Nigeria: Managing Intra-Group Services For Transfer Pricing Compliance In Nigeria

Last Updated: 12 June 2019
Article by Emmanuel Onasami and Jemima Ojonugwa-Raiwe
Most Read Contributor in Nigeria, July 2019

One of the more common related party transactions conducted by taxpayers in Nigeria is intra-group services. It has been observed that Nigerian companies are net recipients of intra-group services therefore creating significant outflow in the form of payments for head office charges, shared services costs, management services etc. It is therefore not surprising that this transaction has become a transaction of interest to the Federal Inland Revenue Service (FIRS).

The interest in intra-group service transactions is supported by the inclusion of specific provisions on intra-group services in the Income Tax (Transfer Pricing) Regulations, 2018 (the revised Regulations). These provisions adopted some provisions included in the 2017 OECD Transfer Pricing (TP) Guidelines (the OECD TP Guidelines). The FIRS provided specific guidelines that must be adhered to by taxpayers to demonstrate the substance of the intra-group services and the appropriateness of the charge applicable, if it must be allowed for tax deduction purposes.

This article focuses on highlighting the key requirements for supporting the arm's length nature of intra-group services, the key risk areas for taxpayers as well as suggesting mitigating actions.

What are intra-group services?

Intra-group services are centralized support services provided by one or more entities within a Group of companies such as a Multinational Enterprise (MNE) Group to other entities within the MNE Group. These services include technical, management services and back office support services such as legal, Human Resources (HR), finance, Information Technology (IT) and administrative services. Intra-group service arrangements are used by MNE Groups to achieve economies of scale, quality consistency and group synergy.

Key considerations for intra-group services

In analyzing intra-group services, a taxpayer must be able to demonstrate the substance of the transaction and show that the charge is in accordance with the arm's length principle. Where this can be demonstrated reliably, the charge for intra-group services should be tax deductible.

We have summarized below, the key considerations for intra-group services as recommended by the revised Regulations and the OECD TP Guidelines.

1. Demonstration of substance

The FIRS may question the validity of services received. In order to prove the substance of the intra-group service, Regulation 6(1) of the revised Regulations states that the service recipient should be able to prove that the services were actually rendered, that the services received had economic value and the services can be provided between independent parties in the open market. The service recipient should also be willing to pay an independent party for the provision of such services. This analysis is called a benefit test analysis.

The revised Regulations however excludes shareholder costs from intra-group service costs. Shareholder costs are costs incurred solely because of a shareholder's ownership interests in an entity. Examples include cost relating to corporate governance, consolidation of financial statements, among others to meet regulatory requirements.

Additionally, the OECD TP Guidelines provides further factors to consider in determining the substance of intra-group services. Particularly, duplicated services and services which provide incidental benefits to an entity will not be accepted as part of intra-group services.

The FIRS will seek to establish that the services were actually rendered before evaluating whether the charges were appropriate. This is typically achieved by reviewing key deliverables from these services and any other relevant documents/ information that can provide comfort that the services were rendered. In the event that the taxpayer is unable to establish substance to the transaction, there is a risk that the entire service charge will be disallowed and subjected to tax accordingly.

2. Determination of costs attributable to benefiting entities

Where the services provided by the service provider can be directly attributed to each benefiting entity such that the cost relating to the provision of the services can be clearly delineated, the direct charge method would be the most preferred method. However, where the direct method cannot be reasonably applied, the indirect method may be applied.

In line with the OECD TP Guidelines, Regulation 6(4) of the revised Regulations states that where it is not possible to identify the specific services being provided to each beneficiary (direct method), the total service charge should be allocated among all the recipients using reasonable allocation criteria (indirect method).

The cost allocated to recipients should be based on an appropriate measure of usage or expected benefit such that each service beneficiary bears its fair share of the total cost incurred by the service provider. For example, when allocating rental cost, floor space occupied might be a more appropriate allocation key rather than using the revenue of the benefiting entities.

The revised Regulations requires that the allocation of costs and application of mark-up be done at arm's length. Where there is a mismatch of cost allocated and the proxy for expected benefit; i.e. the allocation key, the risk of TP adjustments exists.

3. Determination of an arm's length charge

The basic principle for intra-group charges is to determine whether independent parties under similar arrangements will be willing to pay for such services. Service providers are typically expected to earn a mark-up on the costs of providing such valuable services. As such, a benchmark study should be carried out to determine the range of applicable mark-ups charged between independent parties under comparable circumstances.

The total costs are also expected to be segregated into direct and pass-through costs. Direct cost are the operational costs incurred by the service provider for the provision of the intra-group services, and pass-through costs are cost earned by a third-party providing services to the MNE entities on behalf of the service provider. The mark-up is applicable on the direct costs of providing the services and not applicable on the pass-through costs as they must have already suffered a profit element from the third-party service provider.

4. Low value-adding (intra-group) services

The OECD TP Guidelines distinguished between low value-adding intra-group services (LVAS) and other types of intra-group services and provided the Simplified Approach as an elective approach to determine the arm's length charge for LVAS.

LVAS are services performed by an MNE Group entity which are of a supportive nature; are not part of the core business of the group; do not require the use/creation of unique and valuable intangibles and do not involve the assumption of and creation of significant risk. Examples of LVAS include accounting and auditing, HR services, IT services, legal and tax activities and general services of an administrative nature.

The Simplified Approach in the OECD TP Guidelines provides that the service provider shall apply a mark-up equal to 5% of the relevant cost of providing the LVAS. This mark-up does not need to be justified by a benchmarking study and will have to be applied consistently across all jurisdictions.

It is important to note that the revised Regulations did not include provisions on LVAS. As such, where intra-group services qualify as LVAS, a benchmark study may still be required to justify the arm's length nature of such transactions in Nigeria.


The inclusion of a section on intra-group services in the revised Regulations has provided taxpayers with more relevant information on the requirements to ensure that the transactions are conducted at arm's length. Coupled with the provisions of the OECD TP Guidelines, taxpayers now have sufficient information on how to conduct intra-group services and prepare adequately for scrutiny by the FIRS.

Taxpayers must ensure all agreements, benchmarking studies, allocation keys and other supporting documents are put in place in order to support the arm's length nature of their intra-group services.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions