(Under Section 17 Personal Income Tax Cap P8 Act LFN 2004,

Section 22 Companies Income Tax Act CAP C21 LFN 2004 (updated

to 2007), and Section 15 Petroleum Profits Tax Act CAP P13, LFN


This Regulation is made by the Federal Inland Revenue Service

pursuant to section 61 of the Federal Inland Revenue Service

(Establishment) Act 2007 for the Transfer Pricing of Connected

Taxable Persons.



This Regulation may be cited as the Income Tax (Transfer Pricing) RegulationNo. 1, 2012and shall come into force in

2012 and replace any arrangement in place with any company before the commencement of this Regulation.

Scope of the Regulation

This Regulation shall apply to transactions between connected

persons carried on in a manner consistent with the arm’s length principle and includes;

  1. Transactions between a Permanent Establishment (PE) and its head office or other related branches. Branches are treated as separate entities
  2. Sale and purchase of goods and services

iii. Sales, Purchase or Lease of tangible assets

  1. Transfer, Purchase or use of intangible assets
  2. Provision of Services
  3. Lending or borrowing of money

vii. Manufacturing arrangement

viii. Any transaction which may affect profit and loss or any other matter incidental to the foregoing

Objectives of this Regulation include:

  1. To give the Country the opportunity to have a fair share of the profit of connected taxable persons’ transactions and dealings.
  2. To provide the tools to fight artificial transactions and shifting of profits out of their jurisdiction by connected taxable persons.
  3. To reduce the risk of economic double taxation.
  4. Provide a level playing field between connected taxable

persons and independent Enterprises doing business within the Country.

  1. To provide connected taxable persons with certainty of

transfer pricing treatment in the Country.




Comparability factors

  1. For the purpose of determining whether a transaction (s) is consistent with the arm’s length principle, the Service shall determine whether such a transaction is comparable with a similar or identical transaction by an unconnected taxable person.
  2. In determining whether two or more transactions are comparable the following factors shall be considered to the extent that they are economically relevant to the facts and circumstances of the transactions—

(a) The characteristics of the goods, property or services transferred or supplied;

  1. b) The functions undertaken by the person entering into the transaction taking into account assets used and risks assumed;

(c) The contractual terms of the transactions;

(d) The economic circumstances in which the transactions take place; and

(e) The business strategies pursued by the connected taxable persons to the controlled transaction.

Connected Taxable Person

‘Connected Taxable Person’ includes, without limiting

the generality hereof, persons, individuals, entities,

companies, partnerships, joint ventures, trusts or

associations (collectively referred to as ‘persons’ in

these Regulations) and including the persons

referred to in:

(i) Sections 13(2)(d), 18(2)(b) and 22(2)(b) of the 1990


(ii) Section 15(2) of the PPTA;

(iii) Section 17(3)(b) of the 1993 PITA;

(iv) ‘Article 9’ of the OECD Model Tax Convention

(v) ‘Associated enterprise’ of the OECD Guidelines

Application of UN and OECD documents

(1) Subject to paragraph (2), this Regulation shall be applied in a manner consistent with—

(a) The arm’s length principle in Article 9 of the UN and OECD Model Tax Conventions on Income and Capital for the time been in force; and

(b) The OECD Transfer Pricing Guidelines for Multi-National Enterprises and Tax Administrations approved by the Council of the OECD for publication on 22 July, 2010 {Annex I to C (2010)99} as supplemented and updated from time to time.

(2) Where there is any inconsistency between the relevant Acts and this Regulation or the UN Practical Manual on Transfer Pricing or the OECD documents referred to in paragraph 1 above, the relevant Acts shall prevail.

This regulation shall prevail in the event of inconsistency with other regulatory approvals such as National Office for

Technology Acquisition and Promotion (NOTAP).





All transactions between connected taxable persons shall be conducted at arm’s length prices and conditions as required by the UN Practical Manual and OECD documents as referred to in Regulation 6.

