In 2021, the Nigeria Transfer Pricing (TP) space was impacted by a number of domestic and international developments, which are expected to shape and influence the TP landscape in 2022.

A significant development in 2021 was the landmark agreement on the OECD Two-Pillar Solution (OTPS). The agreement aimed at introducing a fair system of taxing the profits of Multinational Enterprises (MNEs) and addressing the challenges associated with the digital economy worldwide has advanced significantly with a commencement year of 2023 for some of the initiatives. The impacts of this agreement are still unfolding and are expected to be significant for affected MNEs.

The continuing impact of the COVID-19 pandemic on economies and business was also evident in 2021. This has impacted the evaluation of the arm's length principle and forced a number companies to re-assess their Related Party Transactions (RPTs) to reflect the impact of the economic disruptions caused by the mutating pandemic.

In this article we reviewed some of the major TP developments in 2021 which can shape the TP space in 2022.

2021 TP Developments

We have summarized below some of the 2021 TP developments.

Lingering impact of COVID-19 on businesses

The mutating nature of the COVID-19 disease has prolonged its economic impact on different countries and consequently on businesses operating in these countries.

While several businesses and industry sectors in Nigeria have adapted their operations to the new normal introduced by the pandemic, others are struggling to manage/recover from the effects of the COVID-19 pandemic, with a view to stabilize their operations to the pre-COVID-19 era.

Key industry sectors such as production, supply chain, construction and consumption1 are still experiencing the adverse effects of the pandemic on their business operations. As such, the TP regime faced a unique challenge of constantly reviewing the changing impact of the pandemic on RPTs.

In consideration of the economic changes, some existing TP policies became obsolete and companies needed to properly align, adjust and document these changes through robust TP policy updates and documentations, alongside appropriate tax planning measures for the period. The impact of the COVID-19 pandemic continues to be profound and is predicted to linger in 2022.

Consequently, taxpayers are advised to seek expert guidance on the review and update of their TP policies, strategies and compliance framework to ensure such updates are done in a manner that mitigates undue exposures in the event of an audit.

Increased TP Audit cases

In 2021, the Federal Inland Revenue Service (FIRS) doubled the effort to audit some taxpayers that were yet to be audited since the commencement of TP in 2012. This move was perceived by the taxpayers as a strategic move to ensure that 2014 financial year will not be lost for audit purposes based on the statute of limitation provision in the laws (six years). This led to the FIRS issuing correspondence to taxpayers requesting for documents to evaluate the TP risk profile, signifying the commencement of TP audits.

While the FIRS achieved closure for a number of audit cases in 2021, there remain a number of ongoing audit cases. We expect these cases to progress in 2022, in addition to the new cases that will commence in the course of the year.

Also, the ambitious Appropriation Act, recently ratified by the President for the 2022 fiscal year placed a huge task on the FIRS as the most critical agency for revenue collection. This may drive the behavior of the International Tax Department (ITD) in their approach to auditing the TP affairs of taxpayers in 2022.

To mitigate the risks associated with aggressive TP audit exercises, taxpayers are advised to adopt proactive strategies to mitigate undue potential TP adjustments from audit exercises.2

Electronic TP filings

In 2019, the FIRS introduced the e-filing platform (E-TP PLAT) expected to enable easy filing of the following electronic returns:

  • TP declaration
  • TP disclosure
  • Country-by-Country reporting notification
  • Country-by-Country report

In 2021, the FIRS communicated that statutory TP returns are now to be strictly filled electronically. It was observed that taxpayers and even tax advisers filed hard copy returns with the FIRS, in a bid to eliminate the risk associated with lack of evidence of filed TP returns as the online platform does not indicate the date the returns were filed reliably.

The FIRS has however communicated the reliability of the E-TP PLAT and advised that going-forward no physical TP returns will be accepted at the tax office. As such, in 2022 we expect TP filings to be solely electronic.

