Tax Faculty_Seminar on Tax Impl of IFRS_Taiwo Oyedele[1]

Tax implications of IFRS adoption

www.pwc.com

Taiwo OyedelePartner, PwC

Session Objectives

At the end of this session, participants will be able to:

• Understand the interrelationship between financial reporting andtaxation under IFRS;

• Discuss the tax authority’s perspectives; and

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• Discuss the tax authority’s perspectives; and

• Identify the tax implications and practical considerations ofconversion to IFRS;

• Articulate possible ways to address the tax issues and the next steps.

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This presentation covers .....

1. Overview of tax accounting and reporting

2. Highlights of transition to IFRS

3. Tax implications

4. FIRS perspective

5. Conclusion and way forward

Duration – xx hours

Overview of taxaccounting andreportingreporting

Overview of tax accounting and reporting

Although taxes are determined based on tax legislation, the tax rulesrely heavily on accounting treatments.

In addition, certain GAAPs have specific requirements on taxaccounting and reporting such as IAS 12 on Income Taxes.

Tax accounting and reporting is not just about income tax, othertaxes are equally important including VAT, PAYE, social security

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taxes are equally important including VAT, PAYE, social securitycontributions and so on.

Effective tax accounting and reporting must consider all areas andproactively deal with them.

Key areas of difficulties include material unresolved disputes,uncertain tax positions and related parties transactions (transferpricing issues).

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Overview of tax accounting and reporting

• IFRSs have been developed primarily to meet the information needs ofshareholders, lenders and other investors. These needs do not always alignwith those of the tax authorities (e.g. extensive use of fair value and theapplication of substance over form).

• Taxable profit of any specific period may differ between two standards,however, the cumulative earnings of an entity over time will tend to be the

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however, the cumulative earnings of an entity over time will tend to be thesame as the individual transactions are cashed.

• From taxation point of view, however, there are additional variables that mayinfluence tax position such as impairment, fair value adjustments, specificprovisions and treatment of tax losses etc.

• IFRS is a new world order in corporate reporting that will alter not only thefinancial accounting and reporting landscape in Nigeria but also taxaccounting & reporting, tax cash flow and tax distributable reserves.

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Overview of tax accounting and reportingIncome tax accounting

Income taxes are taxes on income or profits of an entity. They includecompanies’ income tax, education tax, petroleum profit tax, capitalgains tax, IT tax and deferred tax charge.

Tax on taxable profits for the period is recognised as:

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• An expense in the profit or loss account (income statement)

• A tax liability in the statement of financial position (balance sheet)

Deferred tax is necessary to apply the ‘matching principle’ to accountingprofit and tax expense

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Overview of tax accounting and reportingDeferred tax accounting

IFRS

• Temporary differences – SoFP approach

• Extra ordinary items are not permitted by IFRS

• Tax rates and tax laws that have been enacted or substantively enacted

• Deferred tax assets and liabilities are classified as non current

• Reconciliation of effective to statutory tax and analysis of the

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IFRS • Reconciliation of effective to statutory tax and analysis of thecomponents of deferred tax assets/liabilities

SAS

• Timing differences – P/L approach

• Tax on extra ordinary items is required

• Current tax rate is used as a reasonable estimate of the future tax rates

• Deferred tax to be classified between long term and current liabilitiesand in case of assets between fixed and current assets

• Reconciliation of effective to statutory rate not required

Highlights oftransition to IFRS

Highlights of transition to IFRS

• With the approval of IFRS conversion for Nigeria by the Federal ExecutiveCouncil (FEC), Nigeria has joined over 100 countries that require, permit, orare converging with the goal of adopting IFRS.

• Following the FEC approval, the IFRS implementation roadmap was unveiledby the Minister for Commerce and Industry on Thursday 2nd September2010.

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2010.

• The roadmap, which is in three phases, mandates publicly listed andsignificant public interest entities to prepare their financial statements basedon IFRS by 1 January 2012 (i.e. full IFRS financial statements are required foraccounting period to 31 December 2012) while other public interest entitiesare required to adopt IFRS for statutory purposes by 1 January 2013. Thethird phase requires Small and Medium-Sized Entities (SMEs) to adopt IFRSby 1 January 2014.

