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Tax implications of IFRS adoption

Taiwo Oyedele Partner, PwC

Session Objectives
At the end of this session, participants will be able to: Understand the interrelationship between financial reporting and taxation under IFRS; Discuss the tax authoritys perspectives; and Identify the tax implications and practical considerations of conversion to IFRS; Articulate possible ways to address the tax issues and the next steps.

PwC

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This presentation covers .....

1. 2. 3. 4. 5.

Overview of tax accounting and reporting Highlights of transition to IFRS Tax implications FIRS perspective Conclusion and way forward Duration xx hours

Overview of tax accounting and reporting

Overview of tax accounting and reporting

Although taxes are determined based on tax legislation, the tax rules rely heavily on accounting treatments. In addition, certain GAAPs have specific requirements on tax accounting and reporting such as IAS 12 on Income Taxes. Tax accounting and reporting is not just about income tax, other taxes are equally important including VAT, PAYE, social security contributions and so on. Effective tax accounting and reporting must consider all areas and proactively deal with them. Key areas of difficulties include material unresolved disputes, uncertain tax positions and related parties transactions (transfer pricing issues).

PwC

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Overview of tax accounting and reporting

IFRSs have been developed primarily to meet the information needs of shareholders, lenders and other investors. These needs do not always align with those of the tax authorities (e.g. extensive use of fair value and the application 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 same as the individual transactions are cashed. From taxation point of view, however, there are additional variables that may influence tax position such as impairment, fair value adjustments, specific provisions and treatment of tax losses etc. IFRS is a new world order in corporate reporting that will alter not only the financial accounting and reporting landscape in Nigeria but also tax accounting & reporting, tax cash flow and tax distributable reserves.
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Overview of tax accounting and reporting

Income tax accounting
Income taxes are taxes on income or profits of an entity. They include companies income tax, education tax, petroleum profit tax, capital gains tax, IT tax and deferred tax charge. Tax on taxable profits for the period is recognised as: 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 accounting profit and tax expense

PwC

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Overview of tax accounting and reporting

Deferred 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 components of deferred tax assets/liabilities

SAS
PwC

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 liabilities and in case of assets between fixed and current assets Reconciliation of effective to statutory rate not required

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Highlights of transition to IFRS

Highlights of transition to IFRS

With the approval of IFRS conversion for Nigeria by the Federal Executive Council (FEC), Nigeria has joined over 100 countries that require, permit, or are converging with the goal of adopting IFRS. Following the FEC approval, the IFRS implementation roadmap was unveiled by the Minister for Commerce and Industry on Thursday 2nd September 2010. The roadmap, which is in three phases, mandates publicly listed and significant public interest entities to prepare their financial statements based on IFRS by 1 January 2012 (i.e. full IFRS financial statements are required for accounting period to 31 December 2012) while other public interest entities are required to adopt IFRS for statutory purposes by 1 January 2013. The third phase requires Small and Medium-Sized Entities (SMEs) to adopt IFRS by 1 January 2014.

PwC

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Highlights of transition to IFRS

Conversion roadmap Listed & significant public entities (SPEs) Other public interest entities (Other PIEs) Transition date: 2010 Reporting date: 2012 Transition date: 2011 Reporting date: 2013

Small and Medium-size Enterprises (SMEs)

PwC

Transition date: 2012 Reporting date: 2014

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Highlights of transition to IFRS

First time adoption of IFRS
Who is a first time adopter? An entity which for the first time in its financial statements makes an explicit and unreserved statement of compliance with IFRS The standard further states that financial statements are first IFRS financial statements if an entity presented its most recent previous financial statements in accordance with national requirements that are not consistent with IFRSs in all respects. The opening statement of financial position on the date of transition to IFRS must also be IFRS compliant The accounting policies for all period presented in the first IFRS financial statements must be consistent Such entities must consistently apply the latest version of IFRS for all periods in the opening financial statements.
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Highlights of transition to IFRS

