February 28, 2023
The Nigeria Transfer Pricing (TP) regime is one characterized by several developments due to increased complexity arising from the growth in commercial dealings among Multinational Enterprises (MNEs) and developments in the regulatory space.
The 2022 fiscal year was no exception as there were notable developments in the Nigerian TP environment during the year, which will impact 2023.
In this article, we reviewed the key developments that shaped the Nigerian TP topography in 2022 and those that will drive the landscape in 2023.
Key Developments in 2022
The 2022 edition of the OECD Guidelines was released by the OECD on 20 January 2022.
The 2022 OECD Guidelines updated sections of the 2017 OECD Guidelines and included changes/revisions to certain guidelines based on previous publications such as the “Revised Guidance on the Transactional Profit Split Method”, “Guidance for Tax Administrations on the Application of the Approach to Hard-to-Value Intangibles” and “Transfer Pricing Guidance on Financial Transactions”.
With the Nigeria TP Regulations relying on the OECD Guidelines for further guidance, the 2022 OECD Guidance has become the reference material for taxpayers and the tax authorities. It is important for taxpayers conducting related party transactions to be guided by these new provisions.
In a Public Notice (PN) of 6 May 2021, the Federal Inland Revenue Service (FIRS) suspended Regulation 4 of the CbC Regulations. Thus, subsidiaries of non-Nigerian headquartered MNE Groups were not required to locally file CbC reports where there is no automatic exchange of information between the MNE Group’s parent company or a surrogate parent company’s jurisdiction and Nigeria.
However, in a PN of 4 January 2022, the suspension was withdrawn. This means that Nigerian subsidiaries of non-Nigerian headquartered MNE Groups that exceed the ₦160 billion (€ 750million) consolidated revenue threshold are now required to prepare and file the CbC report with the FIRS where there is no automatic exchange of information between the MNE Group’s parent company/ surrogate parent company’s jurisdiction and Nigeria.
The CBN issued Guidelines on SSA in May 2021 due to perceived inconsistencies in the management of SSA by banks and other financial institutions in Nigeria. The Guidelines took effect on 1 June 2022 with the first reporting requirement due in January 2023.
The Guidelines require financial institutions to prepare shared services agreements, TP policies that ensure that the SSAs are conducted in a manner that are consistent with the arm’s length principle, appoint an independent consultant who will attest to the effectiveness of the SSA, and submit an annual review report to the CBN on or before 31 January every year.
A number of financial institutions started complying with the Guidelines in 2022 to ensure that they met the first reporting requirement in January 2023.
2022 marked the first year where TP and CbC report filings were done strictly online using the E-TP PLAT 2.0 (the Portal).
During the TP filing period in June, unfortunately, taxpayers were thrown into panic-mode when in the last few hours leading to the deadline, possibly due to huge traffic, the Portal experienced downtime and became non-responsive. The challenges encountered were quickly escalated to the leadership of the TP division of the FIRS who confirmed that the challenges were IT-related. Thus, the deadline was extended to 15 July 2022.
Also, it was noted that a lot of taxpayers filed the TP returns with draft financials, management accounts and without supporting documents like the tax computations. As such, the FIRS rejected these filings and requested that the Portal be updated with the relevant documents.