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Highlights of transition to IFRSConversion roadmap

Listed & significantpublic entities (SPEs)

Transition date: 2010Reporting date: 2012

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Small and Medium-sizeEnterprises (SMEs)


Other public interestentities (Other PIEs)


Highlights of transition to IFRSFirst time adoption of IFRS

Who is a first time adopter?

• An entity which for the first time in its financial statements makes anexplicit and unreserved statement of compliance with IFRS

• The standard further states that financial statements are first IFRSfinancial statements if an entity “presented its most recent previous

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financial statements if an entity “presented its most recent previousfinancial statements… in accordance with national requirementsthat are not consistent with IFRSs in all respects”.

• The opening statement of financial position on the date of transitionto IFRS must also be IFRS compliant

• The accounting policies for all period presented in the first IFRSfinancial statements must be consistent

• Such entities must consistently apply the latest version of IFRS for allperiods in the opening financial statements.

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• Key concepts are:

• the transition date

• the reporting date

• The transition date is the date of the opening statement of

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• The transition date is the date of the opening statement offinancial position for the prior year comparative financial statements

• The reporting date is the statement of financial position date ofthe first financial statements that explicitly state that they complywith IFRS

• For instance, if Amnesty Plc prepares its first IFRS financialstatements for the year ended 31 December 2012, then the reportingdate is 31 December 2012 while the transition date is 1 January 2011.

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• The underlying principle of IFRS 1 is retrospective application ofthose standards in force at the end of an entity’s first IFRS reportingperiod.

• That is, entities should use the standards in force at the end of thelatest period covered by their first IFRS financial statements in their

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latest period covered by their first IFRS financial statements in theiropening IFRS SoFP (balance sheet) and throughout all periodspresented in their first IFRS financial statements.

• IFRS 1’s objective is that an entity’s first IFRS financial statementsshould contain high quality information that:

– Is transparent and comparable over all periods presented

– Gives a good starting point for using IFRS

– Can be produced at a cost that does not exceed the benefit

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Highlights of transition to IFRSFirst time adoption of IFRS – key adjustments

Adjustments are required to assets & liabilities to establish the openingstatement of financial position. Such adjustments, which are to bepassed via retained earnings, include:

• Recognition of new assets & liabilities (e.g. decommissioningassets/liabilities and liability portion of composite instrument)

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assets/liabilities and liability portion of composite instrument)

• De-recognition of some assets & liabilities (e.g. deferred expensessuch as pre-incorporation cost and provision for future plannedexpenditure)

• Reclassification of some assets & liabilities (e.g. long vs short terminvestment, equity to liability and current to non current forreturnable packaging materials)

• Re-measurement of some assets and liabilities (e.g. fair value vshistorical cost)

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Tax implications

Tax implications

As a result of certain differences between Nigeria Generally AcceptedPrinciples (NGAAP) and International Financial Reporting Standards(IFRS), the conversion is likely to have significant implications for taxaccounting and reporting.

Unless the existing tax rules are amended coupled with introduction of

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Unless the existing tax rules are amended coupled with introduction offiscal filters, many companies would find themselves (in one extreme)with unbudgeted huge tax liabilities while on the other hand governmentmay suffer a significant reduction in tax revenue over the short tomedium term.

Given the retrospective application of IFRS on conversion (subject tolimited exemptions), the transition adjustments would have impacts oncurrent and deferred income tax as well as other taxes.

