Transfer Price Regulation in Nigeria

by Finnovo

What Exactly is Transfer Pricing (TP)

In order to understand Transfer Price Regulation, we much understand what Transfer Pricing is. Transfer pricing refers to the pricing of goods, services, and intangible assets in transactions between related parties, such as different entities within the same multinational enterprise group. The goal of transfer pricing is to ensure that these transactions are conducted at arm’s length, meaning that the prices charged are comparable to what would be charged between unrelated parties in an open market.

Legal Framework of Transfer Price Regulation

Transfer pricing regulations in Nigeria are primarily governed by the Federal Inland Revenue Service (FIRS) and are aligned with international best practices, including those set out by the Organisation for Economic Co-operation and Development (OECD) in its Transfer Pricing Guidelines.

Applicability of Transfer Price Regulation

Transfer pricing rules apply to transactions between related parties. This includes companies under common control, such as subsidiaries, affiliates, or branches of a multinational group.

Documentation Requirements

Taxpayers are required to maintain comprehensive transfer pricing documentation to support the arm’s length nature of their intercompany transactions. This documentation includes:

  1. A master file containing group-level information.
  2. A local file containing specific transaction details.
  3. Any other relevant information that substantiates the transfer pricing methodology used.

Transfer Pricing Regulation Methods

Nigeria accepts various transfer pricing methods, including:

  1. Comparable Uncontrolled Price (CUP) method: Compares the price of the controlled transaction with the price of similar transactions between unrelated parties.
  2. Resale Price Method (RPM): Based on the resale margin earned by the reseller.
  3. Cost Plus Method (CPM): Adds an appropriate profit margin to the cost of production.
  4. Transactional Net Margin Method (TNMM): Compares the net profit margin from a controlled transaction with the net profit margin from comparable uncontrolled transactions.


Transfer pricing documentation requirements apply to transactions with a cumulative value exceeding ₦300 million (Nigerian Naira) in a given year.

Penalties and Enforcement

Failure to comply with transfer pricing regulations can result in penalties and adjustments to taxable income. Penalties may include fines based on a percentage of the tax underpayment.

Advance Pricing Agreements (APAs)

Taxpayers can enter into APAs with the tax authorities to determine transfer pricing methods and prices for specific transactions in advance. APAs provide certainty and reduce the risk of disputes.

Country-by-Country Reporting (CbCR)

Nigerian multinational enterprises meeting certain revenue thresholds must submit CbC reports. These reports provide information about the global allocation of income, taxes paid, and other economic indicators.

 Documentation Deadline

Transfer pricing documentation should be ready for submission to the tax authorities within 21 days of receiving a request.

Transfer Pricing Audit Process

The FIRS can conduct transfer pricing audits to ensure compliance. During an audit, the tax authorities may examine the taxpayer’s documentation, financial records, and other relevant information.

You can also read our recent post on persons with significant control here

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