One of the major changes in the Income Tax (Transfer Pricing) Regulations 2018 (NTPR) is the introduction of administrative penalties. The NTPR imposes penalties for failure to timely submit the Transfer Pricing (TP) statutory forms, failure to submit the TP documentation and failure to provide documents requested by the Federal Inland Revenue Service (FIRS or the Service) within the stipulated time amongst others.

By its Public Notice of 3 October 2018, the FIRS granted taxpayers up to 31 December 2018 to fulfil all pending compliance obligations and further stated that it would impose the administrative penalties under the NTPR on taxpayers with outstanding compliance obligations beginning 1 January 2019.

The FIRS has since 1 January 2019 written letters imposing administrative penalties on taxpayers who allegedly failed to regularize their compliance records. Some of these letters have imposed penalties for alleged non-compliance which occurred while the now revoked Income Tax (Transfer Pricing) Regulations 2012 (TPR 2012) was in force.

The foregoing has raised the following concerns among taxpayers:

  1. Does the FIRS have the power to introduce penalties through Regulations?
  2. Can penalties introduced in the NTPR be applied retroactively?
  3. Can administrative penalties for failure to file TP statutory forms be applied to companies without Related Party Transactions (RPTs)?

This article aims to review these questions based on the provisions of the relevant laws and regulations.

Does the FIRS have the power to introduce penalties through Regulations?

Regulations are rules and administrative codes which receive the force of law from an enabling legislation. For instance, Section 61 of the FIRS (Establishment) Act (FIRSEA) empowers the Board of the FIRS, subject to the approval of the Minister of Finance, to make rules and regulations that in its opinion are necessary or expedient for giving full effect to the provisions of the Act and for its due administration. The FIRS has therefore issued the NTPR to give effect to the provisions of the Companies Income Tax Act (CITA), Petroleum Profit Tax Act, Personal Income Tax Act, Capital Gains Tax Act, and Value Added Tax Act.

There have been divergent views on the powers of the FIRS to introduce penalties via a regulation. One school of thought is that where the enabling Acts do not include specific penalties for non-compliance, the FIRS cannot levy penalties. The FIRS can only make adjustments where the RPTs are deemed to be artificial or unreasonable from an arm's length perspective, as provided in the relevant Acts.

The second school of thought proposes that the FIRS can introduce penalties via a regulation. This appears to be supported by Section 12 of the Interpretation Act which provides that where an Act confers a power to make a subsidiary instrument, the power shall include power to prescribe punishments for contraventions of provisions of the instrument.

Thus, it may be argued that the FIRS has the powers to introduce penalties via a regulation where such penalties are necessary and expedient to enable the Service discharge its duties. The FIRS has often indicated that the lack of TP specific penalties in the TPR 2012, did not give the Service the authority to enforce compliance. Thus, the unprecedented flurry of activity by taxpayers to regularize their TP compliance level before the 31 December 2018 deadline might have been an indication that the inclusion of penalties was necessary and expedient.

The above notwithstanding, the Interpretation Act provides a limit to the extent of penalties that can be imposed. Section 12 (1) limits the applicable penalties to imprisonment for a term of six months or a fine of one hundred naira or both.

Further, the enabling Acts have set a precedent as to the applicable amounts to be charged for failure to file returns within the stipulated time. For example, the penalties imposed under Section 55 of CITA are ₦25,000 for the first month of default and ₦5,000 for each month the default continues. The penalties thus introduced in the NTPR seems to be more punitive than intended to drive compliance.

The jury is out on whether or not the FIRS has the powers to introduce penalties via regulations. Nevertheless, where such powers have been conferred on the FIRS, we are of the opinion that the Service should have relied on subsisting enabling Acts which provide precedents for the amounts payable for similar offences after taking into consideration the effect of inflation.

Can penalties introduced in the NTPR be applied retroactively?

The NTPR has an effective date of 12 March 2018. Regulation 27 of the NTPR defines "commencement" to mean 'basis periods beginning after the effective date'. Thus, for Company A with a 31 December year-end, the provisions of the NTPR will be applicable for its financial period starting 1 January 2019.

Further, Section 6 of the Interpretation Act provides that once an enactment is repealed, anything done or suffered, or any penalty imposed under that enactment will not be affected by the repeal. A simplistic explanation is that any default within the basis periods where the TPR 2012 was applicable should be treated based on the provision of that Regulation.

The explanatory note in the NTPR revokes the provision of the TPR 2012. However, the provisions of the TPR 2012 should be applicable for defaults that occurred within the period where it was subsisting. While, the TPR 2012 did not include penalties, Regulation 13 states that a taxpayer who contravenes the Regulations will be liable to a penalty as prescribed within the enabling law.

Therefore, where Company A mentioned earlier has failed to file its TP returns for financial years 2013 to 2018 and has missed the 31 December 2018 deadline, the Company should only be penalised based on the provisions of the TPR 2012. However, where Company A also fails to file its 2019 TP returns, the penalties under the NTPR should be applicable for 2019 returns only.

Can administrative penalties for failure to file TP statutory forms be applied to companies without RPTs?

The FIRS has been imposing penalties on companies without RPTs where they failed to file TP statutory forms on time. Some of these companies have argued that they did not have an obligation to file as there were no RPTs within the period.

This position is based on the TPR 2012 and NTPR which state that for each year of assessment, a connected person shall make a disclosure of transactions that are subject to these Regulations. The Regulations seems to lay emphasis on the presence of RPTs as the condition for filing of disclosure forms. This is further supported by Question 10 of the Frequently Asked Questions (FAQ) publication issued the FIRS which states that not all taxpayers are required to file TP return. It specifies that only taxpayers who have carried out RPTs are required to file.

However, Guideline 2 of the General Guidelines for Filing TP Returns (GGFTPR) states two conditions for filing TP statutory forms: (1) the company must be liable to income tax in Nigeria; and (2) the company must be a member of a Nigerian or international group of companies or connected to companies in Nigeria or overseas. Thus, it suggests that companies are required to file irrespective of whether or not they have RPTs. This position is further supported by Question 16 of the same FAQ publication mentioned earlier which states that TP disclosure forms should be filed even when there are no controlled transactions.

This inconsistency among the various FIRS publications has increased the level of uncertainty with respect to the filing obligations of taxpayers and resulted in unfair application of significant penalties on some taxpayers. Thus, the FIRS should provide clarification on the TP returns filing obligation and apply the penalties prospectively if taxpayers continue to be non-compliant.


We understand that the key objective of the FIRS for introducing administrative penalties is to drive compliance and provide the Service with the information to carry out its duties. However, the introduction and application of the penalties should be consistent with the enabling Acts and Regulations. This will go a long way in providing certainty to taxpayers. Nevertheless, we encourage all taxpayers to comply with the requirements of the NTPR and update their records with the tax authority.

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.