First time adoption of IFRS
Key concepts are: the transition date the reporting date The transition date is the date of the opening statement of financial position for the prior year comparative financial statements The reporting date is the statement of financial position date of the first financial statements that explicitly state that they comply with IFRS For instance, if Amnesty Plc prepares its first IFRS financial statements for the year ended 31 December 2012, then the reporting date is 31 December 2012 while the transition date is 1 January 2011.
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Highlights of transition to IFRS

First time adoption of IFRS
The underlying principle of IFRS 1 is retrospective application of those standards in force at the end of an entitys first IFRS reporting period. That is, entities should use the standards in force at the end of the latest period covered by their first IFRS financial statements in their opening IFRS SoFP (balance sheet) and throughout all periods presented in their first IFRS financial statements.

IFRS 1s objective is that an entitys first IFRS financial statements should 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 IFRS

First time adoption of IFRS key adjustments
Adjustments are required to assets & liabilities to establish the opening statement of financial position. Such adjustments, which are to be passed via retained earnings, include: Recognition of new assets & liabilities (e.g. decommissioning assets/liabilities and liability portion of composite instrument) De-recognition of some assets & liabilities (e.g. deferred expenses such as pre-incorporation cost and provision for future planned expenditure) Reclassification of some assets & liabilities (e.g. long vs short term investment, equity to liability and current to non current for returnable packaging materials) Re-measurement of some assets and liabilities (e.g. fair value vs historical cost)
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Tax implications

Tax implications
As a result of certain differences between Nigeria Generally Accepted Principles (NGAAP) and International Financial Reporting Standards (IFRS), the conversion is likely to have significant implications for tax accounting and reporting. Unless the existing tax rules are amended coupled with introduction of fiscal filters, many companies would find themselves (in one extreme) with unbudgeted huge tax liabilities while on the other hand government may suffer a significant reduction in tax revenue over the short to medium term. Given the retrospective application of IFRS on conversion (subject to limited exemptions), the transition adjustments would have impacts on current and deferred income tax as well as other taxes.
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Tax implications
Underlying principles for tax
Transition adjustments to be credited or debited to retained earnings will 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 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 tax neutral) 9. Non CIT/PPT income taxes TET, IT tax, CGT 10. Non-income taxes VAT, PAYE, WHT
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Tax implications
Examples of possible impact on tax
Uncertain tax position and disclosures may prejudice taxpayer position Leases (finance vs operating) different tax treatment depending on lease classification Related party transactions and disclosures will have impact on judgement relating to artificial transactions Revenue recognition management fee on credit facilities, multiple arrangements, 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 fair value treatment (employees may be liable to benefit in kind tax)
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FIRS perspective

FIRS perspective
Tax implications of IFRS adoption
The Federal Inland Revenue Service has issued an Information Circular on the tax implications of adoption of International Financial Reporting Standards in Nigeria. Key highlights are as follows: Background - Based on Section 55 (1) of the CITA, Cap C21, LFN 2004 a company filing a return must submit its audited account to the FIRS while Sections 8, 52 and 53 of the Financial Reporting Council of Nigeria Act, 2011 gave effect to the adoption of IFRS. Therefore the audited accounts to be submitted to the FIRS post adoption must in compliance with IFRS. Transition adjustments - Taxpayers are required to present a reconciliation of their IFRS transition adjustments for tax purposes

PwC

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FIRS perspective
Tax implications of IFRS adoption
Minimum Tax - The new net asset based on IFRS adoption shall not be adopted for minimum tax computation in the year of transition. Excess dividend tax where excess dividend tax has been paid in prior years, and additional dividends are paid after the transition period, the taxpayer shall be subjected to additional tax based on dividend in line with Section 19 of CITA. Where however, the taxpayer was previously assessed to tax for the tax year in line with Section 40 of CITA, the taxpayer will only pay tax on its dividends based on Section 19, where the cumulative amount of dividends declared relating to the tax year, exceeds the taxable profits previously reported in the tax computations.