(1) Where a connected taxable person has entered into a transaction or a series of transactions to which this Regulation and relevant Acts apply, the person shall determine the income and expenditure resulting from the transaction or transactions in a manner that is consistent with the arm’s length principle.

(2) Where a connected taxable person fails to comply with

Paragraph 7(1), the Service may make necessary adjustments to ensure that the income and expenditure resulting from the transaction or transactions are consistent with the arm’s length principle.

(3) In determining whether the result of a transaction or series of transactions is consistent with the arm’s length principle, the most appropriate transfer pricing method shall be used taking into account—

(a) The respective strengths and weaknesses of the transfer pricing methods in the circumstances of the case;

(b) The appropriateness of a transfer pricing method having regard to the nature of the controlled transaction determined, in particular, through an analysis of the functions undertaken by each person that is a party to the controlled transaction;

(c) The availability of reliable information needed to apply the transfer pricing methods; and

(d) The degree of comparability between controlled and

uncontrolled transactions, including the reliability of adjustments, if any, that may be required to eliminate differences.

(4) Where any connected taxable person has used an appropriate transfer pricing method in accordance with any of the methods listed in this Regulation, the Service may examine whether or not the income and expenditures resulting from the connected taxable person’s transaction or transactions are consistent with the arm’s length principle.

(5) A connected taxable person may apply a transfer pricing method other than those listed in this Regulation, if the person can establish that:

(a) None of the listed methods can be reasonably applied to determine whether a controlled transaction is consistent with the arm’s length principle; and

(b) The method used gives rise to a result that is consistent with that between independent persons engaging in comparable uncontrolled transactions in comparable circumstances.


(1) A connected taxable person shall record, in writing or on any other electronic device or medium, sufficient information or data and an analysis of same to verify that the controlled transactions are consistent with the arm’s length principle.

(2) The documentation referred to in paragraph 8(1) shall be in place prior to the due date for filing the income tax return for that year.

(3) The Service may, by notice, specify the items of

documentation that a person is required to keep and make available to the Service for the purposes of this regulation.

(4) The burden of proof that the documents provided are not significantly and materially different from other comparable shall be that of the taxable person.

Advance Pricing Agreements

(1) A connected taxable person may request that the Service enter into an advance pricing agreement to establish an appropriate set of criteria for determining whether the person has complied with the Arm’s Length Principle for certain future controlled transactions undertaken by the person over a fixed period of time

provided that such agreement shall be consistence in this


(2) A request under paragraph 9(1) shall be accompanied by—

(a) A description of the person’s activities, controlled transactions, and the proposed scope and duration of the advanced pricing agreement and this shall not be hypothetical in nature;

(b) A proposal by the person for the determination of the transfer prices for the transactions to be covered by the advanced pricing agreement setting out the comparability factors, the selection of the most appropriate transfer pricing method to the circumstances of the controlled transactions; and the critical assumptions as to future events under which the determination is proposed;

(c) The identification of any other country or countries that the person wishes to participate in the advanced pricing agreement; and d) Any other information that the Service may require.

(3) The Service may consider, modify, accept or reject a request made by a connected taxable person under Paragraph 9 (1), after taking account of the matters specified in the request and the expected benefits from an advance pricing agreement.

(4) The Service may enter into an Advance Pricing Agreement with the taxable person either alone or together with the competent authority of the Country or Countries of the connected taxable Person’s Associate or associates identified under sub paragraph (2)(c) of this paragraph.

(5) Where the Service approves or modifies a proposal under paragraph (3) of this Regulation or modifies it,, the Service shall enter into an Advance Pricing Agreement that shall provide among other things a confirmation to connected taxable Person that no Transfer Pricing Adjustment will be made under paragraph 8(2) to controlled transactions covered by the agreement where the transactions are consistent with the terms of the agreement.

(6) An Advance Pricing Agreement entered into under this Regulation shall apply to the controlled transactions for period specified therein.

