Transfer Pricing (“TP”) is the pricing of goods and services in transactions between related parties (i.e. parties joined by a pre-existing business relationship or common interest). TP enables the regulation of the cost of goods or services provided to related entities. TP may thus be used as a means of tax avoidance by unscrupulous companies that may record profits in low tax paying regions after reselling at a reduced price to a related party in that location. To curb this vice, the arm’s length principle as well as the requirement to file transfer pricing returns were established.
In Nigeria, TP is regulated by the Income Tax (Transfer Pricing) Regulation of 2018 (“TP Regulation”). The transactions to which the TP Regulation apply include sale and purchase of goods and services, purchases or lease of tangible and intangible assets, provision of services, lending or borrowing of money, manufacturing arrangements, and any transaction which may affect profit and loss or any other matter incidental to the foregoing. Regulation 13 of the TP Regulation provides the requirement for full disclosure of all related companies in Nigeria or elsewhere within 18 months after incorporation or 6 months after the financial year end of the company, whichever is earlier. Regulation 14 further requires that for each year of assessment, a connected person shall without notice or demand make a disclosure in the prescribed form (“TP disclosure form”) with details of transactions that are subject to the TP Regulation within 18 months after the date of incorporation or 6 months after the accounting year, whichever is earlier.
The TP disclosure form requires information on the particulars of the company, the comparison of company and group performance, the goods and services provided and received at no consideration (interest free loans), a declaration and the particulars of the person who fills the form. The form is to be accompanied by the audited financial statements and the TP policy of the company. Failure to file transfer pricing returns within the stipulated period attracts a penalty of
N10 million in the first instance and N10,000 for every day in which the default continues.
However, by the provision of Regulation 15, an application for the extension of the stipulated period for making TP declarations may be granted at the discretion of the FIRS subject to the ability of the taxpayer to show good cause.
On 17 March 2020, the FIRS launched the E-TP PLAT 2.0, an electronic filing platform which allows taxpayers with TP obligations to file their annual TP returns electronically.
The current TP regime in Nigeria and the imposition of stringent penalties for failure to file TP returns has made tax evasion more difficult. However, a lot remains expected from the implementation of these regulations by the FIRS.
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 “Related Party” Investopedia, 2019, https://www.investopedia.com/terms/r/related-partytransaction.asp accessed on 15 May 2020.
 Regulation 12 of TP Regulations “connected persons” includes persons who are related, associated, or connected to one another as defined in Section the Companies Income Tax Act, CAP. C21, Laws of the Federation of Nigeria, 2004