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Voluntary Offshore Asset Regularisation Scheme: - (V.O.A.R.S)

A Brief Review of the

Voluntary Offshore Asset Regularisation Scheme: - (V.O.A.R.S)

Executive Order 008.

A. INTRODUCTION.

1. On October 8, 2018, President Muhammad Buhari, signed the Executive Order (8) directing the Office Honourable Attorney -General of the Federation and Minister of Justice to set up a Voluntary Offshore Assets Regularisation Scheme, (otherwise known as the V.O.A.R.S) with the relevant authorities in Switzerland.

2. The Constitution of the Federal Republic of Nigeria, 1999 (as amended) vested the President with the requisite executive powers under Section 5 therefore, to make such executive Orders (as this Executive Order 008) either directly or through any designated Minister of the Federal Republic of Nigeria. In addition, by virtue of Section 15 (5) of the CFRN' 1999 (as amended) the President is specifically mandated to abolish all corrupt practices and abuse of power.


3. Furthermore, Chapter 11 of the CFRN' 1999 (as amended) - Fundamental Objective and Directive Principle of State Policy- Section 16 (2) (a)-(c) thereof, the economic objective shall be, inter- alia, the promotion of a planned and balance economic development, and ensure that material resources of the nation is harnessed and distributed in the best possible manner for the common good, and more fundamentally, to manage the economy in such a manner, so as to prevent the concentration of wealth or the means of production and exchange in the hands of few individuals or a group. We shall refrain from the academic exercise of the justiciability or otherwise of this aspect of the Constitution for another forum, but suffice it to say that the above -mention sections of the Constitution provided the necessary fundamental and jurisprudential background for the President's action.


4. In addition to the above, Section 12 of the Executive Order specifically provides that it shall read in conjunction with all extent Tax laws, Regulation and Guidelines as well as those that may be made issued pursuant to the scheme. Consequently, under the Company Income Tax Act - Sections 23(2), 89, the President has the authority to remit wholly or part, any tax payable by any Company, if satisfied that it is just and equitable or even order the exemption of any company from any provision of CITA or payment of tax, if the circumstances so warrants.


5. The scheme is essentially a mechanism designed, to create opportunity for defaulting or reticent taxpayers with sizeable assets- fixed /liquid - in foreign countries to redeem themselves through an honest disclosure of such assets, in the manner and under the terms stipulated by the Order.


6. The Scheme is meant to operate or run for twelve (12) months and covers assets and income from sources outside Nigeria relating to the preceding thirty (30) years of assessment.


7. Practitioners in the Tax Industry are of the view that the Scheme was propelled by the wide acceptance and modicum success of a similar arrangement, set up for domestic Income Tax defaulters, under a mechanism called Voluntary Assets and Income Declaration Scheme (V.A.I.D.S) implemented by the Federal Ministry of Finance that lasted till June 30, 2018.


8. Both arrangements - V.A.I.D.S and V.O.A.R.S are all variants of what is known in the industry as Tax Amnesty (T.A) which is a grace - period or time limited opportunity made available to certain targeted or categorised taxpayers who are in default in their respective tax obligations to voluntarily, sincerely disclose, and redeem such outstanding tax liabilities within the time frame, and in the manner stipulated or under the condition set forth by the Relevant Tax Authorities in exchange for, or in consideration of certain benefits or reliefs/incentives which may include:- Waving interests/penalties, immunity from prosecution and/or reduction of the tax rate. The Scheme is a trending global approach, adopted in many Countries under various guise: -Voluntary Tax Compliance Scheme (V.T.C.S) Pakistan: Voluntary Disclosure of income Scheme (V.D.I.S) - India.


9. Whatever, may be the propelling factors, it must be noted that the preamble or recital to the Executive Order No.008 provides for amongst others in paragraph 4 thereof, that the government is aware that the targeted assets are of Nigeria origin, but not declared to the relevant authorities and are not tax compliant, wherein it states thus: -

"Aware that there are significant offshore assets of Nigeria origin that have not been declared to the relevant authorities, and that are not tax compliant"

10. This therefore presupposes that government has sufficient or significant information about some of these assets but offering the citizens an opportunity to regularise the status of the assets with additional incentives as expressed in paragraph 6 of the preamble or recital to the Executive Order 008. We all recall with nauseating nostalgia, the explosive revelation of the Paradise /Panama Papers in 2016/17 and the reverberations of the consequences around the world.

