Introduction
Nigeria's tax landscape is undergoing significant changes, driven by a combination of regulatory reforms, increased enforcement activities and evolving global tax standards. One of the most notable trends is the heightened scrutiny of transfer pricing (TP) compliance, with the Federal Inland Revenue Service (FIRS) ramping up TP audits to ensure that taxpayers adhere to the arm's length principle. In parallel, Nigeria is witnessing a broader shift in tax enforcement, including the introduction of advance pricing agreement (APA) guidelines, legal actions against cryptocurrency entities, and a proposed overhaul of value-added tax (VAT) distribution. There has also been an increase in the issuance of additional assessments to companies. This stems from the non-compliance of taxpayers with their self-assessment and remittance obligations. It has, however, been observed that in some cases the additional assessment and tax audits are a reactive measure, initiated after requests for tax refunds or similar requests from taxpayers.
These developments reflect the government's efforts to enhance tax compliance, boost revenue, and align Nigeria's tax system with international best practices. However, they also raise critical questions about enforcement mechanisms, taxpayer rights, and the long-term impact on businesses and the economy.
The highlights of these developments are set out in more detail as follows.
Increase in TP Audits
In recent times, there has been a significant increase in the number of TP audits initiated by the FIRS, alongside a shift in focus. Traditionally, these audits were primarily aimed at determining whether related-party transactions were conducted in line with the arm's length principle. However, there is now a growing emphasis on verifying whether the necessary transaction taxes have been duly paid on such transactions. Ordinarily, the responsibility for assessing transaction taxes falls under the corporate tax team within the FIRS. This shift has led to concerns, particularly in cases where a taxpayer has already undergone a full tax audit and settled any outstanding liabilities.
This shift in focus may be attributed to the amendment of Section 7 of the Value Added Tax Act, LFN 2004 (as amended) with a new provision granting the FIRS the authority to examine related-party transactions deemed artificial or fictitious, ensuring that they are properly subjected to VAT and making necessary adjustments for its application. This development raises broader questions about the interaction between different departments within the FIRS. Specifically, whether an audit concluded by one department within the FIRS can be reopened by another, creating potential areas of contention. However, the authors doubt that this is the intention of this new provision, which also does not specify the FIRS department that should be responsible for such reviews.
From a revenue recognition perspective, the increased scrutiny of transaction taxes in TP audits introduces an additional layer of complexity. Revenue recognition plays a pivotal role in ensuring that tax authorities correctly assess the timing and classification of income generated from related-party transactions. For taxpayers, especially multinational enterprises, determining when and how revenue is recognised can directly impact the reporting of VAT and other transaction taxes. The shift towards investigating transaction taxes within TP audits raises questions about whether these revenue recognition practices have been properly applied, and whether they align with both local tax laws and international guidelines.
In summary, the shift in focus within TP audits, particularly with respect to transaction taxes and VAT on related-party transactions, introduces both challenges and opportunities for businesses. The increasing emphasis on revenue recognition practices in these audits necessitates paying careful attention to how income is reported and how it relates to tax liabilities. For taxpayers, this means ensuring that not only their TP documentation but also their revenue recognition practices align with current tax regulations to avoid disputes and penalties. For the FIRS, the challenge lies in ensuring that audits are consistent, fair and properly co-ordinated across departments to avoid unnecessary conflicts or duplicative efforts.
Evolving Administrative Practices and Taxpayers' Rights in Nigeria
Judicial precedents have further established the principle that the FIRS cannot use internal procedural failures as a basis to deny taxpayers their rightful claims. A pivotal development in this regard is the ruling in Tratix Engineering Ltd v FIRS (2024) 87 TLRN 89, which clarified that internal procedures must not override substantive tax laws. The court ruled that, if an application is filed incorrectly, the FIRS has an obligation to redirect it to the appropriate office, ensuring that taxpayers' rights are respected despite administrative errors.
In the related case of Joseph Bodunrin Daudu SAN v Federal Inland Revenue Service (FIRS) (Suit No FHC/ABJ/TA/1/2021), the court examined a situation where a taxpayer contested an additional assessment issued by the FIRS. The applicant argued that the assessment was unjustifiable, claiming that the FIRS had failed to adhere to statutory provisions in computing the alleged outstanding tax liabilities. The applicant further contended that they had fulfilled all their tax obligations and the FIRS had not provided sufficient justification for the assessment. Upon reviewing the procedures followed by the FIRS in issuing the assessment, the court stressed that tax authorities must strictly comply with statutory requirements, especially when disputes arise over tax liabilities. The court ruled that the FIRS had failed to meet the burden of proof in justifying the alleged liabilities, and that, when a taxpayer objects to an assessment, the FIRS must offer a clear and justifiable rationale for its claims.