PwC

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FIRS perspective
Tax implications of IFRS adoption
Conversion cost - All conversion cost (Capital & Revenue) shall be subject to verification by the FIRS before being allowed as Qualified Capital Expenditure or revenue expenditure. Extension of time for filing returns First time adopters of IFRS would on application in accordance with Section 26 (5) of FIRSEA (and provisions of Self-Assessment Regulations 2012) be granted 3 months extension for filing of their first set of IFRS Financial statements and related returns to allow sufficient time to overcome initial conversion problems.

PwC

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FIRS perspective
Tax implications of IFRS adoption
Tax returns - Tax returns under IFRS shall in respect of first time adopters include: - Transition date statement of financial position - Statement comparing the tax effect of IFRS adoption with Nigerian 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 Statement or Total Comprehensive Income to arrive at Assessable Profit and Total Profit for tax purposes as the taxpayer may wish to adopt.
PwC
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FIRS perspective
Tax implications of IFRS adoption
Inventories - where inventories are purchased with Deferred Settlement Terms, cost of inventories shall be based on the cost indicated on the invoice inclusive of any imputed interest. - Any inventory (e.g. returnable packaging materials) reclassified in line with IFRS as non-current asset shall continue to be treated as inventory in line with the existing tax practice. - Estimates or provisions shall not be allowable for tax purposes, and any write-down on stock based on estimates shall be disallowed. - Obsolete stock/inventories - FIRS may allow claim on obsolete stock where it is satisfied that such stock is indeed obsolete. Any verification/certification of destruction of obsolete stock carried out without the FIRS witnessing such will not be accepted for tax purposes.
PwC
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FIRS perspective
Tax implications of IFRS adoption
Change in accounting policies - whereas IFRS provides for retrospective application of change in accounting policy, retrospective adjustment shall not be effected for first time adopters for tax purposes. Taxpayers should submit a re-computation of Income Tax and Deferred 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 in line with the existing laws. Taxpayer shall provide detailed disclosure of the sources of the errors and the future tax effect of the errors.
PwC
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FIRS perspective
Tax implications of IFRS adoption
Construction contracts - Only costs attributable to certified work done shall be allowed for tax purposes in line with provisions of CITA. Any expected loss recognized as an expense shall be disallowed until the loss is actually incurred. 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 on the invoice. Any imputed interest element charged as finance cost in the Income Statement shall be disallowed. Land - Land is not a QCE under Schedule 2 of CITA, thus Capital Allowance is not claimable on land. Entities should provide schedule of apportionment of cost between land and building. Where land is under a lease, the lease rental will be allowed for tax purposes.
PwC
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FIRS perspective
Tax implications of IFRS adoption
Decommissioning - Provision/estimate of cost of abandonment, dismantling, removing the item of PPE and site restoration shall not be allowed for capitalisation with PPE. The cost shall only be allowable for tax purposes when it has been incurred, or if it is set aside in a funded Sinking Fund. Exchange of assets - Where there is exchange of dissimilar assets, the old asset shall be treated as a disposal with the sales proceed being the market value (price at arms length) of the asset. Balancing charge/allowance, VAT and CGT shall be computed accordingly. The cost of the new asset for capital allowance purposes shall be the market value of the old asset plus any cash consideration included in the exchange.

PwC

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FIRS perspective
Tax implications of IFRS adoption
Revaluation Cost (and TWDV) is the basis of capital allowance computation, FIRS shall continue to disregard all revaluation of PPE. Any revaluation surplus shall not be taxable while deficit shall not be an allowable deduction. Asset valuation fees - Professional fees and valuation expenses relating to revaluation of PPE shall not be allowed for tax purposes. These expenses should be separately disclosed. Where such expense is incurred prior to sale, it shall be deductible from chargeable gains under Capital Gains Tax. Spare parts and servicing equipment - Stock of spare parts and servicing equipment should continue to be carried as inventory and expensed when consumed.

