June 13, 2018
In September 2012, the Federal Government of Nigeria published in the Federal Gazette, the Nigerian Transfer Pricing Regulations (NTPR). The Regulations amongst others require tax payers with related party transactions to conduct such transactions at arm’s length. Unlike in some jurisdictions where the scope of Transfer Pricing (TP) is limited to cross border transactions, the NTPR is unique in the sense that domestic related party transactions also fall within its scope. This is to potentially guard against profit shifting among related parties who:
Thus, where the Federal Inland Revenue Service (FIRS) sustains a TP adjustment during an audit, this may create risks of double taxation for Nigerian Group companies that engage in domestic related party transactions, which is contrary to one of the key objectives of the NTPR that seeks to reduce the risk of economic double taxation risk to taxpayers. Further, unlike cross border transactions where there are explicit guidelines to help mitigate this double taxation risk via a corresponding adjustment, the same can not be said for the domestic transaction. Thus, this article sheds light on this critical problem associated with domestic related party transactions.