FIRS Revises Transfer Pricing Regulations

Federal Inland Revenue Service (FIRS) has revised the Transfer Pricing Regulations in Nigeria. First, the new scope of Transfer Pricing Regulations (TPR) includes related or associated transactions based on the provisions of Capital Gains Tax (CGT) Act and Value Added Tax (VAT) Act. This means FIRS may scrutinise related party transactions for likely VAT and CGT impact.

Second, the tax deductibility of royalty payments is a maximum of 5% of Earnings before Interest, Tax, Depreciation and Amortisation. Companies with related party transactions (RPT) are required to prepare a complete TP documentation. It should contain Base Erosion and Profit Shifting (BEPS) Master File, Local File, TP disclosure form and TP declaration form. On the other hand, TPR exempts companies with RPT below ₦300 million from preparing TP documentation. FIRS may still request for TP documentation from this category of taxpayers. Deadline for submission is within 90 days of notice.

Third, stiffer penalties for non-compliance are:

(a) failure to file TP declaration: ₦10 million plus ₦10,000 per month

(b) failure to file revised TP declaration/notification: ₦25,000 per day

(c) failure to file TP disclosure: ₦10million or 1% of RPT not disclosed plus  ₦10,000 per day

(d) filing incorrect disclosure: ₦10million or 1% of RPT falsely disclosed

(e) failure to file TP documentation upon request:  ₦10million or 1% of the gross amount of RPTs plus ₦10,000 per day

(f) failure to submit information upon request: 1% of the value of each RPT for applicable information plus ₦10,000 per day

Fourth, this regulation is effective from March 2018. The TPR aims to improve transfer pricing compliance while embracing the global standards of Organisation for Economic Co-operation and Development (OECD) Model. Therefore, multinational enterprises should determine the practical implication on their Nigerian operations so as to operate optimally.

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