions that are interoperable.
Avoid alteration of APIs published by provider without consent of the providers.
Any Modification of published APIs shall be based on the provisions of Data Access Agreement.
4) Developer Community Individuals and entities that develop APIs for participants based on requirements.

Execute service agreements with the partner participant outlining the participant's business requirement and technical guidelines.
Employ secure coding and development standards and practices.
Maintain strict avoidance of interaction with the production server of the partner participant.
Categories of financial data
Data and services that can be shared through APIs are categorized with their risk levels as follows 4:

S/N Category Description Risk rating
1 Product Information and Service Touch-points (PIST):

includes information on products provided by participants to their customers and access points available for customers to access services e.g. ATM/POS/Agents locations, channels (website/app) addresses, institution identifiers, service codes, fees, charges and quotes, rates, tenors, etc. Low
2 Market Insight Transactions (MIT): Includes statistical data aggregated on basis of products, service, segments, etc. It shall not be associated to any individual customer or account. These data could be exchanged at an organisational level or at an industry level.

Moderate
3 Personal Information and Financial Transaction (PIFT): Includes data at individual customer level either on general information on the customer (e.g. KYC data, total number or types of account held, etc) or data on the customer's transaction (e.g. balances, bills payments, loans, repayments, recurring transactions on customer's accounts, etc)

High
4 Profile, Analytics and Scoring Transaction (PAST): Includes information on a customer which analyses, scores or give an opinion on a customer e.g. credit score, income ratings etc.

High and sensitive
Other relevant provisions:

Risk management 5 - the framework provides that this is the responsibility of all participants. They are therefore expected to have (information technology, information security policies and a risk management framework that address APIs and also have a Designate a Chief Risk Officer who shall be responsible for implementing effective internal control and risk management practices.
Customer Rights - the agreement that on boards the client must be presented in the customer's preferred language and his consent must be re-validated annually.

Liability for loss - Participant and its partner shall be jointly responsible and bear liability for any loss to the customer, except where the participant can prove willful negligence or fraudulent act against the customer.
Guidance on Operational Rules 6 - Dispute resolution protocols among participants are to be codified for basic operational issues. Operational rules are to also discourage dominant party and anti-competition practices.
Our takeaway

The CBN framework is quite comprehensive and if effectively implemented, could lead to remarkable changes in the banking sector. The key points to note from the comprehensive framework is that the CBN has sought to provide standards for the safe utilisation and exchange of data and services and has defined data access levels (i.e. what bank data can be shared and who can get it).

However, the successful implementation of open banking is dependent on collaboration between fintechs, banks and NBFIs and the CBN.

Some of the changes that could be introduced by the implementation of the framework include the following:

Competition and innovation
There could be fiercer competition with larger banks competing for the market with fintechs and smaller banks. This could also see financial institutions trying to outdo themselves by deploying better technology, better customer service, higher interest rates and lower costs.

Conversely, financial institutions can use APIs to create a new experience with their customers by assisting customers in ways that were previously not possible in the market. For instance, they could help customers who are illiterates better understand financial issues around opening a bank account with voice commands in local languages or pidgin English. For the sophisticated customer, an open banking app could also assist them in determining the most affordable loan facility they can obtain from institutions, taking into consideration the state of their finances.

It will also generate additional revenue for financial institutions in the form of commission or access fees. Open banking conducted via APIs could also consolidate the position of forward-looking fintechs who, via data aggregation, can create detailed customer profiles and offer relevant products to clients for greater engagement.

Ease of banking
Conducting banking activities with traditional financial institutions is sometimes considered stressful. However, with open banking, customers will have consolidated information about all their financial products in a centralized location.

This would reduce time spent in carrying out transactions and minimize the paperwork for on-boarding new users to the institutions' platforms.

Cyber-security and data protection issues
There are some challenges that exist with open banking, particularly around cyber-security, data privacy and the resulting liabilities to financial institutions. Issues around data breaches, hacking, phishing scams and malware are issues that would have to be taken into consideration when any institution is considering open banking and the use of APIs.

Also, with the Nigeria Data Protection Regulation (NDPR), which bears close resemblance to the European Union GDPR, the legal basis for processing data has to be taken into consideration before the financial records of customers are shared. Direct consent must be obtained from the customer in line with the provisions of the framework as the failure to do this could lead to dire consequences for the financial institution that shares the data.

Conclusion

The introduction of the CBN framework is a good development which could potentially lead to the improvement in the delivery of financial services in Nigeria.

However, although open banking offers a number of advantages, there are also concerns over the security risks occasioned by the sharing of data. Data protection laws, such as the NDPR, must also be countenanced by service providers when they are processing the data of consumers.

It is however our view that with the engagement of cyber-security experts, financial service providers and lawyers with experience in data protection and technology, some of the risks can be managed and open banking can thrive in Nigeria.

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Introduction

President Muhammad Buhari signed the Finance Act 2020 ("the Act'') into law on 31st December 2020. The Act introduced several far-reaching changes to the Nigerian fiscal landscape, to facilitate reforms and improve the Nigerian business environment.

One of the significant changes introduced by the Act is the establishment of the Unclaimed Funds Trust Fund ("the Trust Fund".1 From 1st January 2021, any unclaimed dividend of a public limited liability company quoted on the Nigerian Stock Exchange ("NSE" and any unutilised amount in a dormant bank account (which has remained unclaimed or unutilised for a period of not less than six years from the date of declaring the dividends or domiciling the funds in a bank account) shall be transferred immediately to the Trust Fund.

According to the Minister of Finance, Budget and National Planning, Zainab Ahmed, the Federal Government could access as much as N850 billion to be realised from payments into the Trust Fund.2 However, some critics opposed to the establishment of the Trust Fund insist that dividends and dormant accounts are private wealth of investors (whether individuals or corporate entities) and the idea of converting such private wealth to a source of revenue for Federal Government negates the provisions of the 1999 Constitution (as amended) which guarantee the right to own property and assets.3

A Summary of the Provisions

Establishment: The Trust Fund is established by way of a trust, as a sub-fund of the Crisis Intervention Fund under section 77(1) of the Act.
Source of funding: The Trust Fund shall be maintained by revenue from unclaimed dividends from publicly quoted companies and dormant bank accounts, which have respectively remained unclaimed or unattended for up to six years (and above).

Exemption: The Act expressly provides that official bank accounts owned or belonging to the Federal Government, State Governments or Local Governments, or any of the Ministries, Departments or Agencies shall not be affected or paid into the Trust Fund. Also, from the clear wording of the Act, unclaimed dividends of private companies shall not be applicable as only that of companies listed on the Stock Exchange is applicable.

Repayment of debt: Such unclaimed dividends and unutilised amounts in a dormant bank account transferred to the Trust Fund shall be a special debt owed by the Federal Government to the affected shareholders and dormant account holders respectively and shall be available for claim, together with the yield by the shareholder or dormant account holder at any time. The repayment can be made to the shareholder, depositor (or their legal beneficiaries), as the case may be.

