Transfer Pricing in Nigeria: A Comprehensive Overview

Transfer Pricing in Nigeria:Introduction

Transfer pricing is a complex, globally relevant aspect of international taxation, one that plays a pivotal role in regulating the prices at which goods, services, and intellectual property are exchanged among related entities within multinational corporations. The primary objective of transfer pricing regulations in Nigeria is to prevent profit shifting and tax evasion. This article provides a thorough and professional understanding of transfer pricing in Nigeria, outlining the regulatory framework, key principles, documentation requirements, and best practices.

Regulatory Framework

Nigeria’s transfer pricing rules are anchored in the Income Tax (Transfer Pricing) Regulations, promulgated in 2018. These regulations are instrumental in guiding the treatment of transfer pricing matters in the country and are designed to bring Nigerian tax policies in alignment with global standards, particularly those articulated by organizations such as the Organization for Economic Co-operation and Development (OECD).

The scope of transfer pricing regulations in Nigeria primarily encompasses transactions between related parties. Related entities can include parent companies, subsidiaries, affiliates, or any entities sharing common ownership or control. The goal here is to ensure that companies do not manipulate their transfer prices to shift profits artificially to entities located in low-tax jurisdictions, thus lowering their overall tax liability in Nigeria.

Arm’s Length Principle

At the core of transfer pricing regulations is the “arm’s length principle.” These principals mandate that related entities should set their transaction prices as if they were unrelated parties conducting business in the open market. This implies that the prices and terms of such transactions should reflect those found in similar transactions between independent parties. The aim is to curtail any manipulation of prices to evade taxes.


To substantiate compliance with the arm’s length principle, Nigerian taxpayers are mandated to maintain comprehensive transfer pricing documentation. This documentation includes master files, local files, and country-by-country reports. Master files provide a global overview of the group’s business activities and intercompany transactions, while local files detail the specifics of related-party transactions within Nigeria. Country-by-country reports are indispensable for multinational corporations with operations across multiple jurisdictions, offering a high-level snapshot of financial and tax-related data.

Advance Pricing Agreements (APAs)

Recognizing the need for certainty in their transfer pricing strategies, Nigerian taxpayers can request advance pricing agreements (APAs) with the tax authorities. An APA is a pre-arranged method for determining transfer prices, providing companies with a level of assurance that their chosen pricing methodology will be accepted by the tax authorities.


Non-compliance with transfer pricing regulations can lead to penalties, including adjustments to taxable income, the imposition of interest on underpaid tax, and, in severe cases, legal action against non-compliant entities. Consequently, it is imperative for companies to meticulously adhere to these rules, maintain robust documentation, and ensure that their pricing aligns with the arm’s length principle.

Transfer Pricing Audit

Federal Inland Revenue Service (FIRS) in Nigeria possesses the authority to conduct transfer pricing audits to verify compliance with regulations. These audits often encompass a comprehensive review of a company’s transfer pricing documentation and an assessment of whether the arm’s length principle has been accurately applied. This underscores the importance of meticulous and accurate documentation.

Comparability Analysis

For selecting appropriate transfer pricing methods and benchmarks, taxpayers must undertake a comparability analysis. This involves assessing factors such as the nature of the transaction, industry-specific conditions, and the unique characteristics of the entities involved. The objective is to select methods that are most suitable for demonstrating that the prices charged genuinely adhere to the arm’s length principle.

International Best Practices

Nigeria’s transfer pricing regulations adhere to international best practices, as recommended by the OECD and other international bodies. This approach is fundamental for promoting a fair and competitive tax system that not only attracts foreign investment but also supports the nation’s economic growth.


Transfer pricing is a vital facet of international taxation in Nigeria, playing a pivotal role in preventing profit manipulation and tax evasion within multinational corporations. Compliance with the regulatory framework, meticulous documentation, and accurate comparability analyses are indispensable for companies conducting business in Nigeria. These regulations position the country as an attractive destination for international businesses, promoting economic growth while maintaining a fair tax system in line with global standards. Understanding and adhering to transfer pricing principles is crucial for businesses seeking to navigate the complex terrain of international taxation in Nigeria.

Case study

Please see below a hypothetical case study to illustrate the application of transfer pricing principles in Nigeria:

Case Study: XYZ Nigeria Limited Operations in Nigeria


XYZ Group is a multinational company with a presence in various countries, including Nigeria. The company manufactures and sells high-tech electronic components and devices. In Nigeria, XYZ Group operates a distribution subsidiary (XYZ Nigeria Limited). The manufacturing subsidiary produces electronic components that are then sold to the distribution subsidiary for sale in the Nigerian market. These subsidiaries are related parties as they share common ownership.

Transfer Pricing Issue

XYZ Group operations in Nigeria have come under scrutiny by the Federal Inland Revenue Service (FIRS) due to concerns over the pricing of intercompany transactions between the manufacturing and distribution subsidiaries. The FIRS suspect that XYZ Group might be manipulating transfer prices to reduce its taxable income in Nigeria.

Application of Transfer Pricing Principles

  1. Arm’s Length Principle: The first step is to evaluate whether the prices charged for the electronic components sold from the manufacturing subsidiary to the distribution subsidiary comply with the arm’s length principle. This involves comparing these prices with those in similar transactions between independent parties in the open market.
  2. Comparability Analysis: XYZ Group should perform a detailed comparability analysis to assess the nature of the transactions and the industry-specific conditions. This analysis will help determine the most appropriate transfer pricing method and benchmarks for setting arm’s length prices.
  3. Documentation: To substantiate their compliance with transfer pricing rules, XYZ Group must maintain comprehensive transfer pricing documentation. This includes master files and local files that detail the specific transaction data, financial information, and the methodology used for determining transfer prices.
  4. Advance Pricing Agreement (APA): In light of the tax authorities’ scrutiny, XYZ Group may consider seeking an advance pricing agreement with FIRS. An APA would ensure that their chosen transfer pricing methodology is acceptable to the authorities, reducing the risk of disputes.


In this case study, XYZ Group operations are facing transfer pricing scrutiny from FIRS. The company must demonstrate that the pricing of electronic components between its manufacturing and distribution subsidiaries complies with the arm’s length principle. To do so, XYZ Group should perform a comparability analysis, maintain meticulous documentation, and consider the possibility of an advance pricing agreement to mitigate the risk of penalties or disputes with the tax authorities.

This case underscores the importance of understanding and applying transfer pricing principles to maintain tax compliance and mitigate the risk of non-compliance-related issues in Nigeria.

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More About Author:

Olatunji is the founder Taxmobile.Online and Managing Partner/CEO of AOA Professional Services. Prior to this, Olatunji worked as Director, Tax & Regulatory Services at Nolands Nigeria Professional Services, Senior Manager -Tax, Regulatory & Advisory Services at Saffron Professional Services.


The information contained herein is general and is not intended, and should not be taken, as legal, accounting or tax advice provided by Taxmobile.Online Inc to the reader. This information remains strictly the opinion of Taxmobile.Online Inc.

The reader also is cautioned that this material may not apply to, or suitable for, the reader’s specific circumstances or needs, and may require consideration of other tax factors if any action is to be contemplated. The reader should contact his or her Tax Advisers before taking any action based on this information.

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