Regulation No. 1 of 2012, effective August 2012, regulated Transfer Pricing in Nigeria. The regulation contains provisions on the scope, compliance and regulatory protections in Transfer Pricing.

This regulation aims to ensure a proper tax base and provide tax authorities with the appropriate tools to fight tax evasion. 

The Federal Internal Revenue Service of Nigeria published the Income Tax Regulations in 2018, effective March 12, 2018. The new Regulations replace the previous 2012 regulations and applied to years commenced on or after March 12, 2018.

Related Parties

Enterprises are related when one enterprise/person directly or indirectly participates in the management, control, and capital of the other or both enterprises.

Transactions regulated by the Regulation include all sorts of agreements related to the exchange of goods and property (tangible and intangible) and the rendering of services insofar as these affect the profitability of an enterprise.

The new Regulation replaced the concept of “related taxpayers” with a broader definition of “related persons” to include persons covered by the old Regulation and considered as related.

Transfer Pricing Methods

According to the Regulation, ‘Related Taxpayers’ must adopt any of the following Transfer Pricing Methods:

  • Comparable Uncontrolled Price Method.
  • Cost Plus Method.
  • Resale Price Method.
  • Profit Split Method.
  • Transactional Net Margin Method.

Any other method chosen by a taxpayer and approved by the FIRS may be reasonably applied. The method so used must result in an outcome consistent with the Arm’s Length Principle.

Transfer Pricing Documentation

The new regulations stipulate that taxpayers with total intercompany transactions below NGN300 million may opt not to maintain contemporaneous Transfer Pricing documentation. 

Conversely, they must prepare and file the documentation within 90 days from the date of receipt of a FIRS notice.

The new Regulation sets forth specific provisions for filing TP Declaration and Disclosure Forms.

A Transfer Pricing Declaration Form must be completed and filed providing details of all its related persons resident in Nigeria or elsewhere no later than 18 months after incorporation or within 6 months after the end of the accounting year, whichever is earlier.

An updated Declaration Form must also be completed and filed to FIRS when there is a merger or acquisition of up to 20% of an entity or its parent company or any other modification in the structure or disposition of the entity.

When there is an appointment or removal of the director of a related person, the FIRS must be notified as part of the Transfer Pricing Declaration and filed within six months after the end of the financial year.

The new Regulation incorporates the Master File and Local Report as recommended in BEPS Action 13 on the Transfer Pricing documentation. The right is reserved for FIRS to request additional information and documentation, which are necessary throughout the audit performance.

The documentation is expected to be contemporaneous (ready before the due date for filing income tax returns) and filed upon request within 21 days.

Transfer Pricing Sanctions

These are the corresponding penalties:

(a) Failure to file a Transfer Pricing Declaration – ₦ 10 million first and ₦ 10,000 for each day of continued failure.

  1. b) Failure to file an updated Transfer Pricing Declaration/provide notice on directors – ₦ 25,000 for each day of continued non-compliance.
  2. c) Failure to file a Transfer Pricing Disclosure – ₦ 10 million or 1% of the value of undisclosed transactions and 10,000₦ for each day of continued non-compliance.
  3. d) Incorrect disclosure of transactions: The greater of ₦ 10 million or 1% of the value of the incorrectly disclosed transactions.
  4. e) Failure to file the Transfer Pricing documentation upon prior request- the greater of ₦ 10 million or 1% of the value of all related party transactions and 10,000₦ for each day of continued non-compliance.
  5. f) Failure to provide information/documentation upon prior request-1% of the value of each inter-party transaction and ₦ 10,000 for each day of continued non-compliance.

Source: FIRS


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