(7) The Service may cancel an Advance Pricing Agreement by a notice in writing if—

(a) The person has failed to materially comply with a fundamental term of the agreement;

(b) There has been a material breach of one or more of the critical assumptions underlying the agreement;

(c) There is a change in the tax law that is materially relevant to the agreement; or (d) The agreement was entered into based on a misrepresentation, mistake or omission by the connected taxable person.

(8) Termination of an advance pricing agreement under the paragraph (8) above takes effect—

(a) In the case of sub paragraph (8) (a) and (c), from the date of the notice of cancellation specified by the Service in the notice of cancellation

(b) In the case of sub paragraph (8) (b), from the date that the material breach occurred; and

(c) In the case of sub paragraph (8) (d), from the date the agreement was entered into.

(9) The Service shall treat as confidential any trade secrets or other commercially sensitive information or documentation provided to the service in the course of negotiating or entering into an Advance Pricing Agreement.

Corresponding adjustments


(a) An adjustment is made to the taxation of a transaction

or transactions of a connected taxable person by a competent authority of another country with which Nigeria has a double tax treaty; and

(b) The adjustment results in taxation in another country

of income or profits that are also taxable in Nigeria, the Service may, upon request by the connected taxable person subject to tax in Nigeria, determine whether the adjustment is consistent with the arm’s length principle and where it is determined to be consistent, the Service may make a corresponding adjustment to the amount of tax charged in Nigeria on the income so as to avoid double taxation.

Transfer Pricing Disclosure

  • (1) For each year of assessment a connected taxable person shall without notice or demand make a disclosure in the prescribed form (TP disclosure form) details of transactions that are subject to this Regulation.
  • (2) The TP disclosure form shall be filed along with the connected taxable persons’ annual income tax returns for each year of assessment.

Dispute Resolution

  • A taxable person may within 30 days of receipt of the assessment, seek to refer the assessment to the “Decision Review Panel”. The Decision Review Panel shall be made up of the Head of the Transfer Pricing Department and 2 other employees of the Service of at least Deputy Director rank.
  • The “Decision Review Panel” shall within 3 months render its decision, taking into consideration the assessment issued, the basis on which the assessment was issued, the taxable person’s objection and evidence preferred by both parties.
  • The assessment would be finalized and a formal assessment issued:
  • based on the decision rendered by the panel; or
  • in the event the taxable person does not communicate its decision to refer the assessment to the panel within 30 days of receipt,

Offences and Penalties

A taxable person who contravenes this regulation shall be liable to a penalty of Two Hundred Thousand Naira (N200, 000.00) or 1% of tax unpaid or under paid (whichever is higher) in addition to payment of the amount of tax unpaid or under paid or imprisonment for a term not exceeding 3 years or fine of Two Hundred Thousand Naira (N 200, 000.00) or both fine and imprisonment.


In these Regulations, unless the context otherwise requires—

  1. a) “Arm’s Length Principle” in relation to a controlled transaction means the results of the transaction are consistent with the results that would have been realized in a transaction between Independent persons dealing under the same conditions;
  2. b) “Associate” for the purpose of this TP regulation, the meaning given to it in the Companies and Allied Matters Act CAP C20, LFN 1990 as amended and also includes business Associate in any form;
  3. c) “Commencement” means Tax Returns filed after the effective date of this regulation.
  4. d) “Comparability factors” means the factors specified in this regulation;
  5. e) “Comparable Uncontrolled Price (CUP) Method” means comparing the price charged in a controlled transaction with the price charged in a comparable uncontrolled transaction;
  6. f) “Comparable Uncontrolled Transaction” in relation to the application of a transfer pricing method to a controlled transaction, means an uncontrolled transaction which, after taking account of the comparability factors, satisfies the differences, if any, between the two transactions or between the persons undertaking the transactions which do not materially affect the financial indicator applicable under the method or where the differences do materially affect the financial indicator applicable under the method, then reasonably accurate

adjustments can be made to eliminate the effects of the differences;

