The Nigerian Transfer Pricing (TP) landscape has undergone significant changes since the introduction of TP Regulations in the country. Key events include the enactment of the Income Tax (Country-by-Country Reporting) Regulations, 2018 [CbCR Regulations], the Income Tax (Transfer Pricing) Regulations, 2018 [2018 TP Regulations], and the first TP court case in Nigeria (Prime Plastichem vs. the Federal Inland Revenue Service [FIRS]). These events have had notable impacts, such as the introduction of TP-specific administrative penalties and the demonstration of the potential risks and liabilities associated with TP audits, as seen in the Prime Plastichem case.

On 17 August 2023, a significant development unfolded in Nigeria’s TP history. The Tax Appeal Tribunal (TAT) in Lagos, in the case between Check Point Software Technologies B.V Nig Ltd (Check Point) and FIRS, ruled that the notices of administrative penalties issued by FIRS under the CbCR Regulations were unconstitutional and void. The Tribunal also deemed the CbCR Regulations themselves as void and unconstitutional. This ruling carries profound implications for Nigeria’s TP regime, raising questions about the validity of other regulations, including the 2012 TP Regulations, 2018 TP Regulations, and Income Tax (Common Reporting Standard) Regulations, 2019 (CRS Regulations).

Here are some potential implications of this judgement on key regulations governing the TP regime in Nigeria:

1. The CbCR Regulations: The CbCR Regulations introduced compliance obligations for Nigerian entities, including filing notification forms and CbC reports for MNEs meeting certain revenue thresholds. The TAT’s ruling renders the CbCR Regulations invalid, leading to questions about CbCR compliance obligations and penalties levied under these regulations. Companies that have paid penalties may seek redress based on this judgement, and the FIRS may lose access to crucial information for risk assessments.
2. The TP Regulations: The 2012 TP Regulations laid the foundation for TP in Nigeria, followed by the revised 2018 TP Regulations. The legality of these regulations is now in question due to the absence of the FIRS Board during certain periods. The judgement’s impact extends to TP administrative penalties, documentation requirements, and limitations on royalty deductions, potentially affecting TP enforcement and compliance.

In conclusion, the Check Point case has unveiled critical flaws in Nigeria’s TP administration, necessitating clarity and potential revisions in TP regulations. While the FIRS may appeal the judgement, the implications highlight the need for a robust and legally sound TP framework beneficial to both taxpayers and tax authorities.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Inner Konsult Ltd at www.innerkonsult.com at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.