The end of the year typically signals a winding down of activities by most firms. However, December 2018 saw an unprecedented flurry of activities by Nigerian taxpayers to meet the 31 December deadline for fulfilling all pending Transfer Pricing (TP) compliance obligations, including filing of returns and submission of TP documentation.

This uncharacteristic behaviour was in response to the introduction of stiff penalties in the Income Tax (Transfer Pricing) Regulations, 2018 (the TP Regulations) published in August 2018 and the Federal Inland Revenue Service's (FIRS') public notice granting non-compliant taxpayers some form of amnesty to regularize their positions by 31st December 2018 or face the full force of the penalties. This significantly influenced the behaviour of taxpayers leading to increased compliance with the TP Regulations.

The year 2018 witnessed significant developments in the Nigerian TP space and we expect 2019 to be heavily impacted by these developments. It is therefore important to understand these changes, examine the potential implications to taxpayers in 2019 and the measures taxpayers can adopt to navigate what has become a risky TP terrain.

Significant TP Developments in 2018

  1. Introduction of the Income Tax (Country-by- Country Reporting) Regulations, 2018 (CbCR Regulations): The CbCR Regulations requires Multinational Enterprises (MNEs) headquartered in Nigeria with a consolidated group revenue of ₦160 billion to prepare a CbCR. The report should be submitted not later than 12 months after the last day of the MNE Group's accounting year. In addition, constituent entities in Nigeria are required to notify the FIRS of the entity within the Group responsible for preparing and filing the CbCR. The CbCR Regulations contains penalties for non-compliance with its provisions.

The objective of the CbCR Regulations is to increase transparency and provide the FIRS with relevant information about members of an MNE Group required to carry out TP risk assessment. Such information may include details such as the MNE's global activities, revenue, allocation of income, profits and taxes etc.

The information contained in the CbCR will be made available to tax authorities in jurisdictions that are signatory to the OECD's CbCR Multilateral Competent Authority Agreement (MCAA).

  1. Release of the Income Tax (Transfer Pricing) Regulations, 2018 (the TP Regulations): The TP Regulations, which revoked the 2012 TP Regulations, ushered in a TP specific penalty regime in Nigeria. The introduction of administrative penalties and other changes were aimed at encouraging increased compliance with the TP Regulations among taxpayers and providing certainty in the treatment of certain related party transactions.

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