Transfer Pricing (TP) is a relatively new concept in Nigeria, as it was introduced in 2012. TP is regulated by the Income Tax (Transfer Pricing) Regulations, 2018 (TP Regulations) created pursuant to the Federal Inland Revenue Service (Establishment) Act, 2007. The 2018 TP Regulations revoke the TP Regulations of 2012. They incorporate some of the revisions to the OECD Guidelines as well as provisions contained in the African Tax Administration Forum’s Suggested Approach (ATAFSA) to drafting TP legislation. The 2018 TP Regulations introduced significant changes that impact the conduct of intercompany transactions involving people operating in Nigeria and reduces the TP compliance burden for certain categories of taxpayer. Some of the changes to the TP Regulations include:
While the TP Regulations allow the Federal Inland Revenue Service (FIRS) to grant extensions to filing deadlines under certain conditions, the full penalties will apply if a taxpayer is unable to meet the extended timelines.
The FIRS commenced TP audits about three years ago, and they consistently demand TP documentation and other documents from taxpayers with respect to their related party transactions. These actions are in line with its powers under the 2018 TP Regulations, No. 10 and Federal Inland Revenue Service (Establishment) Act. TP audits occasionally result in long drawn-out disputes between taxpayers and the tax authorities. These disputes could arise from adjustments in taxable profits resulting in increased tax liabilities; double taxation where adjusted profits have been taxed in other jurisdictions; different interpretation of provisions of the Regulations etc. Potential areas of dispute between the taxpayer and tax authority are not exhaustive. However, under Nigerian law a taxpayer has dispute resolution mechanisms available , each with its own implications. These are:
APA is not majorly a dispute resolution mechanism, but more of a dispute preventive measure as parties can agree beforehand on an appropriate set of criteria, which provides some certainty regarding the tax liability.
Nigerian tax environment is evolving rapidly, and the continuous implementation of tax reforms is laudable, one example of which would be the proposed Finance Bill which includes changes to 7 existing tax laws in Nigeria. However, the successful and prompt closure of tax disputes will make dispute resolution more effective. Taxpayers and their consultants are encouraged to familiarise themselves with existing dispute resolution mechanisms in all areas of taxation, including TP, as this will minimise the risks of uncertainty and unintended double taxation.
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