You would recall that in November last year, the Organisation for Economic Cooperation and Development (OECD) and the G20 leaders endorsed the Base Erosion and Profit Shifting (BEPS) package, with a 15-point Action Plan on improving the effectiveness of international tax system.
The BEPS package has so far formed a springboard for a shift in focus to designing and putting in place an inclusive framework for monitoring and supporting implementation of BEPS measures, with all interested countries and jurisdictions invited to participate on an equal footing, including developing countries.
Part of these continuing efforts to boost transparency by multinational entities (MNEs), is the signing of Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of Country-by-Country (CbC) MNE reports by Nigeria and 30 other countries earlier this year.
According to the provisions of the MCAA, by the time the first exchange of CbC reports takes place, all signatory Competent Tax Authorities to the MCAA are expected to have the following in place:
- appropriate safeguards to ensure that the information received remains confidential and is used for the purposes of assessing high-level transfer pricing risks and other base erosion and profit shifting related risks, as well as for economic and statistical analysis, where appropriate.
- the infrastructure for an effective exchange relationship (including established processes for ensuring timely, accurate, and confidential information exchanges, effective and reliable communications, and capabilities to promptly resolve questions and concerns about exchanges or requests for exchanges and compliance errors/default by Reporting Entities within their jurisdictions, and
- the necessary legislation to require Reporting Entities within their jurisdictions to file the CbC Reports.
A Competent Authority, which is a signatory to the MCAA is expected to send to the Co-ordinating Body Secretariat at the OECD, prior to signing or immediately after signing the MCAA, a notification asserting that all the above are in place and the date on or after which the CbC reporting requirement is expected to take effect.
We await the CbC reporting legislation in Nigeria (as this is currently not yet in place), and the official notification from the Federal Inland Revenue Service (FIRS) of the commencement date for the CbC reporting requirement in Nigeria. The automatic exchange of CbC reports with Nigeria will only be activated after this awaited commencement date.
Worthy of note is the fact that according to Action 13 of the BEPS Package, CbC Reports are only intended to be part of a more comprehensive three-tiered documentation structure:
- CbC reports
- Global master files (representing a broad view of the global MNE groups operations, structures, strategic business profits drivers, major products and services, intercompany relations, value points/regions and pricing strategies etc.), and
- Local files (consisting of the local companies’ structures, organograms, management structures, intercompany agreements, competitors, functional analyses, benchmark analyses, price determinants etc.).
This three-tiered documentation represents a standardised approach to transfer pricing documentation which will provide tax administrations with relevant and reliable information to perform an efficient and robust transfer pricing risk assessment analysis.
Although Nigeria is yet to put in place the necessary infrastructure to facilitate/enable sharing of CbC reports to it by other signatory Competent Authorities to the MCAA, it is advisable for MNEs operating in Nigeria to be proactive about all Transfer Pricing documentation requirements in order to stay ahead of the rapidly changing global tax terrain. Bankable financial reports complying with the International financial reporting standards (IFRS) for all entities within the MNE Groups (including PEs), are also expedient for capturing of consistent financial information in the three-tiered TP documentation.
 According to Action 13 of the OECD BEPS Action Plan on Transfer pricing documentation and Country-by-Country Reporting, the CbC reports should contain information regarding the global allocation of the income, the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions in which MNE Groups operate. MNEs with group consolidated revenues (as disclosed in their consolidated financial statements of the immediate prior accounting period before the CbC reporting year) of less than approximately Euro750m or its equivalent in local currency, are not required to file CbC reports. All entities doing business in the applicable tax jurisdiction whether they be parent companies, ultimate parent companies, local subsidiaries of foreign parent companies or business operations by foreign companies constituting taxable presence are expected to comply.
 Australia, Austria, Belgium, Chile, Costa Rica, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Japan, Liechtenstein, Luxembourg, Malaysia, Mexico, Netherlands, Norway, Poland, Portugal, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland and United Kingdom.