June 11, 2019
One of the more common related party transactions conducted by taxpayers in Nigeria is intra-group services. It has been observed that Nigerian companies are net recipients of intra-group services therefore creating significant outflow in the form of payments for head office charges, shared services costs, management services etc. It is therefore not surprising that this transaction has become a transaction of interest to the Federal Inland Revenue Service (FIRS).
The interest in intra-group service transactions is supported by the inclusion of specific provisions on intra-group services in the Income Tax (Transfer Pricing) Regulations, 2018 (the revised Regulations). These provisions adopted some provisions included in the 2017 OECD Transfer Pricing (TP) Guidelines (the OECD TP Guidelines). The FIRS provided specific guidelines that must be adhered to by taxpayers to demonstrate the substance of the intra-group services and the appropriateness of the charge applicable, if it must be allowed for tax deduction purposes.
This article focuses on highlighting the key requirements for supporting the arm’s length nature of intra-group services, the key risk areas for taxpayers as well as suggesting mitigating actions.
Intra-group services are centralized support services provided by one or more entities within a Group of companies such as a Multinational Enterprise (MNE) Group to other entities within the MNE Group. These services include technical, management services and back office support services such as legal, Human Resources (HR), finance, Information Technology (IT) and administrative services.