This is a technical paper presented in an in-house technical session on 30th August, 2018. The paper reviewed the changes introduced into the Nigerian Transfer Pricing landscape by the Gazetting of the Income Tax (Transfer Pricing) Regulations, 2018. Opinion expressed herein by the author does not necessarily in anyway represent the Opinion of OECD, ATAF or the Federal Inland Revenue Service (FIRS). The write up is strictly for information purpose, I therefore make no representation as to the accuracy and completeness of the information contained in this publication. I accept no liability for any loss that may arise from the use of this paper.

1. Income Tax (Transfer
Pricing) Regulations,
2018
Highlights of Changes
Aboyeji, Oyekanmi M.

2. Introduction
It’s no longer news that the FIRS introduced a new Transfer Pricing Legislation to be
cited as Income Tax (Transfer Pricing) Regulation, 2018.
The new TP Regulation which revokes the erstwhile Income Tax (Transfer Pricing)
Regulation No. 1, 2012, aligns with the ATAF suggested approach for drafting TP
legislation and integrated some of the recommendations of the 2017 OECD Transfer
Pricing Guidelines.
This presentation thus seeks to review the changes introduced by the newly released
TP Regulation, 2018.

3. Highlights of
Changes
❖ Commencement: Basis Period beginning after 12th
March 2018.
❖ Revocations: Regulation 26 of the TPR 2018 revokes
the Income Tax (Transfer Pricing) Regulation No.1,
2012.
❖ Relevant Tax Provisions: TPR 2018 also gives effect
to the Capital Gains Tax Act, CAP C1, LFN 2004 and
Value Added Tax Act, Cap V1, LFN 2004. This is
alongside with other Tax Acts stated under Regulation
No. 1 of TP Regulations, 2012.
❖ Permanent Establishments: Now recognized as
Related Party to a Connected Taxable Person and
transactions between PEs & CTPs are considered as
Controlled Transactions. [Regulation 3(2)]

4. Highlights of
Changes
❖ Bundling of Closely Linked Transactions: In order to
perform comparability analysis and apply transfer
pricing methods, Regulation 5(5) allows for the
combination of economically closely linked transactions
or transactions forming a continuum which can not be
reliably analysed separately. This is in line with the
guidance of the OECD, Transfer Pricing Guidelines,
2017.
❖ Clearly defined Arm’s Length Range (ALR):
Regulation 5(6) stipulates an Interquartile Range
derived using a Statistical Approach as an appropriate
Arm’s Length Range. By extension, the regulation
empowers the FIRS to adjust Financial Indicators falling
out of ALR to the most appropriate point in the arm’s
length range considering the facts and circumstances of
the transactions.

5. Highlights of
Changes
❖ FIRS is not bound to accept Customs Valuation
when considering the Income Tax implication of
non-arm’s length importation. - Regulation 5(8)
❖ Commodities: Prices to be considered for
Transactions involving commodities shall be the
quoted price on the date of the Transaction. Also, in
respect of goods exported from Nigeria to a related
party which were later resold to unrelated party,
where the prices for which the goods were resold to
unrelated party was higher than the quoted price on
the transaction date, the agreed price between that
unrelated party and the related party shall be
considered as the sales price for the purpose of
computing taxable income of the Nigerian exporter
(seller); except proven otherwise. - Regulation 5(9)

6. Highlights of
Changes
❖ Special Provision on Intra-group Services:
● Regulation 6 introduces special provisions on the
arm’s length pricing of Intra-group services. The
regulation requires that intragroup services satisfies
some specific test before they are accepted as tax
allowable deductions. These test includes,
performance test, benefit test, non-duplicative test,
shareholders cost test and appropriateness of
allocation keys.
❖ Special Provision on Intangibles:
● DEMPE: In determining the arm’s length conditions of
controlled transactions involving the exploitation of
an intangible, the FIRS now considers the contractual
arrangements giving regards to the activities leading
to the development, enhancement, maintenance,
protection and exploitation of the intangible asset.