PwC

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Practical Scenario 1

Should a non depreciable asset such as freehold land or investment property enjoy capital allowance? Why or why not?
PwC
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FIRS perspective
Tax implications of IFRS adoption
Componentisation The breakdown of componentised PPE inclusive of the basis for determining the value of each component shall be filed with the FIRS as it shall form the basis of capital allowance claims and applicable rates. FIRS shall rely on Schedule 2 of the CITA in granting Capital Allowance on Componentised PPE. For a component to be significant, it must be 20% and above of the total cost of the asset. Taxpayers shall provide reconciliation between the total cost of PPE under GAAP and componentised cost of same PPE under IFRS for first time adopters. Historical cost of components shall be provided.
PwC
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FIRS perspective
Tax implications of IFRS adoption
Lease reclassification where two parties had correctly applied the old principle but are now compelled by the IFRS standard to reclassify operating lease as finance lease, FIRS will rely on the TWDV of the asset in granting further capital allowance to the lessee. Investment allowance and initial allowance shall not be granted to the lessee on reclassification of the asset. Investment allowance (for Qualifying Plant Expenditure), Initial and Annual allowances are claimable by the lessor on cost of the asset less capital instalments paid before the reclassification. Annual allowance is claimable by the lessor on TWDV of the capital portion of the lease instalments paid.

PwC

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FIRS perspective
Tax implications of IFRS adoption
Sale and lease back as a finance lease Sale and leaseback that results in a finance lease shall be treated separately for tax purposes and relevant tax provisions shall apply. The disposal shall be subject to balancing allowance or balancing charge. Gain or loss on disposal shall be subjected to the provision of Capital Gains Tax Act. The finance lease shall be treated separately in line with relevant legislation and guidelines on finance lease. Yearly amortisation of profit on disposal into profit or loss shall be treated as non-taxable income.

PwC

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FIRS perspective
Tax implications of IFRS adoption
Sale and lease back as an operating lease where a sale and leaseback transaction results in an operating lease, the existing tax treatment on disposal, operating lease, VAT and CGT shall be applied on the transaction. For tax purposes, the higher of sales price and market price shall be taken as the disposal value. The actual lease rentals paid shall be adopted for tax purposes. Revenue recognition and deferred consideration - where imputed interest is embedded in sales revenue, the entire value on the invoice will be subjected to tax. However where the interest element is clearly shown and separated on the invoice, VAT should not apply to the interest portion but WHT at the rate of 10% shall apply.
PwC
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FIRS perspective
Tax implications of IFRS adoption
Revenue recognition and loyalty program - the turnover to be subjected to tax treatment under loyalty program shall be the payments made for both the consumed and deferred portion of the services. Revenue shall be recognised for tax purposes at the point of realisation VAT will be charged on total invoice value, whether consumed or deferred. Exchange of goods and services - where there is exchange of dissimilar goods, the revenue shall be separately treated for tax purposes. Where there is exchange of similar goods or services, the exchange will not be regarded as a transaction which generates income for tax purposes or a supply of goods or services.
PwC
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Practical Scenario 2

How should demo assets be treated for accounting and tax purposes? As inventory or as non current assets?
PwC
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FIRS perspective
Tax implications of IFRS adoption
Employee benefit - Personal income tax is payable on bonus and profit sharing in the hand of the recipient in line with the provisions of Personal Income Tax Act. Provision made for benefits payable to the employees offered voluntary redundancy shall not be an allowable deduction for tax purposes unless they result into cash payment to the employees. Interest free loan - Benefit on interest free loan when it relates to individual, it shall be regarded as benefit in kind and taxed under the provisions of PITA; in the case of corporate taxpayer, it shall be treated in line with the provisions 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 Section 32(1) of FIRS Act. Slide 37 PwC

