With the release of the Income Tax (Transfer Pricing) Regulations, 2018 ("2018 TP Regulations") on 27 August 2018, Nigeria took yet another very bold step in its quest towards adopting and implementing recent international multilateral initiatives. These initiatives, aimed at enhancing tax disclosure rules and tackling tax evasion, arose from the Base Erosion and Profit Shifting ("BEPS") program.
The 2018 TP Regulations are the first update to transfer pricing (TP) rules in Nigeria, which were first introduced in 2012. Highlights of the changes introduced by the 2018 TP Regulations and the implications are set out below:
- Materiality threshold for maintaining contemporaneous TP documentation: In a bid to reduce tax compliance costs, which is one of the indices used to measure the ease of doing business, the obligation to maintain contemporaneous TP documentation has been relaxed for companies whose controlled transactions are of total value of less than ₦300m. In essence, a company with intra-group transactions below ₦300m is not obliged to prepare documentation (record with sufficient data and analysis to verify compliance with the arm's length principle) as the transactions are consummated.
However, FIRS may still require such companies to prepare and submit their documentation within 90 days of receipt of a notice. Default in providing the documentation within the 90-day period will result to a penalty equal to 1% of the value of related party transactions in addition to ₦10,000 for each day in which the default continues.
The exemption may create a tendency in qualifying taxpayers to ignore their TP obligations and the need to keep required documents / information. This may lead to practical difficulties in preparing/providing the documentation upon request by FIRS. Qualifying taxpayers, who intend to take advantage of this exemption, are advised to keep all documents/information that may be required to prepare the documentation in future.
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