REAPPRAISING THE LEGAL FRAMEWORK FOR TRANSFER PRICING IN NIGERIA

Abstract

Transfer pricing is a practice whereby companies use transactions between different corporate units to shift income between jurisdictions for the purpose of reducing the company’s overall tax burden. Transfer pricing has become a critical and important issue in the Nigerian business environment as a result of the increase in foreign direct investment. The complexities prevalent in cross border transactions between affiliated companies have equally thrown up the need for close scrutiny on related party transactions. Transfer pricing as a valid business practice describes the process of setting the prices at which related companies transfer physical goods, intangible property or services among themselves. It is a growing cause of concern for tax authorities as it could provide avenues for a tax avoidance hence translating into great loss of potential tax revenue. Transfer pricing regulations are meant to ensure that all transactions between related parties are carried out at arm’s length. This paper evaluates the legislative framework for transfer pricing in Nigeria, while analyzing the key features of the Income Tax (Transfer Pricing) Regulations 2018 and Organization for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017. This paper advocates among others that a proper implemented transfer pricing regime in Nigeria will enhance certainty in the cost of carrying out business operations in Nigeria, encourage negotiation of more double taxation treaties, thus leading to avoidance of double taxation and this will in turn close all loopholes for tax avoidance.