Responsibility of quoted companies and banks: The Act stipulates that unclaimed dividends and unutilised monies in dormant bank accounts shall be transferred by the public limited company, its Registrar or deposit money bank respectively, to the Trust Fund.

Penalty for non-compliance: Failure by any company or deposit money bank to transfer the unclaimed dividends or unutilised amounts in dormant bank accounts to the Trust Fund constitutes an offence and the company or deposit money bank is liable upon conviction to a fine of not less than five times the value of the unclaimed dividends and unutilised funds in a dormant bank account plus accumulated interest at the Central Bank of Nigeria Monetary Policy Rate.
Supervision and management of the Trust Fund: The Act mandates the Debt Management Office (DMO) to supervise the operation of the Trust Fund as well as serve as the secretariat of the Trust Fund. To enhance transparency and accountability over the Trust Fund, the Act established a Governing Council to be chaired by the Minister of Finance and a Co-Chairperson from the private sector, to be appointed by the President on the recommendation of the Minister of Finance subject to confirmation by the Senate. Other members of the Council include:

The Governor of the Central bank;

The Director General of the Securities and Exchange Commission;

The Managing Director of the National Deposit Insurance Corporation;

A representative of the Registrar General of the Corporate Affairs Commission;

Two representatives of the shareholder's association;

A representative of the Bankers Committee; and

The Director General of the DMO, as secretary of the Trust Fund.
Custody of the Fund: To enhance transparency in the management of the Trust Fund, the Act requires the DMO to operate the Trust Fund in conjunction with the Central Bank of Nigeria and the Securities and Exchange Commission.
Annual returns & audit: Under the Act, all public limited liability companies quoted on the NSE and deposit money banks are required to render annual returns of unclaimed dividends and unutilized amounts in a dormant account in a format prescribed by the DMO. Further, the DMO is required to prepare and submit the financial statement of the unclaimed dividends and unutilised amounts in a dormant bank account to the Office of the Auditor-General for the Federation for audit.

Database: The DMO is mandated to maintain a database of all unclaimed dividends and dormant bank balances constituting the debt owed by the Trust Fund, which shall be verified and reconciled with the Central Bank of Nigeria and the Securities and Exchange Commission on a bi-annual basis.
Comment
The establishment of the Trust Fund will no doubt increase the Federal Government's access to more funds to be used for infrastructure development in light of dwindling resources available to government due to the low price of crude oil in the international market.

Understandably, fears have been expressed that government will hijack unclaimed dividends and cash in dormant bank accounts (which are private property owned by Nigerians) through the Trust Fund. However, the Act provides a safeguard to ensure that owners of the unclaimed dividends and cash in dormant bank accounts are protected. The sums paid into the Trust Fund shall be treated as a special debt owed by the Federal Government to the shareholders and owners of the dormant bank accounts respectively and shall be available for claim, together with the yield thereon at any time.

Nevertheless, government must allay the fears of stakeholders by ensuring that the Trust Fund is professionally managed and utilised in a credible and transparent manner. Also, measures must be put in place to prevent bureaucratic bottlenecks when such shareholders and accounts holders seek to claim such dividends and cash amounts.

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The Finance Bill, 2020 which was an Executive Bill prepared by the Honourable Minister for Finance, Budget and National Planning, was approved by His Excellency, President Muhammadu Buhari and presented together with the 2021 Budget proposals to the National Assembly of Nigeria. The Bill was subsequently reviewed and passed by the Senate on Tuesday, 15 December 2020 and the House of Representatives on Thursday 17 December 2020, respectively, prior to assent by the President to culminate into Finance Act, 2020 (hereinafter referred to as "Finance Act", "FA 2020" or "the Act".

Finance Act, 2020 introduces changes to the Capital Gains Tax Act, Companies Income Tax Act, Industrial Development (Income Tax Relief) Act, Personal Income Tax Act, Tertiary Education Trust Fund (Establishment, etc.) Act, Customs, Excise Tariff, etc.
(Consolidation) Act, Value Added Tax Act, Stamp Duties Act, Federal Inland Revenue Service (Establishment) Act, Nigeria Export Processing Zones Authority Act, Oil and Gas Export Free Zone Act, Companies and Allied Matter Act, Fiscal Responsibility Act and the Public Procurement Act. These changes became effective on 1 January 2021. It is important to note that Finance Act, 2020 did not repeal Finance Act, 2019, although it modified some of the amendments introduced by the latter to provide clarity and make it consistent with the government's fiscal plans and current economic realities.

The passage of the Act reinforces the Federal Government's commitment to making incremental changes to Nigeria's fiscal framework, such that Nigeria has a fiscal framework that enables the achievement of the country's economic growth and development imperatives.

The amendments made by the Act are intended to provide counter-cyclical fiscal policy measures that will aid economic recovery and growth given the devasting effect the COVID-19 pandemic has had on the Nigerian economy. The amendments are staged across five broad thematic areas with a view to:

enacting counter-cyclical measures and crisis intervention initiatives
providing fiscal relief for mass transit
implementing key procurement reforms
institutionalizing ease of doing business (EODB) reforms
ensuring fiscal responsibility
This publication contains the analysis of the amendments introduced by the Act and the expected impact of the changes on tax administration, government bodies and taxpayers operating in various sectors of the economy.

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When it comes to retirement and inheritance tax planning, many people worry more about what their money will do during their lifetime rather than once they have gone...writes Michael Hawthorne, Chartered Financial Planner at True Bearing.

When making the decision about their retirement income, considering the tax on their estate at death is rarely high on anyone’s list. It IS important to structure your money around the life you want to live first. However, if there is a potential Inheritance Tax bill to pay in the event of your death, especially if you have total assets over the nil-rate band, you should pay extra attention to the facts around my client’s story.

My client, let’s call her Brenda, has enough income from her work pension and state pension to pay for her desired lifestyle. Brenda has £15,000 in an old AVC (industry jargon for one of the many occupational type pensions) from a previous employer. Brenda is single and has total assets (property, savings and possessions) above £325k which is the Inheritance Tax threshold.

‘THE PENSION ISN’T DOING MUCH’
Brenda’s plan was to ‘cash-in the pension to reinvest’ because ‘the pension wasn’t doing much’ and she ‘didn’t need the income’.

Let’s play out that scenario:
£15,000 paid out from the AVC to bank account
£12,750 received in bank account after 20% tax on 75%
£5,100 additional immediate increase in inheritance tax liability on death
£7,650 is the total amount left to the estate after inheritance tax is paid

Brenda has an extensive knowledge of tax from employment but was not aware of 2 key pieces of information which completely changed her financial plan for retirement.

1. Did you know that in most instances a Defined Contribution pension (more industry jargon for most types of personal and some work place pensions) is not subject to Inheritance Tax? And, as a result of Pensions Freedoms introduced in 2015, all money in this type of pension can be accessed from the age of 55?

How does that change anything? The £15,000 in the AVC could be left in a pension/AVC. Inaction actually saves Brenda’s estate £7,350 because if Brenda dies before age 75, the full £15,000 is left to her estate. Brenda’s investment strategy needs a little tweaking to reflect that it is now likely to be invested for 25+ years.