B. OBJECTIVES.

11. The Scheme is intended to achieve a dual objectives, the first objective is to largely minimize, or plausibly eliminate corruption- white collar crimes /illicit financial flows/ anti Money Laundering and other variants of financial/economic crimes using the instrumentality of taxation -instilling the culture and discipline of tax compliance in Nigerians or Nigerian residents/entities through a more subtle, urbane and contemporary manner by widening the tax net to capture the global targets- assets in Diaspora.

12. The second objective, which is arguably the real policy rationale, is to leverage on the trending fiscal tools to expand the revenue base and deepen the income generating capacity of the Federal Government. In any case, the objectives of the Scheme is stated in Section 3 of the Order-"The Scheme shall encourage and provide an opportunity for eligible taxpayers to: -

a) regularize their offshore assets held anywhere in the world ; voluntarily elect to regularize their tax status for all the relevant years by paying to FGN a one -time levy of 35% of their offshore assets in lieu of all outstanding taxes, penalties and interest .

b) ...................................

c) establish a Swiss nexus for their offshore assets held anywhere else in the World or its management in Switzerland or through its financial system and institutions in Order to use the Scheme.

d) avoid and stop tax evasion: and

e) ensure full tax compliance on their residual offshore assets after accessing the scheme by paying taxes to FGN on income earned thereon.

C. ENFORCEMENT/ IMPLEMENTATION.


13. The two key bodies directed or duly authorised to oversee or superintend the effective implementation of the tax regime and realise the anticipated deliverables, are the Office of the Attorney-General of the Federation and the appropriate authorities of Switzerland.


14. The HAGF will set up the scheme in Switzerland, while the operational mechanism will be run by the Swiss, using the facilities and globally respected system. The Government obviously has a better reason for choosing Switzerland as the hub, beyond that, Switzerland is well known for her rich tradition in financial/banking transactions and still remains the epicentre of global ‘Offshore Asset Warehousing' for high net -worth individuals. High profile Nigerians - Political exposed persons and business/corporate moguls are believed to be known customers to the Swiss Banking/financial system.


D. RELIEFS / BENEFITS.

15. The Scheme lays out elaborate benefits for any of the targeted persons who decides to seize the initiative and take full advantage of the grace period or opportunity offered by the scheme to redeem himself /herself: All need do is to step forth and honestly confess your deeds, make the required sacrifice, the law will look the other way, he becomes a freeman to appropriate his wealth again on terms put forth in the Executive Order 008.

16. The alluring benefit for qualified partakers, include: -

a) permanent waiver of criminal prosecution for tax offences and offences related to the offshore assets, penalties and interest concerning such declared offshore assets.

b) Immunity from tax audit of the declared and regularised offshore assets.

c) waiver of interest and penalties on the declared and regularised offshore assets.

d) -----------

e) be free to use or invest their duly regularised residual offshore assets in any manner in Nigeria or overseas, and be subject only to annual tax to FGN on the income earned on such residual offshore assets.

(See Section 6 of the Order)


17. However, there is caveat to the above benefits, in other words, in addition to meeting the eligibility criteria, the benefits will only be available to any individual or entity in a situation where it,

'shall not prejudicially affect or invalidate any Court Order or Judgment already obtained in respect of any default in payment of tax which interest and/or penalty have already accrued'

18. By virtue of the above, once a Court order had already been obtained in respect of the subject matter of the tax, the accruing benefits will not be open to such individual or entity. The likely reason is that there is often the overriding need to always accord respect to and refrain from compromising Court Judgments. The benefits cannot be used to tamper or undo a subsisting Court Judgment.

19. In addition, Section 7 of the Order listed additional requirements that must be met or compiled with before the outlined benefit could be appropriated. The tax payer must-:

i. Access and provide full co-operation to the offshore assets disclosure facility in Switzerland.

ii. Pay the prescribed 35% levy to FGN in accordance with procedure governing the Scheme.

iii. Consent to tax compliance on residual offshore assets and full co-operation with relevant Tax Authority in Nigeria concerning future taxes on income earned on such residual offshore assets.

