The Federal Inland Revenue Service (FIRS) recently issued an Information Circular to clarify the scope, purpose, requirements, triggers, and methods for its various tax inquiry processes.
According to the Circular, FIRS’ mandate, as defined by the FIRS Establishment Act (FIRSEA), is to control and administer various taxes and laws, accounting for all taxes collected. To fulfill this mission, it conducts tax compliance activities at different levels. These activities are designed not only to collect revenue but also to educate taxpayers, prevent tax evasion or avoidance, and gather intelligence on emerging compliance risks.
The FIRS Information Circular elucidates three fundamental levels of tax inquiry activities:
1. Desk Examination: Focused on current-year operations, Desk Examination ensures the completeness, accuracy, and adherence to tax laws in tax returns. It typically does not require physical visits to taxpayers but may necessitate specific evidence for validation.
2. Tax Audit: Conducted by designated officers, Tax Audit involves a detailed audit plan and covers a maximum of six preceding years. This level may include physical visits and the use of various audit methodologies to ensure tax compliance.
3. Tax Investigation and Special Tax Crimes Investigation: Tax Investigation entails a meticulous probe into tax law violations. Importantly, there is no limitation on the number of years covered, and this process may lead to criminal prosecution. Various triggers, such as fraud detection, inconsistent financial statements, and more, initiate this level. Special Tax Crimes Investigation is aimed at uncovering and prosecuting individuals or organizations involved in serious tax-related criminal activities, including tax evasion, fraud, money laundering, or other illicit actions perpetrated to escape paying legally owed taxes.
Specific triggers for tax Investigation and special tax crimes Investigation are detailed in the Information Circular.
Transfer Pricing Audit: The International Tax Department handles Transfer Pricing audits. It is essential to ensure no conflicts in conducting Transfer Pricing (TP) audits, and joint audits or investigations are only allowed as directed by relevant authorities.
Turnover Threshold Determination: FIRS’s segmentation policy mandates the transfer of taxpayers with significantly higher or lower turnovers for three consecutive years, to different tax offices.
A copy of the Information Circular containing more detailed information on each of the above inquiry processes can be viewed or downloaded from here.
Conclusion
FIRS’s clarifications on these tax inquiry processes are vital for a fair and transparent tax environment. The FIRS, in the same Circular, also sternly admonished its officers to take note of the clarifications and be strictly guided accordingly, to avoid needless conflicts for which appropriate sanctions would be meted out to erring officers as may be necessary.
This is a welcome development as taxpayers will potentially be protected from unwarranted or un-triggered tax checks or harassments by tax officials.
For more information on how these inquiries may potentially affect your organization, or for help in navigating a tax inquiry, please do not hesitate to contact us by sending an email to clients@vi-m.com.