In recent years, Nigeria has been developing its Transfer Pricing (TP) regime to align with international standards and combat tax evasion. The year 2023 saw several significant developments in Nigeria's TP landscape, paving the way for reforms and enforcement measures in 2024.

As part of our annual review of the Nigerian TP space, in this article, we review the major developments in the Nigerian TP space in 2023 and the potential implications for taxpayers in 2024.

Overview of the 2023 Nigerian TP Space

  1. Heightened Compliance Enforcement 2023 witnessed a surge in compliance enforcement efforts by the Federal Inland Revenue Service (FIRS), which included ensuring taxpayer compliance with TP obligations like TP filings, imposition of TP penalties, rigorous TP audits and assessments aimed at identifying and rectifying potential TP risks and non-compliance issues. Non-Resident Companies (NRCs) were also subjected to scrutiny by the FIRS. The FIRS aimed to generate revenue by analyzing transactional taxes of NRCs and their resident subsidiaries. The heightened enforcement underscored the government's resolve to combat tax evasion or avoidance and bolster revenue mobilization efforts. This trend is expected to continue in 2024 as the revenue target of the government has increased.
  2. Engagement between the FIRS, Taxpayers and Consultants on TP Audits In 2023, the FIRS actively engaged taxpayers and consultants to ensure prompt close out of TP audits. One way this was done was by maintaining clear communication channels with taxpayers and consultants. In some cases, the FIRS International Tax Department's (ITD) leadership met with consultants representing taxpayers to review status of ongoing TP audits to understand challenges and discuss solutions to hasten the closure of the audits. The proactive approach adopted by the FIRS has been a step in the right direction as it encourages closing out on prolonged TP audits, and results in timely generation of additional revenue for the government.
  3. Addressing Challenges with the Digital Economy In response to the issues presented by the limits of conventional taxation in taxing the digital economy, the FIRS made a greater effort to ensure that Multinational Corporations (MNCs) operating digitally, with economic activities in Nigeria without a physical presence are fairly taxed and comply with TP Regulations.

Even though the OECD Base Erosion and Profit Shifting (BEPS) Pillar 1 solution introduced a more global approach to solving the taxation of digital economy problem, Nigeria which is part of the Inclusive Framework (IF) refused to endorse the proposal and has gone on to implement its own digital service tax. Given these developments, the FIRS is paying closer attention to MNCs that operate in the digital sphere.

  1. Check Point vs FIRS Judgement and Questions on the Legality of TP Regulations in Nigeria On 17 August 2023, the Tax Appeal Tribunal (TAT or the Tribunal) sitting in Lagos delivered a judgement in an appeal – Check Point Software Technologies B.V. Nigeria Ltd (Check Point or the Company) v FIRS – in which it set aside administrative penalties that had been imposed on the Company for non-compliance with the Country-by-Country Reporting (CbCR) Regulations. The Tribunal ruled in favour of Check Point on the basis that the FIRS Board, which is the body legally authorized to make regulations, had ceased to exist in 2012 and was not reconstituted till 2020, therefore the CbCR Regulations in itself was void and unconstitutional. This raises question regarding the validity of the regulations that were gazetted within this period such as the Income Tax (Transfer Pricing) Regulations, 2012 (2012 TP Regulation), the 2018 TP Regulations and Income Tax (Common Reporting Standard) Regulations 2019 (CRS Regulations). The realities of this judgement are still unfolding as taxpayers await the FIRS' appeal to the Tribunal's judgement.

Outlook of the Nigerian TP Space in 2024

  1. Use of TaxPro-Max for TP Filings The FIRS recently released a communique regarding the portal to be used by taxpayers for TP filings. Previously, the returns, CbCR notification forms and reports were filed on the e-TP platform. However, as communicated in the communique, the FIRS has mandated that going forward, the TaxPro-Max platform will be utilized for the TP filings. It is important to note that the TaxPro-Max platform is also used for Corporate Income Tax (CIT) filings which have the same deadline as the TP returns. Therefore, in order to avoid glitches and downtime due to massive traffic on the platform, taxpayers are advised to plan ahead and begin all necessary preparations to file their TP documents on time.

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