Arguably, the greatest Western movie of all time is Clint Eastwood's 1966 epic, "The Good, the Bad and the Ugly". The Good was simply a good and likeable cowboy; the Bad was a bad and mean cowboy; while the Ugly was cunning and mischievous. This movie can be used as an analogy of the three broad categories of the implications of the Revised Nigeria Transfer Pricing Regulations (the Regulations) for businesses, strictly, from the perspective of the taxpayer.

Regulation 2 stipulates the five objectives of the Regulations. Amongst other objectives, the Regulations seeks to protect the taxpayer by mitigating the incidence of double taxation and ensuring certainty in the treatment of TP. Thus, for purpose of this review of the Regulations, where a revised regulation achieves any objective that is beneficial to the taxpayer, it will be deemed to be "good". Where a provision is expected to have an adverse effect on a taxpayer's business, it will be perceived as "bad". Finally, where a revised provision is perceived to be ambiguous in its interpretation/application or could result in double taxation risk contrary to the objectives of the Regulations, it will be deemed to be "ugly".

With the rules of the review set, the article analyses the "good", the "bad" and the "ugly" provisions of the Regulations strictly from a taxpayer's perspective with respect to the implications for its business.

The "Good" Provisions

The revised documentation requirements

The Regulations provides a more detailed and clearer distinction between the different types of documents that the taxpayer must submit or keep. The documents discussed in detail are: (i) the declaration form that provides the FIRS with general information about the taxpayer's directors and group entities; (ii) the disclosure form that generally provides the FIRS with information about the value of related party transactions (RPTs) and the methods used to determine the arm's length nature of the controlled transactions; and (iii) the contemporaneous documentation that the taxpayer has to prepare on an annual basis with detailed analysis to demonstrate the arm's length nature of each of its controlled transactions.

The Regulations also introduces the word "contemporaneous" to clearly indicate that the TP documentation should be prepared annually and be in place before the deadline for the submission of tax returns for the financial year that the controlled transaction(s) occurred. Thus, for a company that has a Financial Year End (FYE) of 31st December, its contemporaneous documentation for 2017 FYE should have been prepared before 30th June, 2018.

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Originally published in Business Day, September 11, 2018

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.