2. Though Brenda is retired, she is still able to contribute to a pension too. Brenda can make a payment of £2,880 per annum to a pension and receive income tax relief of £720 until the age of 75. Every £2880 contributed will also be outside of her estate for the purpose of Inheritance Tax which is an Inheritance Tax saving of £1152 per annum. This is all before any investment returns are considered.

So, with an additional 2, seemingly small pieces of information, Brenda has completely changed her retirement strategy which still continues to allow her to live the life she wants but will likely reduce the Inheritance Tax bill for her estate by tens of thousands of pounds over the course of her lifetime whilst still providing access to the funds if they are required.

WHO SAID YOU CAN’T HAVE YOUR CAKE AND EAT IT?
Whilst I have explained the key points of Brenda’s case, it should be stressed that the world of pensions is complex and this solution for Brenda will not be right for others. This is an area I recommend you take professional advice but I also warn – there are significant benefits for doing so!

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Every year, the last date make our tax-saving investments is March 31. Despite being aware of this deadline, we postpone our income tax planning to the last minute. But this financial year (2020-21) has been tough due to COVID-19’s impact and many lost their jobs or suffered salary cuts. While we hope that the times ahead would be better for our readers, they must plan their tax-saving investments right now. Our first story answered five crucial income tax planning related questions. Our second article gave you the five best tax-saving instruments. In this last instalment of this series, we discuss the four most common mistakes we make while planning our taxes.

The last date for making tax-saving investments for the financial year 2020-21 is March 31. This is your last chance to maximise tax benefits under various sections, unless the finance ministry extends the deadlines again like it did the last time due to the COVID-19 pandemic. But that looks unlikely.

The old tax regime allows deductions from your total income under Section 80C and Section 80D and the like. Section 80C covers investments such as equity-linked saving schemes (ELSS), life insurance policies and Public Provident Fund (PPF). It also allows deduction for payment of home loan principal and children’s tuition fee. You can also claim deductions under section 24 for interest paid on your home loan. You can claim tax breaks under section 80D on health insurance premiums paid.

However, in a hurry to meet the deadline, many tax-payers end up making some common mistakes only to repent later. Here’s quick guide on the missteps to avoid this year.

Putting off investments for the last moment
Those who haven’t adhered to their tax plan through the year would be the ones searching for tax-saver options around this time of year. “Ideally, you should start making your tax-saver investments right at the beginning of the financial year. It will help you in avoiding mistakes due to the last-minute rush,” says Kalpesh Ashar, Founder, Full Circle Financial Planners and Advisors.

Starting early helps you to spread your investments through the year, thus reducing the pressure on your cashflows. For example, if you were to start contributing to your voluntary provident fund (VPF) or investing in equity-linked saving schemes (ELSS) every month from April, through a systematic investment plan (SIP), you will not have had to struggle now.

Making a huge investment at one go can leave you gasping for adequate funds for your regular needs. More so because this also happens to be the period when your employer deducts your balance tax payable, putting severe strain on your cashflows.

Not factoring in existing investments
Again, in a hurry to meet the deadline, many do not pay attention to their existing investments and expenses that entitle them to tax deductions. “If you are contributing over Rs 12,500 per month as your EPF contribution, you do not need to look at making tax-saving investments at all. Likewise on children’s school tuition fee that you would have paid during the year,” says Ashar. Both EPF contribution and children’s school tuition fee are eligible for deduction under section 80C.

If you over-invest your money in tax-saving instruments, you end up locking your funds for many years. So, if you need to buy a house, say, two years down the line, your ‘extra’ tax-saver investment will not come in handy as it cannot be liquidated. “Instead, you could use any surplus to make investments linked to financial goals. Tax planning should always be part of your financial plan and not a task to be completed towards the end of year,” says Pankaj Mathpal, Founder, Optima Money Managers. For example, if saving for retirement is your goal, you can look at VPF and PPF. However, if your goal is just three years away and you can stomach market risks, you can invest in ELSS.

Buying insurance-cum-investment policies in a hurry
Buying a life insurance policy is easy, especially during tax-saving time. Life insurance agents are only too willing to help, making all sorts of return assurances. Many unsuspecting buyers go ahead and buy life insurance policies of the investment-cum-insurance variety that they may not need. “This happens year after year. “Neither is the life cover in such policies adequate, nor do the returns add any value to your overall investment portfolio,” explains Ashar. You would still need to buy a large term insurance policy to secure your dependents financially in your absence. “Moreover, it creates a recurring payment commitment and can be a drain on your cashflows,” he adds. Remember, life insurance policies will lapse if you cannot keep up with your premium commitments.

Borrowing to invest
Arguably, this is the biggest investment-related mistake you can make. Many do not exercise moderation in their expenses through the year, only to find that their savings are not enough to optimise the tax benefits available. Some use their credit cards to make the investments ahead of the deadline. You could get ensnared in debt traps, given the high interest rate of over 40-44 percent per annum that most credit cards carry. “In such cases, when you do not have funds to make tax-saver investments, it is better to let go of tax benefits than pay interest much higher than what 80C instruments can offer,” says Mathpal.

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In this article, our focus will be on the significant changes being proposed to other extant tax and fiscal legislations.
On Thursday 8 October 2020, His Excellency, President Muhammadu Buhari presented the 2021 Budget Proposal to the Joint session of the National Assembly. While delivering the budget presentation speech, the President also announced that the Finance Bill 2021 would be presented to the National Assembly for consideration and passage into law. On Wednesday 18 November 2020, the Federal Executive Council (FEC), presided over by the President approved the Finance Bill 2021.

Personal Income Tax Act (PITA)
Taxation of Non-Resident Individuals, Executors or Trustees

Section 6 of PITA provides the conditions for taxation of a non-resident individual, executor, or trustee. However, a new section 6A is being proposed to align the provisions of PITA and the Companies Income Tax (CITA), whereby gains or profit from a trade or business, such as technical, management, consultancy or professional services provided by a non-resident individual, executor, or trustee to a Nigerian resident would be deemed to be derived and taxable in Nigeria to the extent that the non-resident individual, executor or trustee has a significant economic presence in Nigeria. Previously, these incomes were not generally taxed in Nigeria.

As is the case under CITA, the definition of 'significant economic presence' for a non-resident individual, executor, or trustee is to be provided by the Minister of Finance via an Order.

Deductions Allowed
Section 20(g) of PITA will be amended to allow only contributions to pension, provident or other retirement benefits fund, society or scheme that is recognized under the Pension Reform Act for the purpose of ascertaining the income or loss of an individual.

Commencement Rule
A new Section 24 of PITA is being proposed to align with the provisions of CITA and ensure consistency in the basis period used by both companies and individuals for the determination of assessable income during the commencement of a new trade, business, profession or vocation. Similar amendments were made to the commencement rules for companies under CITA by the Finance Act 2019. This amendment is aimed at eliminating the risk of double taxation inherent in the commencement rules.