FIRS perspective
Tax implications of IFRS adoption
Auctions and complimentary products - The benefit associated with other short term employee benefit (e.g. complimentary goods/services, reduced price, auctioned assets at below carrying cost etc) shall be treated as benefit-in-kind in the hand of the recipient and taxed in line with the provisions of PITA as amended to date. Government grant In the case of a capital grant, where the taxpayer reduces the cost of the asset by the grant, the carrying amount after the deduction of the grant shall be available for capital allowance purposes. When the deferred income approach is chosen, then the income shall be taxed when realised. With respect to income grant, the grant may be used to reduce the cost of sales or expenses of the taxpayer but where the taxpayer opts to recognise the grant as income, it shall be taxed accordingly.
PwC
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FIRS perspective
Tax implications of IFRS adoption
Foreign currency transactions - Income tax assessment shall be made in Nigerian Currency (Naira) subject to the exceptions provided in the tax laws. Realised exchange losses shall be allowed while the gain is taxable under CITA. Any form of unrealised gains or loss shall be disallowed for tax purposes. Borrowing cost - Interest on loan incurred on any QCE under construction shall be capitalised with the cost of construction of the asset while the interest on the loan after the asset is fully constructed shall be expensed. If capitalisation of borrowing cost is suspended at a period when active development is interrupted and charged to income statement, it shall be disallowed for tax purposes.
PwC
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FIRS perspective
Tax implications of IFRS adoption
Impairment - all impairment losses shall not be allowed for tax purposes. Taxpayers shall be required to make the following disclosures in its tax returns:
- Schedule and detailed computation of impairment losses recognised in profit or loss statement; - Schedule and detailed computation of impairment losses on re-valued assets recognised in Other Comprehensive Income and Income Statement as the case may be; - Schedule and detailed computation of impairment losses reversed in profit or loss statement; and

Where there is impairment or reversal of impairment, no adjustment would be required to the net assets on the financial statement for the purpose of computing minimum tax. Slide 40 PwC

FIRS perspective
Tax implications of IFRS adoption
Retirement benefit plans - The retirement benefit plans, pension schemes, superannuation schemes or retirement benefit schemes is treated for tax purposes in accordance with the Pension Reform Act and other applicable tax laws. However, income (investment and other sources) derived by any company formed for the purpose of managing the fund shall be taxable under the provisions of the relevant tax laws. Intangible assets - any intangible assets which meet the requirements of QCE should be capitalised for tax purposes. Intangible assets with indefinite life - where the intangible assets have indefinite life then no tax deduction should be allowed. Franchise shall be expensed over the useful life of the franchise.
PwC
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FIRS perspective
Tax implications of IFRS adoption
Computer Software - Software that forms integral part of a computer shall be treated as qualifying Plant Expenditure while Standalone Software will be treated as intangible asset and amortised over the useful life of the asset. Customer List customer list acquired as an intangible asset by a taxpayer to the extent that it is for the purpose of generating taxable profit shall be tax deductible via amortisation over the useful life. Research & Development the position of CITA on R&D shall continue to be applied. R&D costs charged to Profit or Loss, other than those allowed under Section 26 of CITA, shall be disallowed for CIT purposes. Website Cost website cost that meet the condition of capitalization shall be amortized over its useful life. However, website cost that is expensed shall be subject to deductibility test.
PwC
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FIRS perspective
Tax implications of IFRS adoption
Internally generated intangibles - Cost relating to internally generated intangible assets shall be disallowed for tax purposes except as provided under Second Schedule of CITA. Other intangibles - Intangible assets such as Landing Right, Import License, Radio Station License etc acquired through government grant for free or at nominal value are either recognized at fair value or at nominal value and shall be treated as follows, where;
- it is an intangible asset that has a nominal value, the value shall be adopted for tax purposes; - it is at Fair Value and a nominal value exists, then the difference between these values shall be disallowed for tax purposes; and - fair value is used and nominal value does not exist, the fair value shall be disallowed for tax purposes.

