Background
The TP regime officially began in Nigeria with the release and implementation of the Income Tax (Transfer Pricing) Regulations No. 1, 2012. Since then, the TP practice has evolved and is still evolving. In 2018, the FIRS published revised TP regulations and issued guidelines to close some gaps in the tax laws and promote better understanding and compliance with the regulations.
The TP compliance requirements in the revised regulations –the Income Tax (Transfer Pricing) Regulations, 2018 –align with the three-tier documentation approach recommended by the Organization for Economic Cooperation and Development (OECD). As such, taxpayers are required to maintain a master file and local file as well as the Country-by-Country (CbC) report. The latter is applicable where the taxpayer’s consolidated group revenue is not less than the specified threshold. The Regulations also introduced stiff penalties for acts of non-compliance.
Overview of TP compliance requirements
The revised TP Regulations and the Income Tax (Country-by-Country Reporting) Regulations require taxpayers to prepare the following documents in order to achieve full compliance with the TP requirements in Nigeria:
i. Master File: The master file provides an overview of the global business operations of the Multinational Enterprise (MNE) Group to which a taxpayer belongs, including the nature of its global business operations, its overall TP policies, and its global allocation of income and economic activity.
ii. Local File: The local file is expected to disclose detailed information on the enterprise’s related-party transactions such as an overview of the company,related-party relationships, related parties’ information, overview of controlled transactions, contracts or agreements, controlled transactions flow, functional asset and risk analysis, intangibles involved, financial data, segmented data, details of tax information (tax rates, treatments and jurisdictions) and information on changes in related-party relationships which occurred during the financial year (FY).
iii. TP Returns: The revised TP Regulations also require a connected person to file annual TP returns. The TP returns consist of the TP Declaration and Disclosure forms. The TP Declaration form contains general information relating to a company, such as the details of the company secretary and tax consultants, shareholding structure, details of company directors and information on all connected parties. The TP Disclosure form, on the other hand, contains information on the nature and value of controlled transactions for the period, the method used to analyse the controlled transactions, the name and tax jurisdiction of the connected parties involved in the controlled transactions and other general financial information on the company and the group.
iv. Country-by-Country Reporting (CbCR): The CbCR Regulations require Nigeria-headquartered MNE Groups with consolidated revenue of ₦160 billion or above to file the CbC report with the FIRS. On the other hand, Nigeria-resident members of MNE Groups headquartered outside Nigeria, are required to notify the FIRS of the identity and tax jurisdiction of the entity that will be responsible for filing the CbC report where the Group has a consolidated revenue of €750 million or its near equivalent in the domestic currency of the jurisdiction of the Ultimate Parent Entity (UPE) or Surrogate Parent Entity (SPE).
Where the UPE or SPE of an MNE Group is not tax resident in Nigeria and the CbCR has not been implemented in the jurisdiction where the UPE or SPE is tax resident, or where such jurisdiction has no relevant exchange of information agreement with Nigeria, the Nigerian constituent entity will be required to carry on a secondary filing. This involves the submission of a copy of the CbC report to the FIRS in Nigeria.
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