The basis period for computing income tax on assessable income for individuals will be, for the first year, the date when the trade commences to the end of its first accounting period. The second year will be from the first day after the end of the first accounting period to the end of the second accounting period, while the third year and subsequent years will be the day after the accounting period just ended till after twelve months.

Cessation of Trade
Likewise, the provisions of Section 25 of PITA on assessable income upon the cessation of trade will be amended to align with the provisions of CITA. Income that will be assessable to tax upon the cessation of trades will be income from the beginning of the accounting period to that of the date of cessation. The tax computed shall be payable within three months from the date of cessation. This amendment is aimed at eliminating the risk of double taxation inherent in the existing cessation rules in PITA.

Tertiary Education Trust Fund (Establishment, Etc.) Act (TETFUND)
Exemption of Small Companies from Payment of Tertiary Education Tax

An amendment is proposed to Section of 1 TETFUND Act to exempt small companies with turnover below N25 million from the payment of TET. This amendment will align the provisions of the TETFUND Act with respect to small companies, to that of CITA and eliminate the ambiguity on whether small companies are exempt from paying TET. It is also aimed at implementing the Federal Government's policy directive of exempting small companies from tax in line with the ease of doing business initiatives.

Customs & Excise Tariff etc. (Consolidation) Act (CETA)
Goods and Services Liable to Excise Duty

The provision to Section 21(1) of CETA allows for the exemption of imported goods and raw materials that are not locally produced or not locally available in Nigeria from excise duties will be deleted. This proviso is contradictory to Section 21(1) of CETA, as it subjects imported goods to excise duty as well as those manufactured locally.

Interestingly, a new Section 21(2) is being proposed to impose excise duty on services provided in Nigeria. The President will amend the fifth schedule of CETA via an Executive Order, in order to include the dutiable services and the rate that will apply.

Value Added Tax Act (VATA)
Rules to Determine Time of Supply

A new Section 2A of the VATA is proposed to provide guidance on the determination of 'time of supply' of goods and services. Movable goods will be deemed to be supplied on the date of delivery by the supplier; for non-movable or intangible goods, supply would take place on the date the goods are available for use to the person to whom they are supplied. Services will be supplied on the date the services are performed.

However, the following exceptions will be provided for:

Supply would be deemed to have taken place on the date of supply where goods have been delivered and invoices are not issued within 60 days from the date goods were supplied.
Supply would also have taken place on the date invoice was issued where the invoice has been issued in advance of the supply of goods or service.
Supply would have also taken place on the date invoice was issued where goods or services are supplied periodically, continuously, or in succession and invoice can only be issued upon completion of a milestone or other contractual terms.
VAT Exemption for Animal Feeds, Transfer of Interest in Land, Assignment of Leasehold Interest in Land, etc.

The interpretation to the VAT Act is being amended to categorize animal feed as basic food items, hence exempt from VAT. Similarly, the definition of intangible goods is being amended to exclude the transfer of interest in land, assignment of leasehold interest in land, transfer of interest in a license to produce or explore solid minerals of petroleum, or a right to use water drawn from a river, dam or aquifer.

Capital Gains Tax Act (CGTA)
Compensation for Loss of Office

The wordings of the Finance Act 2019 suggested that compensation for loss of office exceeding N10 million will be subject to CGT. It was however not clear whether it was the amount in excess of N10 million or the entire compensation that will be subject to CGT. The proposed amendments is aimed at clarifying that only the amount in excess of N10 million will be subject to CGT and the person paying the compensation will be responsible for deducting and remitting the applicable CGT.

Conclusion
The various amendments proposed via the Finance Bill 2021 further reiterates government's commitment to align the Nigerian tax system with global best practices and ensure the ease of doing business in Nigeria. These amendments will clarify some ambiguities and contradictions observed in the Finance Act 2019 as well as other issues that were not previously addressed. One of such is the alignment of provisions in PITA with CITA with respect to taxation of non-resident individuals, executors, and trustees. Another one, is the amendment to the commencement and cessation rules in PITA to eliminate the double taxation challenges in the old commencement rule. Similarly, the introduction of rules to determine time of supply of goods and services will also eliminate the inherent ambiguities. While we await further deliberations, eventual passage and signing of the Finance Bill 2021 into law, taxpayers are encouraged to examine the provisions of the Bill and how it will impact their affairs.

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A. Introduction
The 2020 fiscal year started with great hope, as the government had capped oil price at $57 per barrel with an estimated total expenditure of ₦10.59 trillion for the year 1 . The year also witnessed the passage of the annual Budget alongside the Finance Act, 2019, which introduced sweeping changes to seven tax legislation geared towards improving small and medium scale businesses in Nigeria, and generating more tax revenue for government amongst others. 2

However, following the outbreak of the COVID-19 Pandemic in Nigeria and the global fall in oil prices, the government revised the Budget to cater to its increasing expenditure and dwindling revenue. The amended 2020 Budget was based on a benchmark oil price of $28 per barrel while the estimated expenditure was adjusted upwards to ₦10.81 trillion. 3 The government also introduced various measures to cushion the effect of the Pandemic on businesses as well as the economy. Some of these measures include conditional cash transfer across the 36 states, distribution of palliatives to citizens, extension of time for filing Companies Income Tax (CIT), Value Added Tax (VAT) and Withholding Tax (WHT) returns, exclusion of more food items, baby products and other items from VAT, amongst others.

The Government pursued its revised Budget vigorously, as this was evidenced by the issuance of the Significant Economic Presence (SEP) Order and the VAT Modification Order by the Minister of Finance, amendment of the Voluntary Offshore Assets Regularization Scheme (VOARS) Order, and publication of various information circulars aimed at providing implementation guidance to taxpayers and shoring up tax revenue for government.

Despite the challenges associated with the COVID-19 Pandemic, the government plans to set the country on a path of economic recovery in the year 2021. This document seeks to review the key tax and fiscal highlights of 2020, and comment on potential developments in the Nigerian tax and fiscal space in 2021.

B. Key Tax and Revenue Highlights in 2020
1. Tax Administration
For the most part of 2020, the Federal Inland Revenue Service (FIRS or the Service) and state revenue authorities across the country rolled out various measures to cushion the effects of the COVID-19 Pandemic on businesses. For instance, the FIRS extended the timeline for filing CIT, WHT and VAT returns. The FIRS also waived the imposition of interests and penalties for taxpayers that paid their outstanding taxes before 31st December 2020, and introduced a number of initiatives for submitting tax returns electronically. In the same vein, several state tax authorities extended the deadline for filing of Personal Income Tax returns and introduced a number of incentives and similar e-filing procedures for taxpayers.

In addition, the government turned its focus to revenue generating alternatives like agriculture and indirect taxes such as VAT (using the increased VAT rate of 7.5%) as well as stamp duties given the fall in oil prices and the reduction of revenue from income tax.