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

FIRS perspective
Tax implications of IFRS adoption
Investment property - Taxpayers shall split Land from building. The taxpayer shall disclose the rationale used in apportioning or separating land from building with a certified valuer's report. Where the ownership of Investment Property results into a separate line of business, the income will be taxed as a separate line of business. On disposal of Investment Property with TWDV, the relevant provisions of the tax laws shall apply for CGT and CIT purposes. However, on disposal of land which does not qualify for Capital Allowance, only the provision of CGT Act shall apply. For IP measured at fair value, gain or loss that may be charged to Income Statement shall not be allowed for tax purposes. Land held for undetermined future use is qualified to be an IP but not a QCE, therefore all cost incurred on the land shall be capitalised and disallowed if charged to Income Statement. Slide 44 PwC

Practical Scenario 3

In your opinion, what is the appropriate treatment for a living asset employed for business purposes e.g. security dogs?
PwC
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FIRS perspective
Tax implications of IFRS adoption
Investment property and tax returns - A schedule of IP shall accompany all tax returns All assets other than land reclassified or recognised as IP from PPE shall be transferred at their TWDV to IP and continue to enjoy Capital Allowance. Where the property is rented out as an IP, VAT is payable except when it is used for residential purposes e.g. staff quarters (BIK would be recognised for Personal Income Tax). Any taxpayer engaged in both Investment Property and trading in properties shall segment the two lines of businesses and report them accordingly.

PwC

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FIRS perspective
Tax implications of IFRS adoption
Share based payment - Capital allowance shall be claimable if the asset acquired is a QCE. The cost of the asset, purchases or expense is the invoice price, upon which VAT Act provisions shall be applicable Any related expense involved in the issuance of shares under share based payment shall be disallowed for income tax purposes. The goods/services exchanged under share based payment shall be recognized at the current market value and the impact on shareholders fund (Share premium) must be clearly shown.

PwC

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FIRS perspective
Tax implications of IFRS adoption
Business combination - Goodwill impairment shall be disallowed for tax purposes, while goodwill acquired shall not form part of the qualifying capital expenditure on which capital allowances can be claimed Gains arising from disposal of a Cash Generating Unit (CGU) with Goodwill components is subject to Capital Gain Tax. The costs incurred to effect business combination are capital in nature and 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.

PwC

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FIRS perspective
Tax implications of IFRS adoption
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 capital allowances on it until otherwise proved. However, if the asset is subsequently reclassified as in use, then the capital allowance would be granted on the tax written down value. Additionally, where the asset is eventually disposed, the provisions of the relevant tax laws shall apply. Discontinued Operation - Cessation rule shall apply when a taxpayer discontinues a line of business and commencement rule will apply if the line of business is bought over by another party at arm's length in line with Section 29 (9) of CITA.

