August 29, 2018
The Federal Inland Revenue Service (FIRS) recently released the revised Income Tax (Transfer Pricing) Regulations 2018 (the Regulations) which has ushered in a Transfer Pricing (TP) specific penalty regime.
The Regulations, which repeal the Income Tax (Transfer Pricing) Regulations No. 1 2012 (the 2012 Regulations), has an effective date of 12 March 2018. However, the Regulations will be applied to the basis period commencing after 12 March 2018.
TP Specific Penalty Regime
Unlike the 2012 Regulations, the TP Regulations introduce administrative penalties for TP related offences. The penalties are highlighted below:
|1||Failure to file TP declaration within the specified period||₦10 million in the first instance and ₦10,000 for every day the failure continues|
|2||Failure to file updated TP declaration/ notification about changes in directors||₦25,000 for each day in which failure continues|
|3||Failure to file TP disclosures within the specified period||The higher of: ₦10 million or 1% percent of the value of the controlled transaction not disclosed, and ₦10,000 for every day the failure continues|
|4||Incorrect disclosure of transactions||The higher of: ₦10 million or 1% percent of the value of the controlled transaction incorrectly disclosed|
|5||Failure to file TP documentation upon request||The higher of: ₦10 million or 1% percent of the value of all controlled transactions and ₦10,000 for every day the failure continues|
|6||Failure to furnish information or document within the specified period||1% of the value of each controlled transaction for which the information or documentation was required and ₦10,000 for every day the failure continues|
The Regulations introduce the following changes among others –
The revised TP Regulations introduces a stiffer TP Regime in Nigeria. Although the exemption of certain categories of companies from contemporaneous TP documentation requirement will reduce the compliance burden on such companies, the introduction of stiff administrative penalties for TP offences is a material change that will affect taxpayers.
In light of these revisions, taxpayers will need to review their related party transactions and relevant associated documents to ensure that they are fully compliant with the arm’s length principle and documentation requirements. This will help to mitigate the risks associated with the incidence of significant assessment of additional tax liabilities and administrative penalties.
We will provide further details in our subsequent publications.