Nigeria tax alert
Federal Inland Revenue Service makes
first request for the submission of
transfer pricing policies
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
Background
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.
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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
PwC
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.
Conclusion
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.
It is likely that he FIRS will
subsequently make direct
requests to taxpayers for TP
policies. Based on the TP
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Nigeria tax alert
Let’s talk
For a deeper discussion, please contact:
Your Nigerian Tax Services team:
Taiwo Oyedele
+234 1 271 1700 Ext 6103
[email protected]
Russell Eastaugh
+234 1 271 1700 Ext 6102
[email protected]
Seun Adu
+234 1 271 1700 Ext 6117
[email protected]
© 2014 PricewaterhouseCoopers Limited. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers Limited (a Nigerian limited liability company),
which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.
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