20. It must be noted, these additional criteria must not be confused with or mistaken for the fundamental eligibility requirement that must be met, as the first condition, in order to qualify to participate in the scheme - these fundamental conditions are as set out in paragraph 4 of the Order. Simply put, a tax payer can only take advantage of the benefits stated above, once he is able to meet the three basic requirements, full cooperation with the Swiss authorities and make use of the facilities for the Scheme in Switzerland. Pay the 35% onetime levy of the offshore assets and ensure compliance with tax regulatory authorities in Nigeria. Before being in a position to seek the reliefs or take advantage of the of benefit, the tax payer must first qualify to access the Scheme.


E. ELIGIBILITY TO PARTICIPATE.

21. By virtue of Section 4 of the Order, the scheme is available to and specifically targeted at 'all persons, entities and their intermediaries who are holding offshore assets and are in default of their tax liabilities in anyway whatsoever, including those who:

a) are not already under investigation by law enforcement agencies in Nigeria or any other Country and have not been charged with any crimes, including theft of public funds or obtaining offshore assets through corrupt practices:


b) own offshore assets but are yet to declare them with relevant authorities; such offshore assets by definition include liquid assets (banks balances) stocks and bonds held in portfolios, insurance policies, shares in listed or unlisted offshore companies, property assets and all manners of assets held directly or indirectly through corporate entities, trust structures and non - Nigeria resident companies and intermediaries:-



c) earn income on offshore assets but are yet to declare such income to relevant tax authorities:


d) are registered taxpayers who have additional disclosures to make or need to amend prior disclosures: and /or are registered but have not been filing return;


e) have not been fully declaring their taxable income and offshore assets.


f) have been underpaying or under remitting;


g) are under a process of tax audit or investigation with relevant Tax authority but are prepared to settle the tax dispute out of Court; -


h) have applied for and received FGN Special Clearance to access the Scheme; and: -


i) have been determined to be innocent after investigation or legal proceedings: -


22. Subparagraph (a) above appears too wide, lacking in specifics and contradictory to the intent of the Scheme. There is no reason for excluding a tax payer who is under investigation or facing charges before the Court but yet to be convicted/sentenced but is willing to give full and honest disclose of such assets and enter plea - bargain. Furthermore, there is no explanation as to what constitutes being charged with any crime. Taxpayer charged with traffic offences before the Magistrate Court stands the risk of disqualification from the Scheme going by the strict application of the subparagraph. The HAGF will have some discretion considering his powers under Section 174 of the 1999 Constitution, (as amended) in the overall interest of the nation and bearing in mind the objective of the Order.


23. However, as an additional measure, the scheme provides for constitutes a valid or an acceptable declaration. Any declaration made by a willing Taxpayer, must be voluntary, full, honest, complete and verifiable in all material respect. Such disclosure must be made through the facilities of the scheme in Switzerland and must in the manner required by or in compliance with the procedure set out by the Scheme in Switzerland (inclusive of payment of the 2% facility access fees to Swiss authority) and also consent to further assessment of future taxes by the Relevant Tax Authority (R.T.A) on the income earned on the residual Offshore assets.

24. In addition to the above, one of the most critical requirement for the disclosure to be valid and acceptable is that the taxpayer must voluntarily consent to one- time levy of 35% of the Offshore assets payment to the Federal Government of Nigeria, in the manner prescribed by the Scheme. This 35% onetime levy payment is repeatedly empathised in Sections 3 & 5 of the Scheme, which underscores its dominant importance to the Scheme.

F. EFFECT OF NON COMPLIANCE.

25. Barring any extension, the Scheme is meant to last for only a 12 months period - (effective October 8, 2018) the grace period is somewhat limited and any failure to take full advantage of the opportunity will face the unpleasant consequences, as set forth under Section 8 of the Scheme.


26. Some of the consequences include, being open to investigation, charges and enforcement procedure on such assets held anywhere in the world, loss of right to plea bargain, full payment of the principal sum due, 100% payment of all interest and penalties, withdrawal of all reliefs/benefit earlier granted to such tax payer, and being subject to comprehensive tax audit. Please note specially the provision of Section 6(a) of the Order particularly that prosecution for “offences related to the offshore” assets will be waived. It means if, it can be waved, then Government can strictly enforce its right to prosecute the offence.

