January 14, 2020
The Nigerian Transfer Pricing (TP) Regime has witnessed significant developments in the last few years, which have resulted in TP finally becoming one of the high-risk tax areas facing Group Companies in Nigeria.
First, there was the introduction and implementation of the Country-by-Country Reporting (CbCR) Regulations with significant administrative penalties for non-compliance. The CbCR Regulations ushered the Regime into an era of unprecedented transparency that requires qualified Multinational Enterprises (MNEs) to disclose their key financial information and economic activities in the jurisdictions where they have footprints to tax authorities.
Second, the revised Nigeria TP Regulations (Revised Regulations) released in 2018 also introduced steep administrative penalties for non-compliance as well as some contentious provisions.
Third, there has been some contentious implementation of aspects of the Revised Regulations such as the retrospective application of administrative penalties for non-filing of TP returns for accounting years prior to the commencement of the Revised Regulations.
Finally, there has been increased number of TP disputes in recent years.
All the above developments, among others, have contributed to making TP one of the highest tax risk areas, thereby making it necessary for taxpayers to have a clear TP strategy to navigate this risky terrain full of pitfalls.
This article analyses how best taxpayers can navigate their TP risks to enable them focus on their respective core businesses.
Ensuring full compliance with TP requirements
2019 witnessed a significant number of taxpayers being penalized for non-compliance with either the CbCR Regulations, the Revised Regulations or both. Some of the penalties, especially the retrospective penalties for late filing of TP Returns ran into hundreds of millions for some Group Companies. Thus, being fully compliant with both sets of Regulations has become more of a necessity.
Being fully compliant means that a taxpayer should have:
(i) filed all TP Returns (TP Declaration and TP Disclosure Forms) for all relevant years timely;
(ii) prepared annual TP Documentation contemporaneously (i.e. prepared prior to the due date of filing the income tax returns for the year of interest) and ready to be submitted within 21 days of receiving a request;
(iii) if applicable, notified the Federal Inland Revenue Service (FIRS) of which Group entity will be responsible for preparing and submitting the CbC Report to the relevant tax authority; and
(iv) if applicable, prepared the CbC Report and submitted to the FIRS on time.