In the full year 2020, the FIRS generated ₦4.95 trillion, which represented 98% of its revenue target for the year. 4

2. Tax Legislation and Policy
Legislation and Policy " One major highlight of 2020 was the Presidential assent to the Finance Act, 2019 (FA 2019 or the Act) on 13th January 2020. The Act made several changes to seven tax legislation including the CIT Act, Personal Income Tax (PIT) Act, VAT Act and Petroleum Profits Tax Act. Notable amendments introduced by the FA 2019 include the increase of VAT rate from 5% to 7.5%, categorisation of companies into small, medium and large companies and the exemption of small companies from paying income tax and charging VAT. In addition, the Act introduced the SEP concept for the taxation of the digital economy. The Act also empowered the Minister of Finance to determine what constitutes SEP.
Pursuant to the powers granted under the Finance Act, 2019, the Minister of Finance issued the Companies Income Tax (Significant Economic Presence) Order, 2020 (SEP Order). The SEP Order, which has an effective date of 3rd February, 2020 imposes CIT on non-resident companies that provide digital services and derive at least ₦25 million from Nigeria. The SEP Order also makes provisions for the taxability of non-resident companies that provide professional, technical, consultancy and management services to Nigerian residents.
"Companies should begin to analyse the provisions of the Act and its possible impact on their business and tax obligations, going forward. Companies may also want to identify the relevant incentives introduced in the Act, and how they can take advantage of such incentives and reliefs."

The Minister of Finance also issued the VAT Modification Order 2020, (the Order). Similar to the SEP Order, the Order has an effective date of 3rd February, 2020. The Order modifies and expands the list of items exempted from VAT, and provides interpretation to a number of items in the Act, which hitherto formed the basis of contention between tax authorities and taxpayers.
On 11th November, 2020, the Federal Government approved the ratification of the Agreement Establishing the African Continental Free Trade Area. The Agreement seeks to create a single market for goods and services, and boost intra- African trade by eliminating tariffs and facilitating the free movement of goods, services and investment within the African Continent.
In September 2020, President Muhammadu Buhari presented the Petroleum Industry Bill (PIB) 2020 (the Bill) to the 9th National Assembly for consideration and passage. The Bill, which seeks to provide legal, governance, regulatory and fiscal framework for the Nigerian Petroleum Industry and development of Host Communities is currently before the two houses of the National Assembly, and needs to be passed by both houses, and assented to by the President before it becomes law.
The FIRS issued a number of public notices and information circulars with respect to stamp duties compliance. The FIRS through the circulars and public notices stated that agreements and transactions consummated over online platforms such as email, WhatsApp, Instant Messaging (IM) or any other internet based messaging service, website or cloud based platforms are dutiable instruments and should be disclosed by the contracting parties for the purposes of Stamp Duties.

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Succession of family businesses from one generation to another has remained one of the biggest challenges facing family businesses. It is widely known that most family businesses do not transit to the third generation. There are varying statistics on the percentage of family businesses that have transited beyond the third generation. For instance, according to the Family Firm Institute, while the majority of family business owners would like to see their business transferred to the next generation, it is estimated that 70% will not survive into the 2nd generation and 90% will not make it to the 3rd generation. In Nigeria for example, most of the family businesses that were very prominent in the 70s and 80s did not survive beyond the first generation.

Majority of the leading companies in Nigeria today are owned by families and can be said to be family businesses. Hence, given the critical role that family businesses play in the economy, by way of their contribution to GDP and employment, it is important for owners of family businesses to take all necessary steps to ensure transition from one generation to another. As a member of an ultra-high net-worth family in the United States of America once said, "You don't inherit a family business; you borrow it from your grandchildren", this underscores the importance of transitioning.

This article highlights some of the critical success factors that owners/managers of family businesses need to be aware of to ensure a smooth and effective transitioning to the next generations.

Family & family business governance
The implicit nature of family businesses, which relies strongly on the concept of a family unit owning, running and managing a business, has left many family patriarchs hesitant to put up formal structures that will guide the inter-relationship between the family and the family business. This hesitation is usually borne from a place of fear that establishing a formal structure around the management of the family business equals bureaucracy, loss of control and yielding of the oversight function to external parties. These concerns can be addressed where the family develops a governance system around its relations with the family business.

Family & family business governance deals with the intra-relationship between the family members on one hand and the inter-relationship between the family and the management of the family business i.e. the board of directors/management team, on the other. It is a formal structure that defines the family values and aspirations, describes the responsibility of the various family members with respect to the family business, and provides a clear direction for the succession of the next generation in the family. In addition to existing corporate governance structure in the business, family business governance assists the family to develop a methodology with which the family can monitor the performance of the family business and create a strategic framework for business ownership retention.

For successful business transition, family business owners should begin to consider setting up these governance structures in line with their unique circumstance. This will enable them develop a business succession strategy well ahead of time. The framework to be adopted would depend on a number of factors such as the size of the family, number of generations, extent of involvement of each generation in the family business etc.

Well trained and qualified next generation leaders
Nepotism is quite prevalent in family businesses as family business owners are traditionally inclined to assign administrative and managerial responsibilities to their nuclear/extended family members. This is particularly common where the founder/patriarch is unable to entrust the running of the family business to persons other than himself. Hence, the option that comes to mind when the need to appoint a successor for strategic functions in the family business surfaces is naturally a relative.

Nepotism, especially where the respective family members lack the requisite competence, usually comes at the expense of having the right technical hands with the right managerial skills to steer the business in the right direction and ensure that it is run profitably and efficiently. Even worse is when the family business is thrusted into ill-prepared hands, who may or may not have interest in the business. The need to have a successful business should precede the need to provide some form of employment opportunity to members of the family

In order to ensure that neither the business nor family interests are disproportionately placed above each other, family business owners must put measures in place for the onboarding of the next generation. This implies that they adopt proactive strategies to acquaint and involve them in the family business; actively train them to acquire the requisite managerial and business skills; and enlist their interest in being a part of the family business rather than shoving the responsibility on them based on their status as members of the family. Getting the right persons to manage the affairs of a family business is a key determinant of the sustenance of the business which is quite necessary to ensure a successful transition.

Align family vision and mission statement to the overall strategy of the business
Families need to create and document their unique vision and mission statement in relation to what they stand for and the values they uphold. This allows the family members to envision the future outlook of the family, connect to aspirations of the founder/patriarch regarding the family and to have a form of direction towards attaining this. As expected, the individual investee companies of the family would also have in place certain goals and objectives that guides their daily activities and operations to ensure business efficiency.

The ultimate goal of a family business is to grow and outlive several generations. This can only be achieved where deliberate efforts are taken to ensure efficiency in family business management and involvement of family members in working towards attaining the goal. The time to start to make these efforts is NOW. Family business owners should aim at sustaining the family business and developing their business succession plans for efficient transition and preservation of their family legacy.

For a successful business transition, business owners need to ensure an alignment between the family goals and that of the family business. Where there is no synchronisation of these goals, there is bound to be chaos and misguidance which will ultimately affect the existence of the family business itself. Hence, family business owners should ensure a correlation between the goals of the family and the family business such that one is not sacrificed for the other.