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Tax implicationsUnderlying principles for tax

Transition adjustments to be credited or debited to retained earningswill usually be in respect of the following:

1. Expenses or provisions previously allowed– CIT, no DT

2. Expenses or provisions previously disallowed – no CIT, DT

3. Expense not previously recognised – Tax deductible

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4. Income not previously recognised – Taxable

5. Previously taxed income now reversed – CIT deductible

6. Income previously tax exempt now reversed – No tax impact

7. Unrealised gains / fair value surplus or deficit – DT only

8. Correction of errors – assess as usual (taxable, deductible or taxneutral)

9. Non CIT/PPT income taxes – TET, IT tax, CGT

10. Non-income taxes – VAT, PAYE, WHT

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Tax implicationsExamples of possible impact on tax

• Uncertain tax position and disclosures may prejudice taxpayerposition

• Leases (finance vs operating) – different tax treatment depending onlease classification

• Related party transactions and disclosures will have impact on

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• Related party transactions and disclosures will have impact onjudgement relating to artificial transactions

• Revenue recognition – management fee on credit facilities, multiplearrangements, BOGOF etc (VAT and CIT implications)

• Inventory vs fixed assets reclassification & VAT treatment e.g.returnable packaging materials, base stock etc

• Employee benefit accounting e.g. non market value advances and fairvalue treatment (employees may be liable to benefit in kind tax)

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FIRS perspective

FIRS perspectiveTax implications of IFRS adoption

The Federal Inland Revenue Service has issued an Information Circularon the tax implications of adoption of International Financial ReportingStandards in Nigeria.

Key highlights are as follows:

• Background - Based on Section 55 (1) of the CITA, Cap C21, LFN

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• Background - Based on Section 55 (1) of the CITA, Cap C21, LFN2004 a company filing a return must submit its audited account to theFIRS while Sections 8, 52 and 53 of the Financial Reporting Council ofNigeria Act, 2011 gave effect to the adoption of IFRS. Therefore theaudited accounts to be submitted to the FIRS post adoption must incompliance with IFRS.

• Transition adjustments - Taxpayers are required to present areconciliation of their IFRS transition adjustments for tax purposes

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• Minimum Tax - The new net asset based on IFRS adoption shall notbe adopted for minimum tax computation in the year of transition.

• Excess dividend tax – where excess dividend tax has been paid inprior years, and additional dividends are paid after the transitionperiod, the taxpayer shall be subjected to additional tax based on

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period, the taxpayer shall be subjected to additional tax based ondividend in line with Section 19 of CITA.

• Where however, the taxpayer was previously assessed to tax for the taxyear in line with Section 40 of CITA, the taxpayer will only pay tax onits dividends based on Section 19, where the cumulative amount ofdividends declared relating to the tax year, exceeds the taxable profitspreviously reported in the tax computations.

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• Conversion cost - All conversion cost (Capital & Revenue) shall besubject to verification by the FIRS before being allowed as QualifiedCapital Expenditure or revenue expenditure.

• Extension of time for filing returns – First time adopters of IFRSwould on application in accordance with Section 26 (5) of FIRSEA

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would on application in accordance with Section 26 (5) of FIRSEA(and provisions of Self-Assessment Regulations 2012) be granted 3months extension for filing of their first set of IFRS Financialstatements and related returns to allow sufficient time to overcomeinitial conversion problems.

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• Tax returns - Tax returns under IFRS shall in respect of first timeadopters include:

- Transition date statement of financial position

- Statement comparing the tax effect of IFRS adoption with NigerianGenerally Accepted Accounting Principles (GAAP)

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Generally Accepted Accounting Principles (GAAP)

- Statement of reconciliations from Nigerian GAAP to IFRS

And in all cases shall include:

- Deferred tax computation

- A statement showing the adjustments made on Income Statementor Total Comprehensive Income to arrive at Assessable Profit andTotal Profit for tax purposes as the taxpayer may wish to adopt.

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• Inventories - where inventories are purchased with DeferredSettlement Terms, cost of inventories shall be based on the costindicated on the invoice inclusive of any imputed interest.

- Any inventory (e.g. returnable packaging materials) reclassified inline with IFRS as non-current asset shall continue to be treated as

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line with IFRS as non-current asset shall continue to be treated asinventory in line with the existing tax practice.

- Estimates or provisions shall not be allowable for tax purposes, andany write-down on stock based on estimates shall be disallowed.