These rulings reflect a significant shift in the tax landscape, signalling a trend towards greater protection of taxpayers' rights. Administrative convenience, while important, should not obstruct the correction of legitimate errors or the fulfilment of tax obligations. An increasing expectation of accountability and transparency is emerging within the tax assessment process. Though tax authorities retain the right to enforce compliance, the legal framework is evolving to ensure that taxpayers have access to fair and transparent dispute resolution processes without unreasonable obstacles. For tax authorities such as the FIRS, these decisions underscore the critical need to balance robust tax enforcement with the safeguarding of taxpayers' rights under the law.
Tax Compliance and Enforcement Trends
As part of compliance efforts, the FIRS has, for the first time, issued Guidelines on APAs, more than a decade after Nigeria introduced TP rules. Released on 27 November 2024, these Guidelines provide a framework for taxpayers seeking APAs, in line with Regulation 9 of the Income Tax Transfer Pricing Regulations, 2018 (the "TP Regulations"). This regulation had previously suspended the use of APAs in Nigeria, pending the publication of relevant notices and guidelines by the FIRS.
The new Guidelines also align with the OECD/ G20 BEPS Action 14 minimum standard, which aims to ensure more effective resolution of tax disputes, particularly those involving treaty partners. Action 14 encourages jurisdictions to implement APA programmes and to issue guidance on APAs, as these agreements help provide greater certainty for businesses, reduce the risk of double taxation and prevent TP disputes.
Nigeria's introduction of the APA Guidelines comes amidst broader tax reforms aimed at enhancing compliance, increasing revenue generation and aligning with global best practices. These reforms are part of the country's ongoing efforts to modernise its tax system, attract foreign investment and strengthen economic resilience. In this context, APAs offer significant benefits to both businesses and the FIRS by fostering tax certainty and reducing disputes.
The high application fees for applying for an APA are considered significantly high relative to other jurisdictions. The fact that the administrative fee is denominated in US dollars is also a concern for Nigerian businesses who may struggle to access the required foreign exchange, thereby suffering delays in the APA process.
Legal Actions Against Cryptocurrency Entities
In February 2025, Nigeria initiated a lawsuit against Binance, the world's largest cryptocurrency exchange, demanding USD79.5 billion for economic damages and USD2 billion for back taxes covering two years. This legal action follows Nigeria's government crackdown on the crypto industry last year, which left Binance facing four counts of tax evasion (and which it is contesting). Nigerian authorities attribute some of the country's currency issues to Binance and detained two of its executives in 2024, as cryptocurrency websites became popular for trading the local naira currency. Additionally, Binance is also under investigation by Nigeria's anti-graft agency on separate money-laundering charges, which the company denies. Binance has indicated its co-operation with FIRS to address historic tax liabilities.
This marks a significant shift towards regulatory compliance within the cryptocurrency sector, with exchanges now facing greater pressure to align with local tax laws. This trend reflects a broader global movement where tax authorities are intensifying their focus on cryptocurrency exchanges, demanding greater transparency and compliance. As governments continue to seek effective ways to regulate the sector, the Binance case may set a precedent for how future tax disputes involving cryptocurrency entities are handled, both in Nigeria and internationally. The increasing frequency of such legal actions signals that cryptocurrency firms will likely face more stringent tax oversight, potentially altering how they operate within various jurisdictions.
Tackling Inflation With Proposed VAT Reform
In October 2024, President Bola Ahmed Tinubu proposed four bills (together, the "Tax Reform Bills") to the National Assembly for consideration:
- the Nigeria Tax Bill;
- the Nigeria Revenue Service (Establishment) Bill;
- the Nigeria Tax Administration Bill; and
- the Joint Revenue Board (Establishment) Bill.
the Nigeria Tax Bill; " the Nigeria Revenue Service (Establishment) Bill; " the Nigeria Tax Administration Bill; and " the Joint Revenue Board (Establishment) Bill.
The government's broader objective with these reforms is to reduce inflation and ease the financial burden on households. While VAT is set to increase to 12.5% by 2026, essential items – making up 82% of household expenses – will remain exempt, meaning only 18% of goods and services will be affected by the tax hike. Officials argue that, despite concerns over rising VAT rates, the exemptions will ultimately lower overall costs for most Nigerians.