Tax efficiency in succession planning
Companies, regardless of the nature of their ownership have tax and regulatory obligations in Nigeria and other jurisdictions as applicable. The manner and form in which the family holds its investments in the businesses, determines the efficiency of their succession plans from a tax perspective. Family business owners need to be aware of the tax implications of their succession plans and be more strategic in this regard by considering investment holding structures that will ensure that their returns will not be eroded by avoidable taxes and its attendant penalties. The structures should enable the family organise their business and personal affairs in such a way that will minimize tax footprints. It is also advisable for the family to adopt a pro-active rather than a reactive approach to tax planning.

Conclusion
The ultimate goal of a family business is to grow and outlive several generations. This can only be achieved where deliberate efforts are taken to ensure efficiency in family business management and involvement of family members in working towards attaining the goal. The time to start to make these efforts is NOW. Family business owners should aim at sustaining the family business and developing their business succession plans for efficient transition and preservation of their family legacy. Family business owners should consider seeking the support of external advisers and professionals with the requisite knowledge, skills and experience to support them through this process.

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Putting The Taxpayer's Best Foward..

This article summarizes the different transfer pricing methods in line with the OECD guidelines and the Nigerian transfer pricing regulations and when each method can be applied. It also attempts to address the common pitfalls faced in the selection of an appropriate transfer pricing method.
It is no news that transfer pricing is now an area that requires keen attention and the need for robust transfer pricing documentation cannot be overemphasized. In keeping a robust transfer pricing documentation, it is very crucial that taxpayers select the most appropriate transfer pricing methods in line with the guidelines set out by the local transfer pricing regulations and the Organization for Economic Cooperation and Development (OECD).

As seen in the first Nigeria transfer pricing case between the Federal Inland Revenue Service (FIRS) and Prime Plastichem Nigeria Limited (PPNL), FIRS disregarded the transfer pricing methods adopted by PPNL and raised an assessment of ?1.74 billion after a perusal of the transfer pricing documentation. The Tax Appeal Tribunal (TAT) disregarded the appeal of PPNL and ruled in favour of the FIRS by upholding the methods suggested as appropriate for the determination of the arm's length price. PPNL's appeal was disregarded on the ground that it could not prove its case to the satisfaction of the tribunal.

The major issue in this case is the use of a suitable transfer pricing method. This shows how important it is for taxpayers to properly assess and select the most appropriate transfer pricing methods when analyzing transactions with related parties to determine whether they comply with the arm's length principle. This will be a stronghold for taxpayers in the event of a transfer pricing review or audit by the tax authority.

There are basically five transfer pricing methods which can be classified as the traditional and transactional methods. The traditional methods comprise of the Comparable uncontrolled price (CUP) method, Resale price method and Cost-plus method while the transactional methods comprise of the Transactional Net Margin Method (TNMM) and the Transactional Profit Split Method

Comparable uncontrolled price method
The Comparable Uncontrolled Price (CUP) method compares the price charged for goods or services in a controlled transaction (related party transaction) to the price charged for goods or services in a comparable uncontrolled transaction (third party or independent transaction) under comparable circumstances. The key element here in this comparability study is the similarity of the comparable parties, the similarity of the terms of the transactions and the similarity of the comparable circumstance surrounding the transactions. These elements must exist to a reasonable degree in order to enable an adequate basis for comparison and reliance.

Prices could be compared using an internal comparable approach (a transaction or transactions between the controlled entity and an independent entity) or an external comparable approach (a transaction or transactions between two independent entities).

As stated earlier, for comparison to occur in both approaches, the circumstances surrounding the transactions must be similar and meet the comparability factors as outlined in the OECD guidelines. If there are differences resulting from the comparison, it may indicate that the related party transactions are not at arm's length and the price charged in the uncontrolled transaction may be applied as the price in the controlled transaction. It should be noted that the biggest pitfall of entities in the application of the CUP method is in their selection of comparables that meet the comparability factors of the OECD Guidelines. Performing a proper functional and risk analysis, using the right benchmarking database and engaging transfer pricing experts are some of the ways in which these pitfalls can be overcome.

The CUP method is the most reliable and preferred transfer pricing method in determining the arm's length nature of related party transactions, however, it is only applicable where there are sufficient comparable data. In practice, finding these suitable comparables could be very challenging.

Resale Price Method
The resale price method is based on the price at which goods purchased from a related party is resold to an independent entity. The resale price is reduced with a gross margin (the resale price margin) determined by comparing gross margins in comparable uncontrolled transactions. What is left after subtracting the resale price margin and adjusting for other costs associated with the purchase of the goods can be regarded as an arm's length price for the controlled transaction between the related parties.

In practice, it is easier to use the resale price method where:

the goods are not further processed, and the reseller will not add material value to the goods purchased from the related party and sold to the independent entity. Where the goods are further processed before reselling to the independent entity, it will be difficult to arrive at the arm's length price using this method.
the goods purchased from the related party are sold to the independent party within a short period, because the longer the inventory holding period, the more likely it would be that other factors such as the exchange rate, inflation rate and other changes in the market might affect the resale price margin.
The resale price method is suitable for entities that engage in sales and distribution to independent parties as well as marketing operations.

One of the pitfalls of the resale price method is that it requires the existence of comparable controlled and uncontrolled transactions and the availability of gross margin data on a transaction-by-transaction basis. Also, companies might classify expenses differently which would likely result in different gross margins thus making comparability difficult. One way to avoid this pitfall is by carrying out appropriate adjustments to the data used in calculating the resale price margin in order to ensure that the same type of expenses is used to determine the gross margin.

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Over the years, the World has evolved into a global village and the way business is carried out has changed greatly. With the advent of technology, the rate at which businesses have expanded their coverage from one part of the world to another is unprecedented and faster when compared with the evolution of international tax in Africa and domestic tax laws which guides the taxation business operations. This has resulted in either double taxation or non-taxation of revenue because the existing domestic laws in some African countries do not cover the taxation of Non-Resident Companies.

It is to this extent that the Nigerian Minister of Finance issued a clarification via the Companies Income Tax (Significant Economic Presence) Order 2020 (the SEP Order). The SEP Order details the conditions that create a taxable presence for Non-Resident Companies (NRCs) providing digital, technical, management, consultancy or professional services in Nigeria.

Taxation of NRCs in Nigeria Prior to the Finance Act 2019
Prior to the enactment of the Finance Act 2019, the conditions that create taxable presence for NRCs based on Section 13(2) of the Companies' Income Tax (CITA) are as follows:

a. the company has a fixed base of business in Nigeria;

b. it habitually carries on business through a person in Nigeria authorized to conduct business on its behalf (a dependent agent);

c. it executes a single contract for survey, deliveries, installations, or construction (turnkey project); and

d. it carries on business with connected parties in Nigeria on conditions not deemed to be at arm's length.

However, with the introduction of the Finance Act 2019 and SEP Order, the conditions that create taxable presence for NRCs have been widened to cover the provision of digital, technical, management, consultancy or professional services in Nigeria. Based on the SEP Order, NRCs providing digital, technical, management, consultancy or professional services would be deemed to have a taxable presence in Nigeria if they have a significant economic presence and profit can be attributed to the business activity carried out in Nigeria.

