Finance & Investment, Law & Politics, Regulatory Alerts, Tax and Transfer Pricing

The Effects of Country-by-Country Reporting on Ultimate Parent Entity (UPE)

On 17th of August, 2017, Tunde Fowler, Executive Chairman, Federal Inland
Revenue Service of Nigeria, signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI) and the CRS Multilateral Competent Authority Agreement‎ (the CRS MCAA).

Base erosion and profit shifting or BEPS refers to corporate tax
planning strategies used by multinationals designed to shift profits from higher-tax
jurisdictions to lower-tax jurisdictions, thus eroding the tax-base of the higher-tax
jurisdictions. The BEPS Project led by the Organisation for Economic Cooperation
and Development (OECD) came up with the Action Plan on BEPS which was
published in July 2013 with a view to  tackle concerns over base erosion and profit shifting (BEPS) and perceived international tax avoidance techniques of high-profile multinationals.

The 15 Action items was endorsed by G20 leaders and finance ministers at their
summit in St. Petersburg in September 2013, while many countries had embraced the initiative for its perceived positive effects on their various economy.
In compliance with the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI), the Federal Inland Revenue Service (FIRS) in exercise of powers conferred on it by Section 61 of the Federal Inland Revenue Service (Establishment) Act No.13 of 2007, and all other powers enabling it, has issued the Income Tax (Country by Country Reporting) Regulations, 2018 (the CbCR Regulations).

The CbCR regulations took effect from January 1, 2018, and forms part of the
enhanced tax disclosure requirements set out by Action 13 of the Base Erosion and
Profit Shifting (BEPS) project. Specifically, BEPS Action 13 requires the OECD to:
“develop rules regarding transfer pricing documentation to enhance transparency for tax administrations, taking into consideration the compliance costs for business. The rules to be developed will include a requirement that MNEs provide all governments with needed information on their global allocation of the income,
economic activity and taxes paid among countries according to a common template.” Regulation 3, 4 and 5, read together presupposes that where the Ultimate Parent Entity (UPE) or a Constituent Entity (CE) of a Multinational Enterprise Group (MNE Group) is tax resident in Nigeria, such Nigerian resident entity will be required to file a Country-by-Country Report (CbC Report) with FIRS for an accounting year where the Group has a total consolidated revenue of ₦160,000,000,000 or more in the
immediate preceding accounting year. However, with the exclusion of certain

The Country-by-Country Reporting therefore practically if the entity is statutorily covered by the blanket of Regulation 3 and 4 of the CbC Regulation 2018, answers the following questions:

  • Number of Employees
  • Number and extent of Permanent Establishments
  • How much revenue is earned
  • How much profit before tax is made
  • How much tax is being paid
  • How much Capital is employed
  • The value of tangible assets.

By reason of this, it is thus no gainsaying that (when the Company comes within the
exception under Regulation 5) the Federal Inland Revenue Service can simply
exchange information from governments outside Nigeria jurisdiction to give
answers to these questions as posed. This implies that the effect of the exception is
only to deter double or different reports being made when the Parent Group has
made such report in its resident jurisdiction.

Therefore, FIRS can simply and easily assess a company that has shifted its profits
to a tax haven (country that offers foreign individuals and businesses little or no tax
liability) and be able to answer the question of: Why is an Ultimate Parent Entity (UPE) or a Constituent Entity (CE) of a Multinational Enterprise Group (MNE Group) not paying so much tax when it
has a lot of employees in Nigeria? Why is the relevant company making so much profit and paying lesser tax in a
jurisdiction where it has just a small number of employees? From the above, it can be deduced that the Country-by-Country Reporting Regulation in its entirety depicts the call for transparency, coupled with certainty and predictability to curb BEPS.

Ultimately, on the face of it, the BEPS Action Plans are in a bid to showcase fairness
on a country where a company derives profits but legally avoids paying the required tax by shifting its profits to a tax haven. Therefore, the Ultimate Parent Entity (UPE) or a Constituent Entity (CE) of a Multinational Enterprise Group (MNE Group) will find it hard to avoid tax through BEPS and can also be penalised for non-compliance with a penalty of ₦10 million in the first instance and ₦1 million for every month in which the failure continues for late filing, while ₦10 million penalty accrues from making false declaration or filing incorrect information, and finally, failure to notify the FIRS of the identity and tax residence of the entity within the group who has the
responsibility to file the CbCR on behalf of the group will attract a penalty of ₦5
million in the first instance and ₦10,000 for every day of default.


2 Dhammika Dharmapala (2014). What Do We Know About Base Erosion and Profit Shifting? A Review of the Empirical Literature, University of Chicago. p. 1. focuses

particularly on the dominant approach within the economics literature on income shifting, which dates back to Hines and Rice (1994) and which we refer to as the “Hines-Rice” approach.



5 Para 2.2, Federal Inland Revenue Service Information Circular No. 9302

6 Regulation 5, Income Tax CbC Regulation, 2018.

7 Ibid, Regulation 11.

8 Ibid, Regulation 12.

9 Ibid, Regulation 13.

Previous ArticleNext Article

Leave a Reply

Your email address will not be published. Required fields are marked *

Send this to a friend