- Obsolete stock/inventories - FIRS may allow claim on obsoletestock where it is satisfied that such stock is indeed obsolete. Anyverification/certification of destruction of obsolete stock carried outwithout the FIRS witnessing such will not be accepted for taxpurposes.

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• Change in accounting policies - whereas IFRS provides forretrospective application of change in accounting policy, retrospectiveadjustment shall not be effected for first time adopters for taxpurposes.

• Taxpayers should submit a re-computation of Income Tax and

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• Taxpayers should submit a re-computation of Income Tax andDeferred Tax and should disclose;

- all changes in estimates

- the basis of computation

- the statement to which it has been charged

• Errors - FIRS shall assess each correction of error on its merit and inline with the existing laws. Taxpayer shall provide detailed disclosureof the sources of the errors and the future tax effect of the errors.

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• Construction contracts - Only costs attributable to certified workdone shall be allowed for tax purposes in line with provisions of CITA.

• Any expected loss recognized as an expense shall be disallowed untilthe loss is actually incurred.

• Retention income shall be subjected to tax at the time it is earned.

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• Retention income shall be subjected to tax at the time it is earned.

• Future cost shall not be allowable as expense for tax purposes.

• PPE - Capitalised cost of PPE shall be based on the cost indicated onthe invoice. Any imputed interest element charged as finance cost inthe Income Statement shall be disallowed.

• Land - Land is not a QCE under Schedule 2 of CITA, thus CapitalAllowance is not claimable on land. Entities should provide scheduleof apportionment of cost between land and building. Where land isunder a lease, the lease rental will be allowed for tax purposes.

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• Decommissioning - Provision/estimate of cost of abandonment,dismantling, removing the item of PPE and site restoration shall notbe allowed for capitalisation with PPE. The cost shall only be allowablefor tax purposes when it has been incurred, or if it is set aside in afunded Sinking Fund.

• Exchange of assets - Where there is exchange of dissimilar assets,

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• Exchange of assets - Where there is exchange of dissimilar assets,the old asset shall be treated as a disposal with the sales proceed beingthe market value (price at arm’s length) of the asset. Balancingcharge/allowance, VAT and CGT shall be computed accordingly.

• The cost of the new asset for capital allowance purposes shall be themarket value of the old asset plus any cash consideration included inthe exchange.

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• Revaluation – Cost (and TWDV) is the basis of capital allowancecomputation, FIRS shall continue to disregard all revaluation of PPE.Any revaluation surplus shall not be taxable while deficit shall not bean allowable deduction.

• Asset valuation fees - Professional fees and valuation expensesrelating to revaluation of PPE shall not be allowed for tax purposes.

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relating to revaluation of PPE shall not be allowed for tax purposes.These expenses should be separately disclosed. Where such expense isincurred prior to sale, it shall be deductible from chargeable gainsunder Capital Gains Tax.

• Spare parts and servicing equipment - Stock of spare parts andservicing equipment should continue to be carried as inventory andexpensed when consumed.

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Practical Scenario 1

Should a non depreciableasset such as freehold landor investment property

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or investment propertyenjoy capital allowance?Why or why not?

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• Componentisation – The breakdown of componentised PPEinclusive of the basis for determining the value of each componentshall be filed with the FIRS as it shall form the basis of capitalallowance claims and applicable rates.

• FIRS shall rely on Schedule 2 of the CITA in granting CapitalAllowance on Componentised PPE.

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Allowance on Componentised PPE.

• For a component to be significant, it must be 20% and above of thetotal cost of the asset.

• Taxpayers shall provide reconciliation between the total cost of PPEunder GAAP and componentised cost of same PPE under IFRS for firsttime adopters.

• Historical cost of components shall be provided.

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• Lease reclassification – where two parties had correctly applied theold principle but are now compelled by the IFRS standard to reclassifyoperating lease as finance lease, FIRS will rely on the TWDV of theasset in granting further capital allowance to the lessee.

• Investment allowance and initial allowance shall not be granted to thelessee on reclassification of the asset.

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lessee on reclassification of the asset.