Conditions for Establishing a SEP for NRCs Providing Digital Services
In accordance with the SEP Order 2020, an NRC providing digital services will be deemed to have a significant economic presence in Nigeria in any accounting year where it; a. Derives from Nigeria, a gross turnover or income exceeding N25 million or its equivalent (about US$65,8761 ); b. from any or a combination of digital services provided; c. Uses Nigerian domain name (.ng) or registers a website address in Nigeria; or d. Has a purposeful and sustained interaction with persons in Nigeria, by customizing its digital platform to target the Nigerian market, including reflecting its product or service price in Nigerian currency or providing options for billing or payment in Nigerian currency.

In order to determine the gross turnover or income of an NRC in any particular year, the business activities carried on by the NRCs with its related parties would be considered. However, where an NRC is covered under a multilateral agreement or consensus arrangement that addresses the tax challenges arising from the digitization of the economy, the basis of taxation of the NRC will be determined based on the agreement. By implication, the significant economic presence conditions will not apply to any NRC covered by a Double Tax Treaty (DTT) which takes into consideration the tax challenges arising from the digitization of the economy.

Digital services have been described to include streaming or downloading services of digital contents (such as movies, videos, music, applications, games, e-books, etc.) to a person in Nigeria; transmission of data collected about Nigerian users generated from such users' activities on websites or mobile applications; provision of goods or services (including inter-mediation services) through a digital platform, website or other online applications that link suppliers and customers in Nigeria.

Conditions for Establishing an SEP for NRCs Providing Technical, Management, Consultancy or Professional Services.
An NRC involved in the provision of technical, management, consultancy or professional services will be deemed to have a significant economic presence in Nigeria in any accounting year, where it earns any income or receives any payment from:

a. a person resident in Nigeria; or

b. a fixed base or agent of an NRC.

Please note that technical services include advertising, training and provision of personnel as specified in the SEP Order. Further, the payments under the following arrangements by an NRC will not create a significant economic presence in Nigeria:

a. in respect of a contract of employment for teaching in or for teaching by an educational institution; or

b. by a foreign fixed base of a Nigerian company.

Practical Considerations on the SEP Order

NRCs providing digital, technical, management, consultancy or professional services that meet the conditions and thresholds stated in the SEP Order will be required to register for Companies' Income Tax (CIT) in Nigeria. However, the provision to Section 13(2)(a) -(e) of the Finance Act, 2019 provides that the final tax applicable on the income of NRCs providing technical, management, consultancy or professional services will be limited to Withholding Tax (WHT). It is expected that the applicable WHT will be deducted at source by the Nigerian customers and remitted to the Federal Inland Revenue Service (FIRS).

The Organization for Economic Co-operation and Development (OECD) is currently championing a consensus-based approach to determining significant economic presence. However, Nigeria like other countries of the world has adopted a unilateral-based approach, notwithstanding the work being done by the OECD. While this may be considered as a step in the right direction, there is the need for Nigeria to consider aligning with the OECD's approach upon finalization, in line with global best practices.

Nigeria's approach of setting turnover/income threshold of N25 million differs from the approach adopted by other countries of the world that have also adopted the unilateral approach. For instance, the Indian government via its 2020 Budget imposed a 2 per cent tax on NRCs carrying on business in India without a taxable presence. The threshold for creating a significant economic presence is US$267,000. In Indonesia, foreign e-commerce service providers carrying on business in the country will be deemed as having a permanent establishment under the local law and therefore subject to domestic tax. It is however not clear whether there is a minimum turnover/income threshold.

Conclusion
Although, the SEP Order provides further guidance on the conditions for determining a significant economic presence, it raises concerns on our how profit will be attributed to business activities carried out in Nigeria. Notwithstanding the above, the introduction of the significant economic presence is a welcome development as it provides a basis for the taxation of income from digital, technical, management, consultancy or professional services provided by NRCs in Nigeria. The incomes from these services have hitherto not been taxed in Nigeria, thereby resulting in a huge tax leakage and loss of tax revenue that should have ordinarily accrued to the Nigerian government.

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It is no longer news that President Muhammadu Buhari signed the Finance Act 2020 (FA20) into law on 31 December 2020 alongside the 2021 National Budget. The FA20 brought about several amendments to 14 Nigerian tax and fiscal legislations in fulfillment of the Buhari administration's promise of ongoing tax and fiscal reforms.

A notable amendment to the Companies Income Tax Act (CITA) is the amendment of Section 33 which provides for the minimum tax regime applicable to companies in Nigeria. In this article, we will be examining the minimum tax regime prior to the enactment of the Finance Act 2019 (FA19) and FA20 vis-àvis the new minimum tax regime introduced by FA19 and further modified by FA20.
Minimum Tax Regime (Pre-Finance Act 2019 and 2020)

Minimum tax is applicable to companies with no taxable profit or tax payable lower than minimum tax computed. However, prior to the introduction of FA19 and FA20, companies engaged in agricultural business, companies in the first four calendar years of business, and companies with imported equity of 25% and above, were exempt from minimum tax based on Section 33 of CITA. Further, various parameters were considered to determine the minimum tax payable by companies amongst which are gross profit, net assets, paid-up capital and the turnover of the company. This approach was cumbersome and time consuming. It also generated various controversies as companies paid tax from their equity (paid-up capital) and net assets even when the business was running at a loss.

Another controversy was the exemption granted to companies with imported equity of 25% and above, as it did not allow for a level playground when compared with companies with locally sourced equity. Although, the original intention was to attract foreign direct investment into the country, it is popular opinion that the exemption had outlived its purpose.

The Modification under the Finance Act 2019
In order to address the controversies of the old minimum tax regime, the FA19 introduced amendments to Section 33 of CITA. The FA19 introduced a new basis for computing minimum tax, moving away from a combination of equity, net assets and revenue-based approach to a strictly revenue based approach. A flat rate of 0.5% of gross turnover less franked investment income was introduced as the basis for computing minimum tax.

The amendment also deleted the exemptions granted to companies with imported equity of 25% and above and introduced minimum tax exemption for small companies with a gross turnover of less than N25,000,000. Although, these amendments seem to have addressed the controversies under the previous legislation, it however introduced a new challenge. Should a company pay income tax from its turnover where no profit was made during the year? Would this not amount to paying tax from equity and reserves as was the case under the previous minimum tax regime? Would this not negate one of the canons of taxation, equity? Should revenue and not gross profit be the basis for minimum tax computation? These questions beg for answers.

Considerations under the Finance Act 2020
The outbreak of Covid-19 pandemic during the year 2020 resulted in global production shutdown and supply chain disruptions. This had an adverse impact on various businesses in different sectors of the economy. Consequently, governments all over the world offered palliatives in the form of tax breaks and incentives to taxpayers at various levels.
In a bid to grant similar palliatives to taxpayers, the Federal Government of Nigeria (FGN) via the FA20 introduced a 50% reduction in minimum tax rate from 0.5% of gross turnover less franked investment income to 0.25%. The reduced minimum tax rate is however applicable for the Years of Assessment (YOA) due from 1 January 2020 to 31 December 2021.

