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Examining The Limits Of Tax Planning & Management In Nigeria

    1. 2.3 The TP Regulations

      The TP Regulations revoked the 2012 TP Regulations. Effective from financial years commencing on or after March 12, 2018, the TP Regulations seek to provide the legal framework for Transfer Pricing (“TP”)[10] in Nigeria. The TP Regulations  apply to controlled transactions between connected persons, including (i) sale and purchase of goods and services, (ii) sales, purchase, or lease of tangible assets, (iii) transfer, purchase, license, or use of intangible assets, (iv) manufacturing arrangements, and (v) loan transactions.

      The TP Regulations require connected persons engaged in controlled transactions to transact at arm’s length and ascertain their taxable profits in compliance with the arm’s length principle. The TP Regulations set out different pricing mechanism that can be used in determining whether the result of a transaction or series of transaction is consistent with the arm’s length principle. In relation to intra-group services, the TP Regulations expects that the FIRS will ascertain if certain factors exist in order to determine the arm's length nature of intragroup services and service charges. These include an economic/commercial benefit analysis and a shareholder activity test. In undertaking the economic/commercial benefit analysis, the FIRS will amongst other things consider if an independent person in comparable circumstances would have been willing to pay an independent party for the service or would have performed in-house for itself. The Regulations also prescribe that shareholder costs should not be charged to subsidiaries as same will be disallowed for tax purposes.

      The TP Regulations include a safe harbour provision that states that taxpayers would be exempted from preparing TP documentation where their related party transactions are priced in accordance with specific guidelines that the FIRS may publish from time-to-time.

      From our analysis, concerns remain around implementation of the TP Regulations. For instance, the capping of tax deductions at 5% of Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) derived from the commercial activity in which the right was exploited, where there is transfer of rights in an intangible asset other than the alienation of an intangible, is inconsistent with the applicable tax statute in Nigeria on allowable deductions. It should be noted that the TP Regulations were issued to give effect to the GAAPs in the relevant statutes. Hence, the specified 5% cap on tax deductions is unfair to related parties transacting duly at arm’s length when compared to allowable deductions applicable when transacting with unrelated parties. This is also inconsistent with the arm’s length principle specified in the TP Regulations to the effect that related parties should transact with each other in like manner and under same circumstances as they would ordinarily do with unrelated third parties.

      The TP Regulations prescribe penalty for non-compliance with its provisions of fines up to N10 million or 1% of the value of the relevant controlled transaction, where necessary. There are also other penalties ranging from a fine of N10,000 to N25,000 daily, depending on the circumstances of the infringements committed.

    2. 2.4 The CRS Regulations

      The CRS Regulations, effective July 1, 2019, seek to give effect to the provisions of (i) the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, (ii) the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (signed by Nigeria on August 17, 2017) and the Common Reporting Standards contained in the Standard for Automatic Exchange of Financial Account Information in Tax Matters (approved by the OECD on July 15, 2014) (altogether, the “Multilateral Agreements”).

      The objective of the CSR Regulations is the curbing of tax evasion and tax avoidance activities in Nigeria by means of automatic exchange of financial information between tax administrations, amongst different countries where Nigerian tax residents maintain banking accounts.  The CSR Regulations generally require Reporting Financial Institutions (“RFIs”)[12] to file annual financial accounts report, in a standardized format that will facilitate automatic exchange of information between Nigeria and other foreign tax jurisdictions, which are signatories to the Multilateral Agreements.  In this manner, the CSR Regulations effectively allow the FIRS to receive specified information on banking accounts held by Nigerian tax residents in countries that are parties to the Multilateral Agreements. In exchange, the FIRS is obliged to provide similar information to the relevant tax authorities of those countries.

      The CRS Regulations contain significant penal sanctions for non-compliance, ranging from a fine of N5million to N10million, depending on the nature and severity of the infringement committed by the taxpayer. There are also other applicable fines charged where the infringement persists, ranging from N1million monthly. The penalties specified above are inapplicable where the FIRS is satisfied that there is reasonable excuse for such failure or omission.

      Just like the CBCR Regulations, the legality of the CRS Regulations is questionable within the context of the provisions of section 12(1) of the Constitution; which provides that no treaty between the Federation and any other country shall have the force of law except to the extent to which any such treaty has been enacted into law by the National Assembly. However, it should be noted that these instruments will remain in force unless and until judicially challenged and validly set aside by a court of competent jurisdiction in Nigeria.


To efficiently plan and manage their tax affairs, businesses must consider business exigencies (including possible future changes in applicable law) and seek professional advice.  Where a taxpayer is successful in convincing the court otherwise, the likelihood that the court will apply the Duke of Westminster doctrine (which is taxpayer-friendly) is very strong[13]. In addition to the modern rules of tax planning and management, intricate rules such as the CBCR, TP and CRS Regulations have been developed by tax authorities around the globe to combat tax planning and management activities particularly by HNIs and MNE Groups. In response to this, taxpayers, more than ever before, now require the advice and guidance of skilled tax planning and management experts; to enable them exercise their rights to efficiently plan and manage their tax affairs, without breaching the law.

10 TP refers to how related parties price transactions between them. The TP regime seeks to ensure that related parties transact at arm’s length in a manner that does not erode the national tax base. Arm’s length transaction for TP purposes refers to transactions between related parties, conducted as if the parties were unrelated; thereby eliminating conflict of interest, or parties’ accrual of unwarranted tax benefits at government’s expense.
11 “Controlled transaction” means a commercial or financial transaction between connected persons (see Regulation 27 of the TP Regulations.).
12 By Regulation 13(1) of the CSR Regulations, RFI means (i) any financial institution that is resident in Nigeria but excludes any branch of that financial institution that is located outside of Nigeria, and (ii) any branch of a financial institution that is not resident in Nigeria, where that branch is in Nigeria.
13 See JGC Corporation v FIRS (2016) 22 TLRN 37, where the Federal High Court effectively upheld the Duke of Westminster doctrine in favour of taxpayers.


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DISCLAIMER: This article is only intended to provide general information on the subject matter and does not by itself create a client/attorney relationship between readers and our Law Firm or serve as legal advice. Specialist legal advice should be sought about the readers’ specific circumstances when they arise.