• Investment allowance (for Qualifying Plant Expenditure), Initial andAnnual allowances are claimable by the lessor on cost of the asset lesscapital instalments paid before the reclassification.

• Annual allowance is claimable by the lessor on TWDV of the capitalportion of the lease instalments paid.

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• Sale and lease back as a finance lease – Sale and leaseback thatresults in a finance lease shall be treated separately for tax purposesand relevant tax provisions shall apply.

• The disposal shall be subject to balancing allowance or balancingcharge.

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• Gain or loss on disposal shall be subjected to the provision of CapitalGains Tax Act.

• The finance lease shall be treated separately in line with relevantlegislation and guidelines on finance lease.

• Yearly amortisation of profit on disposal into profit or loss shall betreated as non-taxable income.

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• Sale and lease back as an operating lease – where a sale andleaseback transaction results in an operating lease, the existing taxtreatment on disposal, operating lease, VAT and CGT shall be appliedon the transaction.

• For tax purposes, the higher of sales price and market price shall betaken as the disposal value.

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taken as the disposal value.

• The actual lease rentals paid shall be adopted for tax purposes.

• Revenue recognition and deferred consideration - whereimputed interest is embedded in sales revenue, the entire value on theinvoice will be subjected to tax.

• However where the interest element is clearly shown and separated onthe invoice, VAT should not apply to the interest portion but WHT atthe rate of 10% shall apply.

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• Revenue recognition and loyalty program - the turnover to besubjected to tax treatment under loyalty program shall be thepayments made for both the consumed and deferred portion of theservices.

• Revenue shall be recognised for tax purposes at the point of realisation

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• VAT will be charged on total invoice value, whether consumed ordeferred.

• Exchange of goods and services - where there is exchange ofdissimilar goods, the revenue shall be separately treated for taxpurposes.

• Where there is exchange of similar goods or services, the exchange willnot be regarded as a transaction which generates income for taxpurposes or a supply of goods or services.

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How should demo assetsbe treated for accountingand tax purposes? As

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and tax purposes? Asinventory or as noncurrent assets?

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• Employee benefit - Personal income tax is payable on bonus andprofit sharing in the hand of the recipient in line with the provisions ofPersonal Income Tax Act.

• Provision made for benefits payable to the employees offeredvoluntary redundancy shall not be an allowable deduction for taxpurposes unless they result into cash payment to the employees.

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purposes unless they result into cash payment to the employees.

• Interest free loan - Benefit on interest free loan when it relates toindividual, it shall be regarded as benefit in kind and taxed under theprovisions of PITA;

• in the case of corporate taxpayer, it shall be treated in line with theprovisions of The Income Tax (Transfer Pricing) Regulations No. 1,2012 and Section 22 of CITA, Cap C21, LFN 2004.

• In all cases, the interest rate to be used shall be in line with Section32(1) of FIRS Act. Slide 37


• Auctions and complimentary products - The benefit associatedwith other short term employee benefit (e.g. complimentarygoods/services, reduced price, auctioned assets at below carrying costetc) shall be treated as benefit-in-kind in the hand of the recipient andtaxed in line with the provisions of PITA as amended to date.

• Government grant – In the case of a capital grant, where the

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• Government grant – In the case of a capital grant, where thetaxpayer reduces the cost of the asset by the grant, the carryingamount after the deduction of the grant shall be available for capitalallowance purposes.

• When the deferred income approach is chosen, then the income shallbe taxed when realised.

• With respect to income grant, the grant may be used to reduce the costof sales or expenses of the taxpayer but where the taxpayer opts torecognise the grant as income, it shall be taxed accordingly.

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• Foreign currency transactions - Income tax assessment shall bemade in Nigerian Currency (Naira) subject to the exceptions providedin the tax laws.

• Realised exchange losses shall be allowed while the gain is taxableunder CITA. Any form of unrealised gains or loss shall be disallowedfor tax purposes.

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for tax purposes.

• Borrowing cost - Interest on loan incurred on any QCE underconstruction shall be capitalised with the cost of construction of theasset while the interest on the loan after the asset is fully constructedshall be expensed.