This is indeed a laudable initiative by the FGN aimed at cushioning the impact of the Covid19 pandemic on businesses. The only challenge with this initiative is the fact that the tax returns due for submission from 1 January 2020 to 31 December 2020 (the effective date of the FA20) are expected to have been filed with the Federal Inland Revenue Service (FIRS) for companies with financial years ending between 1 July 2019 to 30 June 2020. It remains unclear how these companies are expected to take advantage of this incentive where their tax returns are already filed and the minimum tax paid by the company where applicable. Are the affected companies required to apply for a tax refund in order to recoup the amounts already paid to the FIRS? Are the affected companies permitted to utilize the tax amounts paid as tax credit against future tax liabilities? Can these amounts be applied against future liabilities in respect of any tax type? These questions also beg for answers as the FA20 did not provide the framework for the recovery of the minimum tax already remitted under this circumstance.

Conclusion
It is important to emphasize that the reduction of minimum tax rate from 0.5% to 0.25% is only applicable for two years of assessment. While noting the effective time-limiting window for enjoying the incentive, it is expedient to applaud the FG for the successive amendments of the various tax laws in Nigeria. It is also important for the FG to provide possible answers to the many questions that have been raised with respect to these amendments.
In the coming months, we look forward to the issuance of an Executive Order to help solve these puzzles and close the missing links created by the omission of critical directives in respect of the incentive granted by the FG.

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Finance Act, 2020:

The Finance Act, 2020 came into force on 1st January 2021. A major objective of the Finance Act, 2020 is to generate increased revenue, provide tax incentives to stimulate economic growth, streamline existing tax incentive regimes, and to clarify ambiguities in various laws. The Finance Act, 2020 (coming on the heels of the Finance Act, 2019) is the second of such statutes in two consecutive years to be enacted by the Buhari administration. These statutes allow the Federal Government to undertake targeted amendments of several laws at the same time to achieve its fiscal objectives instead of having to amend each law separately.
The scope of the Finance Act, 2020 is very wide. However, we will examine only some of the provisions that affect foreign companies and individuals doing business in Nigeria:
1. Tax returns:
The Finance Act, 2020 amends Section 55 of the Companies Income Tax Act (CITA) by creating a special procedure and requirement for foreign companies that derive profit or are otherwise taxable in Nigeria to file tax returns with the Nigerian tax authorities. This is unlike the previous regime which imposed a one-size-fits-all filing procedure for both foreign and Nigerian companies. Now, foreign companies are required to file their tax returns in Nigeria by submitting the following:
The company's full audited financial statements and the financial statement of the company's Nigerian operations, attested by an independent qualified or certified accountant in Nigeria;
Tax computation schedules based on the profits attributable to the company's Nigerian operations;
A true and correct statement, in writing, containing the amount of profits from each and every source in Nigeria; and
Duly completed Companies Income Tax Self-Assessment forms.
However, where Withholding Tax (WHT) is the final tax in respect of all the transactions entered into by a foreign company, the company will not have any obligation to file any companies income tax return in Nigeria in respect of that year.
2. Significant economic presence is now the basis for taxing non-resident individuals who provide technical, management, consultancy or professional services in Nigeria:
The Finance Act, 2020 introduces a Section 6A into the Personal Income Tax Act (PITA) which provides that where a non-resident individual receives gains or profits as a result of carrying on a business in Nigeria which comprises of technical, management, consultancy or professional services, such profit or gain shall be deemed to be derived from and taxable in Nigeria only if that non-resident individual has a significant economic presence (SEP) in Nigeria. In essence, the new SEP rule will only apply where the business or trade involves the provision of technical, management, consultancy or professional services.

The new SEP rule in Section 6A PITA supersedes Section 6 of PITA where the non-resident individual provides technical, management, consultancy or professional services in Nigeria. In such circumstances, it will be immaterial that the non-resident individual does not have a fixed base or a dependent agent in Nigeria, or that the transaction is a single contract for surveys, deliveries, installation or construction.

The Finance Act, 2020 does not define SEP as it relates to individuals under the PITA and provides that the Minister of Finance may issue an Order to define what constitutes SEP for non-resident individuals, trustees and executors. As the Companies Income Tax (Significant Economic Presence) Order 2020 relates only to companies, non-resident individual taxpayers will need to wait for an Order to be issued by the Minister. Nevertheless, this marks a significant extension of the application of the SEP rule in Nigeria and signifies the willingness of tax authorities in Nigeria to adopt it as a basis of taxation for non-resident entities doing business in Nigeria.

3. Clarification of what constitutes the supply of goods or services subject to Value Added Tax (VAT) in Nigeria:
The Finance Act, 2020 expands what constitutes the supply of goods or services for Value Added Tax (VAT) purposes in Nigeria as follows:
Services rendered in connection with any existing immovable property situate in Nigeria:
Services rendered in connection with any existing immovable property situate in Nigeria (including the services of agents, experts, engineers, architects, valuers, etc.), shall be deemed to be services supplied in Nigeria for the purposes of VAT. It is unclear whether this refers only to services rendered in respect of buildings which exist at the time of enacting the Finance Act, 2020 or also to services rendered in respect of immovable property created or built after the coming into force of the Finance Act, 2020.

Incorporeal rights:
Incorporeal rights are subject to VAT in Nigeria if any of the following conditions are satisfied:
The incorporeal right is exploited by a person in Nigeria;
The incorporeal right is registered in Nigeria, assigned to or acquired by a person in Nigeria. It is immaterial whether payment to acquire the incorporeal right was made within or outside Nigeria;
The incorporeal right is connected with a tangible or immovable asset located in Nigeria.

4. Definition of Goods:
The Finance Act 2020 defines "goods" as "all forms of tangible properties, movable or immovable, but does not include, land and buildings, money or securities." This is a clear departure from the definition contained in the Finance Act, 2019 which limits the definition of "goods" to tangible properties which are movable at the point of sale. However, it must be noted that the new definition in the Finance Act, 2020 makes it clear that immovable properties does not include land or buildings.

5. Definition of Services:
The Finance Act, 2020 has specifically extended the definition of services to include "any intangible or incorporeal product, asset or property over which a person has ownership or rights, or from which he derives benefits, and which can be transferred from one person to another, excluding interest in land and buildings, money or securities. By providing this level of specificity, the Finance Act, 2020 has moved away from merely defining
"services" as being anything which is not "goods" and has ensured a level of certainty in determining VAT liability.

6. Non-resident persons may appoint a representative for the purpose of complying with their VAT obligations in Nigeria:
The Finance Act, 2020 empowers a non-resident vendor or service provider to appoint a representative for the purpose of fulfilling its VAT obligations in Nigeria (i.e. registration for VAT and obtaining a tax identification number). The non-resident vendor is required to include VAT on its invoice, while the person receiving the goods or service is required to withhold and remit the same.

Conclusion
Clients are advised to obtain expert tax advice when conducting business in Nigeria (whether physically or remotely). The constant changes to the tax landscape in Nigeria mean that businesses must keep track of opportunities available to them, changing obligations and the necessary adjustments they need to make.

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