In brief

The Federal Inland Revenue Service (FIRS), on 9 January 2014 wrote to a select number of tax consultants. In its letter titled "Request for policy on transfer pricing", the FIRS has asked tax consultants to inform their clients who are affected by the Nigerian Transfer Pricing Regulations to submit their transfer pricing policies to the Transfer Pricing Division of the FIRS which is located at the 3rd Floor, FIRS Building, 17B, Awolowo Road, Ikoyi – Lagos.

In a previous discussion with the FIRS, we have been informed that all taxpayers may be asked to submit a TP declarations form whether they have related party transactions or not. This is to enable the FIRS determine more easily non-compliant taxpayers. The recent action of the FIRS is a clear indication that they are anxious to start the review of taxpayers' compliance with the TP regulations. Taxpayers should therefore pay close attention to their compliance with the arm's length principle and ensure all relevant documentation is ready before the due date.

In detail


The Income Tax (Transfer Pricing) Regulations No.1 2012 (the TP regulations) became a part of the Nigerian Income Tax laws on 2 August 2012. The TP regulations provide specific guidelines to taxpayers on the application of the arm's length principle. In addition to these guidelines, the TP regulations also impose certain compliance obligations on taxpayers.

Requirement to provide documentation to the FIRS

One of the main compliance obligations introduced by the TP regulations is the requirement for taxpayers to provide information, data and analysis (collectively called "documentation" in the TP regulations) to verify that the pricing of their intercompany transactions is in line with the arm's length principle. This documentation is to be provided to the FIRS on written request. The TP regulations also state that the FIRS will have the authority to specify the items of documentation to be provided.

According to the regulations, the documentation must be provided to the FIRS within 21 days of the request.

Specific request from the FIRS

In its letter, the FIRS has specifically requested for group transfer pricing policies for transactions between or among members of the group. According to the letter, the policy should address dealings among group members generally and in Nigeria particularly.

Is the FIRS right to make a request at this time?

Our view is that the FIRS is trying to encourage voluntary compliance by raising awareness ahead of the deadline for many taxpayers. However, compliance with this readiness request should be voluntary. The FIRS is only allowed by law to make a request for TP documentation relating to a particular financial year from the date when the income tax returns for that year are due.

Regulations 6(5) of the TP regulations provides that TP documentation should be in place prior to the due date for filing the income tax returns for the year in which the documented transactions take place. As such a taxpayer can only be in default of this requirement (to have documentation in place) from the due date of filing the relevant tax returns.

For businesses liable to tax under the Companies Income Tax Act, the due date is 6 months after the financial year end, while for companies liable to tax under the Petroleum Profits Tax Act, it is 5 months.

Since it is stated that the regulations will only impact financial years commencing after 2 August 2012, the first set of TP returns to fall due will be those for taxpayers whose financial years started just after 2 August 2012. For example a taxpayer whose financial year starts on 1 September will be required to have its first TP documentation (for its 2012/2013 financial year) in place by 28 February 2014. For the majority of taxpayers under CIT with December year end date, the deadline will be 30 June 2014.


It is likely that he FIRS will subsequently make direct requests to taxpayers for TP policies. Based on the TP regulations, taxpayers are only obligated to provide TP documentation to the FIRS from the due date for filing their income tax returns.

In spite of the above, the action of the FIRS is a clear indication that it will be taking transfer pricing issues very seriously and that it is keen to enforce full compliance. Affected taxpayers who are yet to finalise the preparation of their TP documentation should therefore expedite action in order to ensure that the reports are ready before the due date.

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.