• If capitalisation of borrowing cost is suspended at a period when activedevelopment is interrupted and charged to income statement, it shallbe disallowed for tax purposes.

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• Impairment - all impairment losses shall not be allowed for taxpurposes.

• Taxpayers shall be required to make the following disclosures in its taxreturns:

- Schedule and detailed computation of impairment losses recognised in

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- Schedule and detailed computation of impairment losses recognised inprofit or loss statement;

- Schedule and detailed computation of impairment losses on re-valuedassets recognised in Other Comprehensive Income and Income Statementas the case may be;

- Schedule and detailed computation of impairment losses reversed in profitor loss statement; and

• Where there is impairment or reversal of impairment, no adjustmentwould be required to the net assets on the financial statement for thepurpose of computing minimum tax.

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• Retirement benefit plans - The retirement benefit plans, pensionschemes, superannuation schemes or retirement benefit schemes istreated for tax purposes in accordance with the Pension Reform Actand other applicable tax laws.

• However, income (investment and other sources) derived by anycompany formed for the purpose of managing the fund shall be taxable

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company formed for the purpose of managing the fund shall be taxableunder the provisions of the relevant tax laws.

• Intangible assets - any intangible assets which meet therequirements of QCE should be capitalised for tax purposes.

• Intangible assets with indefinite life - where the intangible assetshave indefinite life then no tax deduction should be allowed.

• Franchise – shall be expensed over the useful life of the franchise.

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• Computer Software - Software that forms integral part of acomputer shall be treated as qualifying Plant Expenditure while Stand-alone Software will be treated as intangible asset and amortised overthe useful life of the asset.

• Customer List – customer list acquired as an intangible asset by ataxpayer to the extent that it is for the purpose of generating taxable

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taxpayer to the extent that it is for the purpose of generating taxableprofit shall be tax deductible via amortisation over the useful life.

• Research & Development – the position of CITA on R&D shallcontinue to be applied. R&D costs charged to Profit or Loss, other thanthose allowed under Section 26 of CITA, shall be disallowed for CITpurposes.

• Website Cost – website cost that meet the condition of capitalizationshall be amortized over its useful life. However, website cost that isexpensed shall be subject to deductibility test.

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• Internally generated intangibles - Cost relating to internallygenerated intangible assets shall be disallowed for tax purposes exceptas provided under Second Schedule of CITA.

• Other intangibles - Intangible assets such as Landing Right, ImportLicense, Radio Station License etc acquired through government grantfor free or at nominal value are either recognized at fair value or at

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for free or at nominal value are either recognized at fair value or atnominal value and shall be treated as follows, where;

- it is an intangible asset that has a nominal value, the value shall be adoptedfor tax purposes;

- it is at Fair Value and a nominal value exists, then the difference betweenthese values shall be disallowed for tax purposes; and

- fair value is used and nominal value does not exist, the fair value shall bedisallowed for tax purposes.

• Disposal gains on intangibles shall not be taxed under CITA but taxedunder CGT. Slide 43


• Investment property - Taxpayers shall split Land from building.The taxpayer shall disclose the rationale used in apportioning orseparating land from building with a certified valuer's report.

• Where the ownership of Investment Property results into a separateline of business, the income will be taxed as a separate line of business.

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• On disposal of Investment Property with TWDV, the relevantprovisions of the tax laws shall apply for CGT and CIT purposes.However, on disposal of land which does not qualify for CapitalAllowance, only the provision of CGT Act shall apply.

• For IP measured at fair value, gain or loss that may be charged toIncome Statement shall not be allowed for tax purposes.

• Land held for undetermined future use is qualified to be an IP but nota QCE, therefore all cost incurred on the land shall be capitalised anddisallowed if charged to Income Statement. Slide 44


In your opinion, what isthe appropriate treatmentfor a living asset employed

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for a living asset employedfor business purposes e.g.security dogs?