G. CONFIDENTIALITY.

27. The Scheme guarantees utmost confidentiality of all information and transactions that transpired or took place with the tax payer.


28. However, it must be noted that Nigeria has various subsisting Bilateral/ Multi- lateral Agreements on Automatic Exchange of Information with a host of Countries. By virtue of these Agreement, Nigeria is under international obligation to provide any requested information on any defaulting tax payer to the such Country or Relevant Tax Authority (R.T.A) in this vein, RTA in Nigeria can as well request information concerning the offshore account/income of any individual or entity anywhere in the world, such Host Countries or RTA will duty bound under international obligation to provide such information.

H. CHALLENGES.

29. Some tax experts muted concerns about the voluntary 35% asset levy rate requirement, the experts are of the view that if the said 35% is added to the 2% requirement to be paid to the Swiss authority, the total percentage will effectively be 37% of the total disclosed offshore assets, which in the real sense, is not voluntary and rather on the high side. In this respect it is appropriate to ask the question what the alternative is, considering the benefits of the Scheme. The answer will favour the Executive Order 8. Please see the effect or consequences of non-compliance as per Section 8 of the Order.


30. The provision of Section 12 of the Executive Order 8 clearly invoked the inviolability of all the extant Tax laws, Regulations and Guidelines as it provides that- " This Executive Order be read in conjunction with all extant Tax Laws, Regulations and Guidelines as well as those that may be issue pursuant to the scheme " This therefore expects co-operation from all experts, practitioners and stakeholders as all rights and privileges acquired before the coming into effect and during the period of its existence are accordingly preserved.


31. It is also important to note that section 12 of the Order is meant to preserve and respect any right and/ or privileges acquired by any participating taxpayer under the Executive Order even after the effluxion of time by the deliberate deployment of the word in paragraph 2 of section 12 which provides thus:-"Any rights and status properly acquired by any participating taxpayer pursuant to the scheme shall vest to the benefit of the tax payer to the extent provided by the law".


32. Another major concern is the 30-year assessment period is unnecessarily long, not all have the requite skill to keep the needed documents or information that could provide appropriate records of transaction for such number of years. Respectfully, the relevant authorities will deal with this matter on case by case basis. The operators will be led by available information as the Scheme is based on voluntary and honest disclosure of relevant assets.


33. Furthermore, the experts also observed that the Scheme did not take into cognisance, Nigerians that took advantage of the Voluntary Assets and Income Declaration Scheme (VAIDS) which covers both local and offshore assets. By necessary implication, such taxpayers ought not to be exposed to the consequences of non-compliance with the Scheme - VOARS. In any case, it is expected that in such situations, the Doctrine of legitimate expectation would apply, the doctrine enunciated in the English case of R.V. Board of Inland Revenue and clarified in the Nigerian case of F.B.I.R v Halliburton (WA) Ltd (2014) LPELR -24230 (CA), postulates that where a public body or person acting in public authority has issued a promise or has been acting in a given way the members of the pubic affected by the scheme of conducting public affairs in the charted manner would, by law require the promise or practice to be honoured or kept by the public body or person acting in public authority, unless there are sound basis or compelling reasons for the public authority not to go ahead with or insist on the settled scheme of conducting public affairs. Once the tax payer, has given honest and full disclosure in utmost good faith and altered his tax obligation in full compliance, such tax payer ought to be denied the expected benefit/reliefs

34. The Scheme appears not to have taken into reckoning the relevance of Federal Ministry of Finance in assigning a major role, as an RTA in Nigeria. The Scheme is solely and exclusively under the control and supervision of the Office of the HAGF. It is plausible that the Scheme was deliberate in assignment of roles; in order to obviate ugly incidents of inter- ministerial/agency rivalry and chicanery that often kills such initiative in the public service. Another likely explanation is that the Federal Ministry of Finance managed VAIDS solely, so VOARS will be the exclusive preserve of OHAGF.


