The June Transfer Pricing (TP) filing season is here, with the deadline only a few weeks away! June represents a very busy period for taxpayers, tax consultants and tax authorities, primarily because most companies in Nigeria have a December year-end and are required by law to file their TP returns six (6) months after the year-end i.e. on or before 30 June of the subsequent year. As such, taxpayers and tax consultants will be busy reviewing documents and preparing returns for filing with the tax authorities.

The drive to ensure compliance before the filing deadline is largely motivated by the existence of penalties for late filing which are quite significant for TP (minimum of ₦10 million). Also, the Federal Inland Revenue Service (FIRS) in recent years has been imposing penalties on erring taxpayers.

The FIRS in 2020 introduced E-TP PLAT 2.0 (the Platform) for the online filing of TP returns. The Platform was introduced to enable easy filing of TP documents. In 2021, the FIRS communicated that TP returns will only be accepted if filed on the e-filing platform. As such, the 2021 Financial Year (FY) returns due this June have to be filed on the Platform.

Given the aggressive enforcement of TP compliance by the FIRS and the potential huge penalties, it is important for taxpayers to understand how the Platform works and how to navigate effectively to ensure that the TP returns are filed on time.

TP Returns Filing in Nigeria

The Nigerian TP Regulations require taxpayers with related parties to comply with certain obligations, including filing of annual TP statutory returns (TP declaration and disclosure forms) on or before six (6) months after the end of its accounting year or eighteen months after its date of incorporation, whichever is earlier.

The TP declaration form includes information about the company's business, shareholders, directors, related parties etc. and should be filed in the first year of compliance with updates made in years where there are changes to the company's business e.g. changes in shareholding structure, directors etc. On the other hand, the TP disclosure form contains details of the related party transactions conducted by an entity in a particular FY, such as the values, the related parties and the TP methods selected to test the transaction. The disclosure form is to be filed annually.

The 2018 TP Regulations introduced steep administrative penalties for the failure to file TP returns as at when due. These include:

  1. Failure to file TP declaration within the specified period - ₦10 million in the first instance and ₦10,000 for every day the failure continues.
  2. Failure to file updated TP declaration/ notification about changes in directors - ₦25,000 for each day in which the failure continues.
  3. Failure to file TP disclosures within the specified period - the higher of: ₦10 million or 1% percent of the value of the controlled transaction not disclosed, and ₦10,000 for every day the failure continues
  4. Incorrect disclosure of transactions - the higher of: ₦10 million or 1% percent of the value of the controlled transaction incorrectly disclosed.

The E-TP PLAT 2.0

Prior to the introduction of the Platform, TP returns were filed at the FIRS' office using hard copies of the TP forms and accompanied by supporting documents including Financial Statements (FS), copies of tax computations and self-assessment forms. Copies of the filed returns were stamped and acknowledged while the FIRS kept the original documents. This meant that the FIRS was bombarded with huge influx of people with heaps of documents by the filing deadline. This created an issue with storage of these documents.

In its bid to reduce the number of hard copy filing and its attendant challenges, the FIRS began a switch to electronic filing of TP returns in 2019, with the Platform officially launched in March 2020. It was not until 2021 that the Service began to strictly enforce e-filing. This may have been due to disruption to businesses resulting from the coronavirus pandemic. In 2021, where the FIRS accepted hard copy filings, it was only after the online filing had been completed and the evidence of this was provided to the Service. However, going forward, TP returns are expected to the filed on the Platform.

Taxpayers are required to complete an E-TP access application form (the Form) to enable them register and obtain log-in details to the Platform.

The Platform allows for filing of the TP returns, Country-by- Country (CbC) Reporting notification forms and CbC reports, alongside other relevant attachments.

The TP returns filing page of the platform contains various sections namely:

  • Declarations – This section mirrors the hard copy declaration form and contains information on the taxpayer and its related parties, including directors, shareholders, subsidiaries etc.
  • Disclosure Forms – This section mirrors the hard copy disclosure form and contains information on related party transactions (RPTs), including RPT values, counterparties, jurisdiction of counterparties, TP method selected for testing the RPT, intercompany balances, amongst others.
  • Disclosure: P&L and Balance Sheet – These sections expand on Part F of the hard copy TP disclosure form and essentially summarise the P&L and Balance Sheet in the taxpayer's FS.
  • TP Uploads – This section allows for the upload of accompanying documents to the TP returns such as the FS, tax computation, evidence of tax payments and self-assessment spool from TAXPRO MAX, the e-filing platform for Corporate Income Tax (CIT).