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• Investment property and tax returns - A schedule of IP shallaccompany all tax returns

• All assets other than land reclassified or recognised as IP from PPEshall be transferred at their TWDV to IP and continue to enjoy CapitalAllowance.

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• Where the property is rented out as an IP, VAT is payable except whenit is used for residential purposes e.g. staff quarters (BIK would berecognised for Personal Income Tax).

• Any taxpayer engaged in both Investment Property and trading inproperties shall segment the two lines of businesses and report themaccordingly.

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• Share based payment - Capital allowance shall be claimable if theasset acquired is a QCE.

• The cost of the asset, purchases or expense is the invoice price, uponwhich VAT Act provisions shall be applicable

• Any related expense involved in the issuance of shares under share

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• Any related expense involved in the issuance of shares under sharebased payment shall be disallowed for income tax purposes.

• The goods/services exchanged under share based payment shall berecognized at the current market value and the impact onshareholders fund (Share premium) must be clearly shown.

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• Business combination - Goodwill impairment shall be disallowedfor tax purposes, while goodwill acquired shall not form part of thequalifying capital expenditure on which capital allowances can beclaimed

• Gains arising from disposal of a Cash Generating Unit (CGU) withGoodwill components is subject to Capital Gain Tax.

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Goodwill components is subject to Capital Gain Tax.

• The costs incurred to effect business combination are capital in natureand shall be disallowed for tax.

• Insurance Contract - The Tax law has not changed and as a result,the provisions specified under Section 16 of CITA are still operational.

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• Assets held for sale - The FIRS shall take any asset classified as“held for sale” under IFRS not to be in use and shall suspend capitalallowances on it until otherwise proved.

• However, if the asset is subsequently reclassified as in use, then thecapital allowance would be granted on the tax written down value.Additionally, where the asset is eventually disposed, the provisions of

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Additionally, where the asset is eventually disposed, the provisions ofthe relevant tax laws shall apply.

• Discontinued Operation - Cessation rule shall apply when ataxpayer discontinues a line of business and commencement rule willapply if the line of business is bought over by another party at arm'slength in line with Section 29 (9) of CITA.

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• Financial Instruments - classified as Fair Value Through Profitor Loss (FVTPL) held for trading or short-term profit-taking such asderivatives are revenue in nature and therefore liable to CITA to theextent that they are not specifically exempted from tax.

• The transaction shall be taken as a separate line of business exceptwhere the taxpayer is already engaged in the same line of business.

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where the taxpayer is already engaged in the same line of business.

• Financial instruments classified as Held to Maturity Investmentssuch as debt securities and mandatory redeemable preference sharesare capital instruments. Consequently, CGT shall apply to gainsderived from the disposal of such instruments, except for gainsexempted by relevant provisions of the CGT Act.

• Financial instruments classified as Loans and Receivables - To betreated in line with the provisions of the relevant tax laws.

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• Financial instruments classified as Available for Sale (as adefault class) such as all equity instruments not measured at FVTPLare capital instruments. Consequently, capital gains tax shall apply togains derived from the disposal of such instruments, except for gainsexempted by relevant provisions in the CGTA.

• Initial cost of various classes of Financial Instrument except FVTPL

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• Initial cost of various classes of Financial Instrument except FVTPLare to be capitalised as part of the cost of the investment.

• The transaction cost relating to FVTPL shall be allowed to be expensedwhile cost relating to held-to-maturity shall be capitalised.

• All gains and losses on FVTPL shall only be allowed for tax purposeswhen they are realised.

• Interest and dividends earned on financial instruments shall betaxable to the extent that they are not final tax.

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• Financial instruments - FIRS shall disregard the effective interestrate used in calculating both the interest income and expense and usethe interest rate stated in the contract.

• VAT and WHT shall be applicable to the fees while only WHT will beapplicable to interest income.

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• Gains and losses arising from assets classified as available for saleshall not be allowed for tax purposes.

• FIRS shall ignore all fair values assigned to financial instruments, andat disposal, the historical cost shall be used as the basis for taxcomputation.

• Impairment losses on loan & advances shall be subject to Section 20 ofCITA.