It is important to note that one of the challenges experienced with the E-TP PLAT is its non-flexibility with the filing of TP returns with draft financials and draft tax returns. The system rejects returns filed with draft or no financial statements, connoting non-compliance by the taxpayers. We hope that the FIRS will evaluate this in line with the provision of the relevant laws that allows for draft returns submission.

In the light of the above, it is imperative that in preparation for an all-online TP filing year, businesses should endeavor to ensure their financial statements and tax returns are available by the filing deadline in order to mitigate the rejection of TP returns.

Increased compliance burden and aggressive imposition of TP-specific penalties

Earlier in 2021, the FIRS issued a public notice on Regulation 4 of the Income Tax Country-by-Country (CbC) Reporting Regulations, 2018 notifying taxpayers of the suspension of the local CbC filing obligation for subsidiaries and branches of MNEs in Nigeria as provided in Regulation 4.

However, a recent FIRS publication of 4 January 2022 withdrew the suspension and effective from 1 January 2022, all relevant taxpayers are required to re-evaluate this additional compliance requirement.

The Income Tax (Transfer Pricing) Regulations, 2018 (TPR) and other TP related Regulations, empower the FIRS to levy varying amount of administrative penalties for different TP infractions. In 2021, we observed an aggressive imposition of various TP penalties, even on issues relating to grey areas in these Regulations.

An example of such grey area is the imposition of penalties for the failure to file the CbC notification forms

"Taxpayers may expect increased compliance obligations, increased TP audit exercises, technology-driven TP administration, complexities associated with taxing the digital economy from a TP perspective. Taxpayers are advised to take proactive measures by reviewing their TP affairs, updating TP compliance framework, engage experts as may be required to mitigate potential exposures that may arise due to their TP obligations in 2022."

where it has not been established that a taxpayer has the obligation to file such notification.

While some taxpayers were unwilling to push back on some of these penalties and proceeded to settle the liabilities, some taxpayers are interested in establishing a legal precedent for future periods. Some cases are still pending at the Tax Appeal Tribunal.

To the extent that we do not have these grey areas addressed in the Finance Act, 2021 (FA 2021) and we are yet to have pronouncements on these issues by a court of competent jurisdiction, we suspect that the practice of levying aggressive penalties may continue in 2022, especially as this is a low-hanging opportunity for the FIRS to ramp-up revenue.

It is therefore imperative that taxpayers continue to review and update their compliance checklist and framework to leave no opportunity for penalty exposures.

Taxing the Digital Economy: FA 2021 vs OTPS

In our Andersen Digest of Tuesday 1 November 2021, we analysed the OECD OTPS and its potential impacts on Nigeria. One of the major requirements to be part of the OTPS is the immediate suspension of any form of Digital Sales Tax (DST) in the jurisdiction of signatory members.

FA 2021 suggests that Nigeria may likely take a unilateral position to tackle the challenges of taxing the digital economy rather than become a part of the OTPS as it recently introduced clear provisions for the taxation of the digital economy in FA 2021.

To be specific, FA 2021 introduced a 6% tax rate on digital services. In view of the above, non-resident companies providing digital services such as digital applications, high frequency trading's, electronic data storage, online advertising among others to Nigeria, will be charged 6% tax on their turnovers.

Although, the commencement of the OTPS is slated for early 2023, we hope that the Nigerian government will continue to evaluate the OTPS, its potential opportunities, the risks associated with non-participation with a view to making an informed decision on the OTPS.


Based on the analysis above, taxpayers may expect increased compliance obligations, increased TP audit exercises, technology-driven TP administration, complexities associated with taxing the digital economy from a TP perspective.

In view of this, taxpayers are advised to take proactive measures by reviewing their TP affairs, updating TP compliance framework, engage experts as may be required to mitigate potential exposures that may arise due to their TP obligations in 2022.


1 affected-by-covid-19

2 The Andersen Digest of Tuesday 30 March 2021 highlighted some of the proactive TP Audit strategies.

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.