PwC

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FIRS perspective
Tax implications of IFRS adoption
Financial Instruments - classified as Fair Value Through Profit or Loss (FVTPL) held for trading or short-term profit-taking such as derivatives are revenue in nature and therefore liable to CITA to the extent that they are not specifically exempted from tax. The transaction shall be taken as a separate line of business except where the taxpayer is already engaged in the same line of business. Financial instruments classified as Held to Maturity Investments such as debt securities and mandatory redeemable preference shares are capital instruments. Consequently, CGT shall apply to gains derived from the disposal of such instruments, except for gains exempted by relevant provisions of the CGT Act. Financial instruments classified as Loans and Receivables - To be treated in line with the provisions of the relevant tax laws.
PwC
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FIRS perspective
Tax implications of IFRS adoption
Financial instruments classified as Available for Sale (as a default class) such as all equity instruments not measured at FVTPL are capital instruments. Consequently, capital gains tax shall apply to gains derived from the disposal of such instruments, except for gains exempted by relevant provisions in the CGTA. Initial cost of various classes of Financial Instrument except FVTPL are to be capitalised as part of the cost of the investment. The transaction cost relating to FVTPL shall be allowed to be expensed while cost relating to held-to-maturity shall be capitalised. All gains and losses on FVTPL shall only be allowed for tax purposes when they are realised. Interest and dividends earned on financial instruments shall be taxable to the extent that they are not final tax.
PwC
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FIRS perspective
Tax implications of IFRS adoption
Financial instruments - FIRS shall disregard the effective interest rate used in calculating both the interest income and expense and use the interest rate stated in the contract. VAT and WHT shall be applicable to the fees while only WHT will be applicable to interest income. Gains and losses arising from assets classified as available for sale shall not be allowed for tax purposes. FIRS shall ignore all fair values assigned to financial instruments, and at disposal, the historical cost shall be used as the basis for tax computation. Impairment losses on loan & advances shall be subject to Section 20 of CITA.
PwC
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FIRS perspective
Tax implications of IFRS adoption
Compound instrument - FIRS shall regard this as pure debt instrument. Nominal interest is not allowable for tax purposes, actual interest incurred should be allowed for deduction. Preference share - the IFRS is at conflict with the provisions of CAMA. This implies that any payment made in respect of preference share shall be treated as dividend until the provisions of CAMA are amended. Operating segments - irrespective of the segmentation criteria adopted by the taxpayer, only segmentation based on lines of trade or business shall be acceptable for tax purposes. Fair value measurement - All gains and losses that may arise from fair value measurement shall be disregarded for tax purposes.

PwC

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Practical Scenario 4

Is VAT applicable on gift items? How should the cost be treated for CIT purposes? What should the treatment of input VAT be?
PwC

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Conclusion and way forward

Conclusion and way forward

IFRS transition and tax implications
Given the interrelationship between accounting measurements and taxation, as part of the conversion process, taxpayers need to consider the possible impact of the changes on taxation. The conversion will have impact on companies tax accounting methods/policies, taxable profits, tax assets, tax liabilities, tax cash flow and 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 the financial accounting and reporting landscape in Nigeria but also tax accounting and reporting. Considering these factors, a successful conversion requires not only the commitment of the finance unit, but also demands full involvement of the tax professional and other stakeholders.
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PwC

Death, taxes and childbirth! Theres never any convenient time for any of them!
Margaret Mitchell (19001949), U.S. novelist.

Thank you...
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC Nigeria, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 2013 PricewaterhouseCoopers. All rights reserved. In this document, PwC and PricewaterhouseCoopers refer to PricewaterhouseCoopers Nigeria which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

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 industries including financial services, oil & gas, telecommunication, and manufacturing both in the private and public sectors. Mr Taiwo Oyedele is widely acknowledged and respected by professionals as a thought leader on topical tax and accounting matters. He writes articles in national newspapers and professional journals. He is a regular paper presenter at conferences both local and international 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 Policy Management Faculty Board of ICAN. He has been in the forefront as a prominent speaker on contemporary tax and accounting issues in Nigeria including IFRS adoption and Transfer Pricing. 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 these projects, he examines the various areas requiring reforms in the tax legislation, administration, policy and practice in Nigeria compared to over 180 other countries around the 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 which commenced in May 2010 and author of the Top 50 Tax Issues in Nigeria. He has trained and worked in many countries. He represented Nigeria at the ACCA International Assembly in 2010 and in 2011 he was elected into the ACCA Council. He is the Founder and President of Impact Africa Foundation. Mr Taiwo Oyedele is a graduate of accountancy and an ICAN and ACCA prize winner. He is a Fellow of the Institute of Chartered Accountants of Nigeria (FCA), Fellow of the Chartered Institute of Taxation of Nigeria (FCTI), Fellow of the Association of Certified Chartered Accountants (FCCA), and a Certified Information Systems Auditor (CISA).

Taiwo Oyedele
Partner, PwC Contact information Phone: +234 (1) 2711700 +234 806 019 6593 email: taiwo.oyedele @ng.pwc.com blog: www.pwc.com/nigeriataxblog