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• Compound instrument - FIRS shall regard this as pure debtinstrument. Nominal interest is not allowable for tax purposes, actualinterest incurred should be allowed for deduction.

• Preference share - the IFRS is at conflict with the provisions ofCAMA. This implies that any payment made in respect of preferenceshare shall be treated as dividend until the provisions of CAMA are

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share shall be treated as dividend until the provisions of CAMA areamended.

• Operating segments - irrespective of the segmentation criteriaadopted by the taxpayer, only segmentation based on lines of trade orbusiness shall be acceptable for tax purposes.

• Fair value measurement - All gains and losses that may arise fromfair value measurement shall be disregarded for tax purposes.

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Is VAT applicable on giftitems? How should thecost be treated for CIT

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cost be treated for CITpurposes? What shouldthe treatment of inputVAT be?

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Conclusion andway forward

Conclusion and way forwardIFRS transition and tax implications

• Given the interrelationship between accounting measurements and taxation,as part of the conversion process, taxpayers need to consider the possibleimpact of the changes on taxation.

• The conversion will have impact on companies’ tax accountingmethods/policies, taxable profits, tax assets, tax liabilities, tax cash flow andtax distributable reserves.

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tax distributable reserves.

• There is no doubt that conversion to IFRS is a huge task and a big challenge.

• It is a new world order in corporate reporting that will alter not only thefinancial accounting and reporting landscape in Nigeria but also taxaccounting and reporting.

• Considering these factors, a successful conversion requires not only thecommitment of the finance unit, but also demands full involvement of the taxprofessional and other stakeholders.

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Death, taxes and childbirth! There’snever any convenient time for any of

them!

Margaret Mitchell (1900–1949), U.S. novelist.

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Profile – Taiwo Oyedele

Professional Experience

Mr Taiwo Oyedele is a Partner with PwC and a former Director at WySE Associates Limited.He has many years of accounting and tax consulting experience across different industriesincluding financial services, oil & gas, telecommunication, and manufacturing both in theprivate and public sectors.

Mr Taiwo Oyedele is widely acknowledged and respected by professionals as a thought leaderon topical tax and accounting matters. He writes articles in national newspapers andprofessional journals. He is a regular paper presenter at conferences both local andinternational including ICAN, CITN and ACCA seminars. He is the head of PwC Tax Academy,Dean of the Direct Taxation Faculty of CITN and a member of the Taxation and Fiscal PolicyManagement Faculty Board of ICAN. He has been in the forefront as a prominent speaker on

Taiwo OyedelePartner, PwC

Contact information

Phone: +234 (1) 2711700

+234 806 019 6593

email: [email protected]

blog:www.pwc.com/nigeriataxblog

Management Faculty Board of ICAN. He has been in the forefront as a prominent speaker oncontemporary tax and accounting issues in Nigeria including IFRS adoption and TransferPricing. He is a contributor to the annual “Doing Business” report of the World Bank and PwC“Paying Taxes” publication, as well as Worldwide Tax Summaries. In his role on theseprojects, he examines the various areas requiring reforms in the tax legislation,administration, policy and practice in Nigeria compared to over 180 other countries aroundthe globe. He also runs a blog on tax matters.

Mr Taiwo Oyedele is the author of ICAN study pack on Taxation for the current syllabus whichcommenced in May 2010 and author of the “Top 50 Tax Issues in Nigeria”. He has trained andworked in many countries. He represented Nigeria at the ACCA International Assembly in2010 and in 2011 he was elected into the ACCA Council. He is the Founder and President ofImpact Africa Foundation.

Mr Taiwo Oyedele is a graduate of accountancy and an ICAN and ACCA prize winner. He is aFellow of the Institute of Chartered Accountants of Nigeria (FCA), Fellow of the CharteredInstitute of Taxation of Nigeria (FCTI), Fellow of the Association of Certified CharteredAccountants (FCCA), and a Certified Information Systems Auditor (CISA).

Documents

Tax Faculty_Seminar on Tax Impl of IFRS_Taiwo Oyedele[1]