Worldwide transfer pricing reference guide 2014

Nigeria
Taxing authority and tax law
Taxing authority: Federal Inland Revenue Service (FIRS).
Tax law: The Income Tax (Transfer Pricing) Regulations No. 1, 2012
Relevant regulations and rulings
The transfer pricing regulations will apply to transactions between connected persons (related parties as defined within the regulations)
carrying on the following activities:
• Sale and purchase of goods and services
• Sale, purchase or lease of tangible assets
• Transfer, purchase, license or use of intangible assets
• Provision of services
• Lending or borrowing of money
• Manufacturing arrangements
• Any transaction which may affect profit and loss or any other matter incidental to the foregoing
For purposes of the application of the regulations, it should be noted that permanent establishments (PEs) will be treated as separate
entities and any transaction between a PE and its head office or other connected taxable persons will be considered a controlled
transaction subject to the transfer pricing rules.
OECD Guidelines treatment
The rules are to be applied in a manner consistent with the OECD Guidelines and Article 9 of the UN and OECD Model Tax Conventions.
The provisions of the relevant tax laws shall prevail in the event of inconsistency between the OECD Guidelines, the UN Practical Manual
and the relevant tax laws.
Priorities/pricing methods
The regulations require the selection of the most appropriate transfer pricing method based on the facts and circumstances relating to
the intercompany transaction(s) being analyzed. The regulations prescribe the following methods to be used in determining whether the
result of a transaction is consistent with the arm’s length:
• The CUP method
• The Resale Price method
• The cost plus method
• TNMM
• The Transactional Profit Spilt method
• Any other method which may be prescribed by the regulations made by the FIRS from time to time
A connected tax payer may apply a transfer pricing method outside of the specified methods if it can be established that: (i) none of the
listed methods can be reasonably applied; and (ii) the method used gives rise to a result that is consistent with the arm’s length principle.
Transfer pricing penalties
A taxable person who fails to comply with the provisions of the regulations will be liable to a penalty based on the relevant provisions of
the applicable tax laws (Companies Income Tax Act, Petroleum Profits Tax Act, Capital Gains Act, Stamp Duties Act and
Personal Income Tax Act).
For example, under the Companies Income Tax Act, late filing of corporate income tax return attracts a penalty of NGN25,000 in the first
month in which the failure occurs; and NGN5,000 for each subsequent month in which the failure continues. Late payment of tax due
attracts a penalty of 10% plus interest at bank lending rate.
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