Transfer Pricing Documentation in Nigeria is very critical to TP compliance. This article aims at revealing all there is to navigating the concept’s documentation processes from a Nigerian perspective.
Transfer Pricing Documentation In Nigeria: Introduction
The Income Tax (Transfer Pricing) Regulation No 1, 2012 released by the Federal Inland Revenue Service (FIRS) in October 2012 set guidelines on related party transactions. Companies are required to file their Transfer Pricing documentation together with their Income Tax Returns from 2014.
For example, companies whose financial year is January 1st to 31st December are required to file Transfer Pricing documentation with their Income Tax Returns by 30th June 2014.
Section 6 of the Nigeria TP regulations on documentation and disclosure states that:
(1) A connected taxable person shall record, in writing or on any other electronic device or medium, sufficient information or data with an analysis of such information and data to verify that the pricing of controlled transactions is consistent with the arm’s length principle and the connected taxable person shall make such information available to the Service upon written request by the Service.
(2) The obligation of the taxpayer to provide the information referred to in sub-regulation (1) of this regulation, with analysis, is established without prejudice to the authority of the tax administration to request additional information in the course of audit procedures it deems necessary to effectively carry out its functions.
(3) The documentation referred to in this regulation must be prepared to take into account the complexity and volume of transactions.
(4). The Service shall have the authority to specify the items of documentation required to be provided to it upon request
(5) The documentation referred to in sub-regulation (1) of this regulation shall be in place before the due date for filing the income tax return for the year in which the documented transactions occurred.
(6) The TP Declaration Form as set out in the Schedule to these Regulations shall be appended to the tax return for the year to which it relates.
(7) The information, data and analysis referred to in sub-regulation (1) of this Regulation must be provided to the Service upon request within twenty-one days.
(8) The Service may upon reasonable request made to it by a connected taxable person extend the time within which the documents referred to in sub-regulation (7) of this regulation is to be provided.
(9) The documentation retained by a connected taxable person shall be adequate to enable the Service to verify that the controlled transaction is consistent with the arm’s length principle.
(10) The burden of proof that the conditions of the controlled transactions are consistent with the arm’s length principle shall be that of the taxable person and the taxable person will be regarded as satisfying this burden of proof if it provides documentation consistent with this regulation to support the consistency with the arm’s length principle of the taxable profits derived from its controlled transactions.
(11) For each year of assessment a connected taxable person shall, without notice or demand, disclose the TP Disclosure Form or any other form as may be prescribed by the Service, details of transactions that are subject to these Regulations.
To avoid Transfer Pricing penalties, companies need to maintain and upon request by FIRS, produce promptly, documentation with sufficient quality to accurately and completely describe the transfer pricing analysis conducted by the company and the efforts to comply with the arm’s length principle.
Transfer Pricing Documentation To Be Provided By Taxpayers
- Organizational structure
- Nature of the business/industry and market conditions
- Controlled transactions
- Assumptions, strategies, policies
- Comparability, functional and risk analysis
- Selection of the transfer pricing method
- Application of the transfer pricing method
- Documents that provide the foundation for or otherwise support or were referred to in developing the transfer pricing analysis.
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