Tunde Fowler, Executive Chairman of FIRS hinted the review of Nigeria’s Transfer Pricing regulation
Nigeria releases revised Transfer Pricing regulation
The Federal Inland Revenue Service (FIRS), in exercise of powers conferred on it by Section 61 of the Federal Inland Revenue Service (Establishment) Act No.13 of 2007, has updated the Income Tax (Transfer Pricing) Regulations, 2012 (Old Regulations). The revised Transfer Pricing (TP) Regulations (the Revised Regulations) came into effect from March 2018 and the updates are first to be made to the TP Regulations in Nigeria since its introduction in 2012.
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Transfer pricing is a set of substantive and administrative regulatory requirements which tax jurisdictions or governments impose on certain taxpayers. These set of rules foresee distortions of taxable income in across-the-border transactions within and between enterprises under common ownership or control.
Setting effective Transfer Pricing regulations will empower the tax authority legally to forestall and solve distortion of taxable income. This is primarily why tax authorities (for instance Nigeria) in many countries can adjust intragroup transfer prices that differ from what would have been charged by unrelated enterprises dealing at arm’s length.
The Regulations aim at increased compliance with the TP requirements and are in line with the TP Guidelines for Multinational Enterprises and Tax Administrations published by the Organisation for Economic Corporation and Development (OECD) in July 2017. The main highlights of the changes in the revised TP Regulations are as follows:
| Old Regulations | Revised Regulations | |
| Scope of application | The Regulations gave effect to the provisions of the following legislation as they relate to connected transactions:
· Personal Income Tax Act · Companies Income Tax Act · Petroleum Profits Tax Act |
The scope of the Regulations have been expanded to give effect to the provisions of the following legislation:
· Personal Income Tax Act · Companies Income Tax Act · Petroleum Profits Tax Act · Capital Gains Tax Act · Value Added Tax Act
|
| Materiality threshold for applying for Advance Pricing Agreement (APA”) | The materiality threshold for APA was set at ₦250m | There is no materiality threshold |
| Materiality threshold for maintaining contemporaneous documentation | There was no materiality threshold | The threshold for maintaining contemporaneous documentation is set at ₦300m |
| Documents required to be filed with FIRS | The following documents were required to be filed on annual basis:
· TP Disclosure form, · TP Declaration form and · Local TP Documentation |
A Group Masterfile is required to be filed with FIRS in addition to the documents under the Old Regulations
|
| Penalty for failure to file TP Declaration form within the stipulated time | · ₦25,000 for the first month of default, and
· ₦5,000 for every month the failure continues |
Penalty has been increased as follows:
· ₦10m for the first month of default, and · ₦10,000 for every day the failure continues |
| Penalties for failure to file
(1) TP Disclosure Form, or (2) TP Documentation within the stipulated time |
₦25,000 for the first month of default and ₦5,000 for every month the failure continues | Penalty has been amended as shown below:
· ₦10m or 1% of the value of controlled transaction(s) not disclosed; whichever is higher, for the first month of default, and · ₦10,000 for every day the failure continues |
| Penalties for making an incorrect disclosure in the TP Disclosure form submitted to FIRS | None | ₦10m or 1% of the value of controlled transactions incorrectly disclosed, whichever is higher, shall apply. |
| Failure to provide FIRS with any information or document required within the time specified in a notice issued to the taxpayer by FIRS | None | · 1% of the value of each controlled transaction for which the information or document was required, in addition to;
· ₦10,000 for each day the failure continues |
| Failure to submit updated TP Declaration form | None | · ₦25,000 for every day the failure continues |
By Kings UBA (with Deloitte report)