Upon completing the above sections, the forms can be sent for review to an individual who will receive a PDF summary of the information imputed on the Platform. Upon approval, the returns can be submitted on the Platform alongside accompanying documents.

The FIRS reviews the filings and either accepts or rejects the filing. Where the returns are rejected, the taxpayer will be required to update the filings and refile.

Observations from Filing on the Platform and Suggestions for easy navigation

1. Registration on the Platform - Due to the large number of taxpayers that needed to register on the Platform in 2021, there was some lag between the time the Forms were sent and the time log-in details were provided to the taxpayers. It is advisable that taxpayers yet to register do so as soon as possible to ensure they receive their log-in details before the filling deadline.

Also, the Platform requires that an email address is linked to only one profile. As such, taxpayers that were members of the same group and shared finance/tax personnel experienced delayed response, where the same email address was entered in the Form for all the entities. As such, it is recommended that group entities provide different email addresses for each company to avoid delays in registration.

2. Frequent downtime - Taxpayers experienced issues with completing the TP returns on the Platform, due to frequent downtime. This was particularly evident towards the filing deadline due to huge traffic. In some instances, the Platform did not load. Taxpayers should endeavour to complete their TP filings on time in order to avoid the rush and traffic on the Platform close to June 30.

3. Rejection of TP returns – In 2021, it was observed that the FIRS rejected TP returns where relevant supporting documents were not uploaded alongside the TP forms. In some instances, the FIRS notified taxpayers via email of the rejection and requested that the returns were resubmitted with the outstanding documents typically within seven (7) days.

Where the TP returns are rejected, taxpayers stand a risk of being levied administrative penalties by the FIRS.

Specifically, the FIRS requested that the signed audited FS must be uploaded alongside the TP returns. This is a new development as previously, TP returns could be filed with draft FS and in practice, CIT returns can still be filed with a draft FS.

This has created unnecessary burden for taxpayers as the FIRS seems to have disregarded the fact that FS are not primarily prepared for tax purposes. Different reasons can result in the delay in the finalisation of FS, such as group restructuring, operational issues etc.

Also, in cases where a taxpayer has requested for an extension of the CIT filing deadline, the taxpayer will be unable to upload the CIT documents on the Platform. Hence, the taxpayer may be unable to update their TP filing and may risk being levied penalties. To ease the burden on taxpayers, there should be a link between the TAXPRO MAX and the Platform rather than requiring taxpayers to re-upload documents that have already been submitted for CIT purposes.

4. No evidence of date of TP filing – Upon completion of the TP returns, the date of entry creation, status of the returns (e.g. draft, accepted, rejected) and dates of modification are displayed on the Platform. However, the Platform does not indicate the actual date of submission. Given that paper filing has been completely phased out, potential disputes may arise between taxpayers and the Service on the timing of the filing, especially where previously submitted returns are rejected by the Service.

5. Difficulties with attachments – The Platform has a size limit (32mb) and quantity restriction for uploads (maximum of five [5] files). Therefore, once this is exhausted, no further uploads can be made without deletion. Taxpayers should be cautious of this when uploading supporting documents.

Also, it was observed that attempts to delete already uploaded documents and replace them with more recent documents, e.g. draft FS to signed audited FS, proved difficult as taxpayers may inadvertently delete all the documents on the Platform during the process. Hence, replacement of documents may merely involve uploading the new document as an addition. The size limit for uploads should however be monitored when doing this.

Going forward

Given the peculiarities of filing with the Platform, taxpayers are advised to speed up the conclusion of their statutory audit and CIT filing to facilitate a smooth filing season. In the event that the audited FS will not be ready by the filing deadline, a request for an extension of the filing deadline may be made to the FIRS. However, the approval of such requests is at the discretion of the Service.

The Service should consider improving user experience by reducing the incidence of downtime and speeding up the registration process. Updates should also be made to the dashboard to include the date of submission to avoid potential disputes. In addition, the FIRS should be flexible in accepting TP returns filed with draft FS.

As the June TP filing deadline draws near, it is important that taxpayers engage TP consultants to assist with the TP filing in order to avoid the potential imposition of penalties.

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.