It is five working days away from December 31 stipulated by the Federal Inland Revenue Service (FIRS) for tax payers to file all outstanding transfer pricing (TP) forms and compliance documentation.
Failure to fulfil all pending TP compliance obligation by the deadline may expose defaulting companies to administrative penalties in the range of N10 million per year for each type of default, according to Transfer Pricing Alert, a KPMG Nigeria Tax-Newsletter.
A transfer price arises for accounting purposes when different divisions of a multi-entity company are in charge of their own profits. When divisions are required to transact with each other, a transfer price is used to determine costs.
Transfer prices generally do not differ much from the market price. If the price does differ, then one of the entities is at a disadvantage and would ultimately start buying from the market to get a better price.
With the filing of the first set of transfer pricing returns by companies in respect of their 2013 financial year transactions, there is no longer any doubt that Nigeria is serious both about the Income Tax (Transfer Pricing) Regulations No 1, 2012 (the Regulations) and its implementation.
“When the policy came into effect in 2012, there was low compliance rate possibly because there were no direct penalties attached to non-filing of statutory transfer pricing returns,” Tayo Olugbenro, partner and head of transfer pricing at KPMG-Nigeria, said on phone.
“However, effective from March 12, 2018, a new policy directive has attached stringent administrative penalties and there are indications that many companies will comply,” Olugbenro said.
The Regulations aim at increased compliance with the TP requirements and are in line with the TP Guidelines for Multinational Enterprises and Tax Administrations published by the Organisation for Economic Corporation and Development (OECD) in July 2017.
