Banks and businesses in Nigeria are ruminating on how to respond to a new law on taxation by the United States of America aimed at plugging revenue loopholes.
The new law known as the Foreign Account Tax Compliance Act (FATCA) requires citizens of the US, including individuals who live outside its space, to report their financial accounts held outside of the US. The law also requires foreign financial institutions to report to the Internal Revenue Service (IRS) about their US clients.
US citizens who own businesses or work in Nigeria, as well as Nigerians who are behind businesses situated in the United States, are targets in this move by the US government, analyst say.
However, the major concern of banks and businesses in Nigeria is the non-existence of an Inter-governmental Agreement (IGA) between the country and the United States Treasury Department on Foreign Account Tax Compliance Act (FATCA). This has left many foreign financial institutions (FFIs), particularly banks, considering the risks of playing safe in this jurisdiction.
The US Congress said it enacted FATCA to make it more difficult for US taxpayers to conceal assets held in offshore accounts and shell corporations, and thus to recoup federal tax revenues.
On July 1, 2014, FATCA withholding payment begins on US source FDAP (Fixed, Determinable, Annual, Periodical) payments to new account holders identified as non-participating foreign financial institutions, recalcitrant account holders, and passive non-financial foreign entities (NFFEs) with undisclosed substantial US owners.
It will require account opening procedures to include FATCA due diligence for new accounts.
At an interactive seminar on FATCA organised in Lagos, Tuesday, by the banking, finance and tax practices arm of Dentons, a global law firm, and Jackson, Etti & Edu, a leading Nigerian law firm, participants were unanimous in their submission that compliance with the provisions of FATCA was more profitable than avoidance. South Africa is the only African country that has signed the agreement in substance.
Samuel Ogungbesan, director, Federal Inland Revenue Service (FIRS), acknowledged that the task of complying with FATCA provisions was worthwhile, adding that “the FIRS keeps negotiating treaties with other countries relating to tax and other revenue collections”.
“Most of the countries we engage are those that have centralised taxpayer data. It is not the same thing with us in Nigeria. We don’t have centralised taxpayer data, yet we have got to negotiate. We must be able to get information from everywhere, no matter what it takes,” Ogungbesan said.
“The question is, how do we go about it? It is all about providing information of US citizens in Nigeria doing business or providing information of non-US citizens who are hiding behind companies in the US,” he said.
He said FIRS was ready to support banks, adding that the question to ask was who should drive/supervise it.
“We are trying to be careful. We know this is what we will do, but we need to carry along the Ministry of Finance and the Central Bank of Nigeria (CBN). The rules are there; compliance is the issue,” Ogungbesan said.
Jeremy Cape, tax partner, Dentons (a UK-based firm rated as an African-wide tax expert by Chambers Global), observed that the way FATCA worked in the United States might be very different from the way it might work here in Nigeria and other countries.
Follow Us