35. Respectfully, these arguments are not necessary for the success of the scheme, note that the government, maintains, as per paragraph 4 of the preamble or recital to the order that it is aware of significant offshore assets that are of Nigeria origin, not declared to the relevant authorities and are also not tax compliant. The relevant assets may be liable to prosecution, if government decides to act on the information at its disposal. These information and power to prosecute for “offences related” to these assets is with the HAGF. The Scheme lasts for only 12 Calendar months failing which prosecution might commence against these assets for various offences. The public policy advantage in this arrangement is that government is determined to reduce drastically the cost and time spent on litigation or prosecution abroad for the recovery of these assets.

I. CONCLUSION.

36. Based on our experience and expertise in international asset tracking/tracing and recovery, especially working for the Federal Government and in close collaboration with respective International Financial Organisations and the authorities of Countries, where necessary, we can confidently state that the Swiss authorities have been of immense help in the recovery of some of the infamous loot. The Swiss system has been swift and superb and we know, going forward that they will still be relevant to FRN's looted funds recovery efforts.

37. However, our experience also shows that, in some cases, the interest and desires of agents of some foreign government, who often and loudly proclaim to help Nigeria in her quest to recover her stolen wealth, virtually hidden in all crannies of the world, are far from being altruistic as they portray it to be. We, must at all times, be alert, astute, vigilant and remain focus in ensuring that interest are aligned and that priorities reconciled, but in it all, national interest of the nation must be utmost. Inspite of all of that, we must appreciate all the countries who have collaborated with Nigeria in its struggle to recover its assets stached abroad. This is also a way to show that Nigeria is prepared to negotiate and reconcile with its citizens and business partners to put its record straight, collect its due and close the very dirty chapter in financial recklessness and impunity in doing business in Nigeria in the past.

38. We must at once commend the collaborative efforts of the HAGF and Minister of Justice Mr. Abubakar Malami, SAN and the Honourable Minister of Finance, Zainab Ahmed and the synergy that exists between the two Ministries. They have worked relentlessly and tirelessly on this Scheme in collaboration with the Swiss Consortium to put this great event together in which we could not have had a better array of Tax experts, Practitioners and stakeholders, like you, distinguish ladies and gentlemen here present.

39. Thank you all for your patience.

References:

· The Constitution of the Federal Republic of Nigeria. 1999 (as amended)

· Company Income Tax Act 2007 (as amended)

· Personal Income Tax Act 2011 (as amended)

· Executive Order 008 on Voluntary Offshore Assets Regularisation Scheme. KPMG in Nigeria, Newsletter - Issue 10, 5 October 2018

· Federal Government of Nigeria issues New Executive Order on Voluntary Offshore Assets Regularisation Scheme (VOARS): a Publication of Pedabo- October, 2018.

























ACKNOWLEDGEMENT


I specially thank Almighty God for the time, efforts, and available resources put into this works and as my fountain of knowledge and wisdom. I would like to express my deepest appreciation to the Honourable Attorney -General of the Federation and Minister of Justice, Mr Abubukar Malami, SAN, who found me worthy of his invitation as a guest speaker at this august event.


I also thank the Solicitor- General of the Federation and Permanent Secretary, Ministry of Justice, Adedayo Apata, Esq. and the Head, Asset Recovery Management Unit of the Ministry of Justice, Hajia Ladidi B Mohammed and her Staff, for the material deployed in coming out with this work.

I owe the following faculties a debt of gratitude for their contribution to the work, in spite of the very short notice: namely, Professor Abiola Sanni of the Faculty of Law, University of Lagos, Chris Nevo Esq. (LLM) of Dipo Okpeseyi & Co and others who supplied logistics support.


Thank you all.


























Protocol

The Honourable Attorney - General of the Federation and Minister of Justice graciously extended his kind invitation to me via his letter dated 22nd March, 2019 reference: HAGF/ARMU/RMVAFADAR/2018/T inviting me as a Guest Speaker at this event, for the unveiling of the Voluntary Offshore Assets Regulations Scheme (V.O.A.R.S) consequent upon the Executive Order No 008 issued by President Mohammed Buhari GCFR, President and commander in - Chief of the Armed Forces of the Federal Republic of Nigeria.

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