  1. g) “Controlled Transaction” means a transaction between connected taxable persons.
  2. h) “Connected Taxable Persons” means enterprises as stated by OECD and Companies as defined by Companies and Allied Matters Act (CAMA).
  3. i) “Cost Plus Method” means comparing the mark up on the costs directly and indirectly incurred in the supply of goods, property or services in a controlled transaction with the mark up on those costs directly or indirectly incurred in the supply of goods, property or services in a comparable uncontrolled transaction;
  4. j) “Financial Indicator” means—

(i) In relation to the comparable uncontrolled price method, the price;

(ii) In relation to the cost plus method, the mark up on costs;

(iii) In relation to the resale price method, the resale margin;

(iv) In relation to the transaction net margin method, the net profit margin; or

(v) In relation to the transactional profit split method, the division of profit and loss;

  1. k) “Form of Presence” means presence of non-resident enterprise’s personnel, equipment or facilities within Nigeria.
  2. l) “Non-resident presence” in relation to a person—

(a) Where there is a tax treaty applicable to the person, means a permanent establishment as defined in the treaty; or

(b) In any other case, has the meaning given to it in the Section 13 (2) of Companies Income Tax Act Cap C21, LFN 2004 as amended.

  1. m) “Other Relevant Tax Acts” means Companies Income Tax Act, Petroleum Profit Tax Act, Personal Income Tax Act, Capital Gains Tax Act and Stamp Duties Act.
  2. n) “Person” means a taxable person whether natural or legal person that could be “Branch Person” or “Headquarters Person” referred to in this regulation;
  3. o) “Resale Price Method” means comparing the resale margin that a purchaser of good, property or service in a controlled transaction earns from reselling the property in an uncontrolled transaction with the resale margin that is earned in a comparable uncontrolled purchase and resale transaction;
  4. p) “The Act” means the Federal Inland Revenue Service (Establishment) Act 2007
  5. q) “The Service” means Federal Inland Revenue Service (FIRS) r) “TP” means Transfer Pricing.
  6. s) “Transfer Pricing Method” means any of the following methods—

(i) The Comparable Uncontrolled Price (CUP) Method;

(ii) The Resale Price Method;

(iii) The Cost Plus Method;

(iv) The Transactional Net Margin Method; or

(v) The Transactional Profit Split Method;

(vi) The Safe Harbour Method; and

  1. t) “Transaction” includes an arrangement, understanding, agreement, or mutual practice whether or not legally enforceable or intended to be legally enforceable, and includes dealing between two or more connected persons within or outside Nigeria;
  2. u) “Transactional Net Margin Method” means comparing the net profit margin relative to the appropriate base including costs, sales or assets that a person achieves in a controlled transaction with the net profit margin relative to the same basis achieved in a comparable uncontrolled


  1. v) “Transactional Profit Split Method” means comparing the division of profit and loss that a person achieves in a controlled transaction with the division of profit and loss that would be achieved when participating in a comparable uncontrolled transaction;
  2. w) “Uncontrolled Transaction” means a transaction that is not a controlled transaction.


(1) A connected taxable person may be exempted from the requirements of Regulation 8 where controlled transactions are priced in accordance with the requirement of Nigerian statutory provisions; or where prices of connected transactions have been approved by other Government regulatory agencies or authorities established under Nigerian Law and satisfactory to the Service.

(2) The Service may treat as confidential every document or information supplied by a connected taxable person pursuant to this Regulation. Documentation and other correspondence provided by a connected taxable person shall only be used for

the purpose of establishing the arm’s length price in respect of the controlled transaction for which the documentation is supplied.



The official language for purposes of this documentation shall be English Language. If a document is not in English language, the Service may, by written notice require the taxpayer to, at his own expense produces a translation in the official language, prepared and certified by a sworn translator or another person approved by the Service.


All records such as ledgers, cashbook, journals, cheque books bank statements, deposit slips, paid cheques, invoices, stock list, all other books of account data relating to any trade carried out by the taxpayer as well as recorded details from which the taxpayer’s returns were

prepared for assessment of taxes are to be retained for a period of six years from the date on which the return relevant to the last entry.


This Regulation is made this……day of ……2012 by

the Board of Federal Inland Revenue Service.