7. Highlights of
Changes
❖ Special Provision on Intangibles:
● Cap on Royalty: Allowable royalty payments shall not
exceed 5% of [EBITDA plus the consideration (i.e. the
Royalty itself)], derived from the exploitation of the
rights in the intangible.
❖ Capital-Rich, Low-Function Companies: Allocation of
profits or losses associated with financial risks shall go
to entity(ies) who manages those risk and have the
capacity to bear them; while Risk-free returns would be
allocated to the funding entity(ies) who does not
control or manage the financial risks. - Regulation 8
❖ Redefined CTPs - Influential 3rd parties now seen as
CTPs: 3rd parties who could exercise controls and
influence a Connected Taxable Persons (CTP) in making
financial, commercial, or operational decisions are now
recognized as Related party with the reporting CTP.

8. Highlights of
Changes
❖ Redefined CTPs: The Regulation now captures
definitions as per Article 9 of Nigerian Treaties with
other Countries, OECD, UN Model Tax Convention
and Transfer Pricing Guidelines. - Regulation 12
❖ TP Declaration (Timing & Events): - Regulation 13
● Stipulation of Timeline for making
Declaration: 18 months from incorporation or 6
months after the financial year end.
● Stipulation of Conditions that might lead to
the submission of an updated Declaration:
Mergers and Acquisitions; including acquisition of
up to 20% by an unrelated party in a CTP’s parent
or in the CTP itself.
● Notification Requirement for Retirement or
Admission of Directors

9. Highlights of
Changes
❖ TP Declaration (Penalties):
● Failure to submit TP Declaration: N10Million in
addition for N10,000 for every day in which the
failure continues.
● Failure to Submit an updated Declaration or
make notification on change of Directors:
N25,000 for each day in which the failure continues.
❖ TP Disclosure (Timing): 18 months from
incorporation or 6 months after the financial year
end
❖ TP Disclosure (Penalties):
● Failure to submit TP Disclosures as at the time
prescribed: The higher of N10 Million or 1% of the
undisclosed transactions, plus N10,000 for every
day in which the failure continues.
● Incorrect Disclosures: The higher of N10 Million or
1% of the incorrectly disclosed transactions

10. Highlights of
Changes
❖ TP Documentation & Other Information Request
(Regulation 16 & 17):
● Two-Tiered TP Documentation: Taxpayers now
required to main a 2-tiered transfer pricing
documentation consisting of both a Master File and Local
File.
● Stipulation of threshold for maintaining
Contemporaneous Documentation: Taxpayers whose
total value of controlled transactions does not exceed
N300 Million may choose not to maintain
contemporaneous documentation. However, whenever
the Service so request such taxpayers to submit TP
Documentation, it must be done within 90 days from the
date of receipt of a notice from the Service.
● Requirement to Submit 3rd party invoices, contracts, bills
or similar documents whenever goods or services are
procured from related parties.

11. Highlights of
Changes
❖ TP Documentation & Other Information Request
(Regulation 16 & 17):
● Penalty for not submitting TP Documentation within
the time prescribed: The higher of N10 Million or 1% of
the total value of all controlled transactions, plus
N10,000 for every day in which the failure continues.
● Penalty for not providing any information or
document within the time prescribed: A sum equal to
1% of the controlled transactions for which the
information or document was requested, plus N10,000
for every day in which the failure continues.
● Penalty for not meeting extended deadline:The higher
of N10 Million or 1% of the total value of all controlled
transactions, plus N10,000 for every day in which the
failure continues. (This penalty shall be computed as if
extension was never granted)

12. Highlights of
Changes
❖ Safe Harbour: Now subject to specific
guidelines that may be issued by the
Service from time to time and not any
other regulatory requirement. -
Regulation 22
❖ Decision Review Panel (DRP):
Referral of cases to the DRP now a
responsibility of the Head of the Transfer
Pricing Function and DRP’s position shall
be the final position of the Service. -
Regulation 21 (5&8)

13. Questions &
Contributions