Beyond consumer impact, the reforms also aim to modernise tax collection and restructure how revenue is shared between federal and state governments. By aligning with international best practices, the government hopes to create a more efficient and equitable tax system. However, these proposals have sparked significant controversy, with critics raising concerns about the reform's impact on businesses, regional revenue allocation and economic stability. States that have historically relied on large VAT allocations will face fiscal shortfalls, as the redistribution model may result in reduced allocations. This has raised questions about whether the proposed changes will be equitable or create unintended economic consequences, particularly in states that rely heavily on VAT revenue. The controversy is further compounded by concerns over how well the transition to this new system will be managed, especially in view of Nigeria's complex federal tax structure.
Tax Dispute Resolution Under the Tax Reform Bills
The Tax Reform Bills aim to establish the Joint Revenue Board (JRB), the Tax Appeal Tribunal (TAT) and the Office of the Tax Ombud (Tax Ombud). These bodies are designed to create a robust legal and institutional framework for harmonising and co-ordinating revenue administration in Nigeria, ensuring efficient tax dispute resolution and safeguarding taxpayer rights. The following outline the key dispute resolution functions of the JRB, TAT and Tax Ombud.
JRB
The JRB is empowered to resolve:
- disputes between tax authorities regarding residency determination; and
- disputes between different tax authorities.
TAT
The TAT is tasked with settling disputes or controversies arising from the administration of the Nigeria Tax Act, the Nigeria Tax Administration Act or any other tax laws enacted by the National Assembly.
Tax Ombud
The Tax Ombud is empowered to:
- resolve complaints related to taxes, levies, regulatory fees, customs duties or excise matters;
- review and resolve complaints against tax officials and authorities through mediation or conciliation, using informal, fair and costeffective procedures;
- receive and investigate taxpayer complaints regarding the actions or decisions of tax authorities, agencies or their officials; and
- institute legal proceedings on behalf of taxpayers.
Additional Tax Assessments
In 2024, the TAT presided over several appeals from taxpayers regarding the failure of the FIRS to comply with statutory provisions in computing alleged outstanding tax liabilities. The TAT has emphasised the need for the FIRS to be compliant with extant laws when imposing additional tax assessment and to also provide a clear and justifiable basis for its claim when a taxpayer objects to such claim.
Alongside these appeals, there has been a notable increase in the issuance of additional tax assessments to companies. This uptick is primarily attributed to the non-compliance of taxpayers with their self-assessment and remittance obligations. In these cases, companies may have failed to accurately self-assess their tax liabilities or remit the correct amounts, prompting the FIRS to initiate additional assessments. However, it has also been observed that in some instances the issuance of additional assessments and tax audits may be a reactive measure. This trend appears particularly when taxpayers request tax refunds or make similar claims related to their tax filings. Such audits, therefore, are seen by some as a response to taxpayer requests rather than proactive measures based on a thorough review of existing records. This approach raises concerns about the fairness and transparency of the FIRS's tax enforcement practices.
The increase in additional assessments and the reactive nature of some audits highlight a growing demand for greater transparency and consistency from the FIRS in its processes. As these issues become more prevalent, it is expected that the FIRS will be under increasing pressure to provide clearer justifications for its assessments and to ensure that taxpayers' rights are respected in the process.
Anticipated Increase in Tax Litigation
Significant tax reforms, such as the introduction of the Tax Reform Bills, typically result in a surge in tax litigation as taxpayers seek to clarify and enforce their rights in terms of pursuing judicial interpretation of the new provisions. The complexity and breadth of these reforms often lead to disputes over their application, particularly in areas where the language of the law is ambiguous or where the reforms introduce substantial changes to existing tax frameworks.
The enactment of the Tax Reform Bills in their current form is expected to generate significant controversy, particularly around the interpretation and validity of key provisions, such as the allocation of VAT revenue among the 36 states in Nigeria. States that have historically relied on substantial VAT allocations may face fiscal challenges under the proposed redistribution model, potentially prompting legal challenges to the reform's legal and constitutional basis. This could lead to a wave of litigation as stakeholders seek to protect their interests and clarify the new tax landscape.
Conclusion
As Nigeria continues to refine its tax policies, businesses must navigate an increasingly complex regulatory environment. The surge in TP audits, the introduction of APA Guidelines, and the proposed VAT reforms signal the government's commitment to tightening tax compliance and closing revenue gaps. However, these changes also bring challenges, particularly regarding enforcement inconsistencies, taxpayer burdens and the potential for prolonged disputes. While reforms such as APA implementation and VAT redistribution aim to create a fairer and more efficient tax system, their success will depend on transparent execution, clear policy direction and effective stakeholder engagement. Moving forward, businesses and policymakers alike must strike a balance between strengthening compliance and fostering a tax regime that supports economic growth and investment.
Originally published by Chambers Global Practice Guides
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