Breaking The Ground For The Transfer Pricing Jurisprudence In The Nigerian Tax Law: Prime Plastichem V. Federal Inland Revenue Service
Transfer Pricing (TP) in Nigeria entered a new phase of its development when the Tax Appeal Tribunal (TAT) on the 19th February 2020 (TAT) delivered its judgment in the case of Prime Plastichem Nigeria Limited v. Federal Inland Revenue Service1 (the PPNL case); making it the first and the only decided case on TP in Nigeria. This decision confirms that globalization has forced development and changes in the world’s trading system which has led to the predominance of cross- border transactions and complex business structures. Given this, multinationals constantly devise new means to enhance their profits and adopt methods such as TP to reduce tax costs.
TP is by itself not illegal, however, it becomes abusive or illegal when the related parties distort the price of a transaction to reduce their taxable income. The focus on TP by the tax authorities in Nigeria is relatively new, and in like manner, estimates vary as to how much tax revenue is lost by governments due to transfer mispricing.
This paper will examine the state of the TP jurisprudence in Nigeria particularly in relation to the ground-breaking decision of the TAT in the PPNL case. It also considers the role the TAT has to play in the development of Nigeria’s TP jurisprudence and concludes by urging the key stakeholders (TAT, Companies, and the FIRS) to display expertise and understanding of TP to develop Nigeria’s TP jurisprudence.
Background: Transfer Pricing Framework in Nigeria
In simple terms, TP is the value attached to the sale of goods and services between related parties. There is TP when two or more entities that are part of the same multinational company trade the supply of tangibles and intangibles.4 It is not unusual for the prices at which transactions are carried out between related parties to be comparatively lower than the prices at which they are carried out with non-related parties.
About the Author:
Feyisikemi Adeagbo is smart, proactive, and confident. She has over two years’ experience in Commercial Dispute Resolution and Transactions. Feyisikemi is an astute reader and writer, has a keen interest in Energy & Natural Resources Law and Tax. She is presently an Associate in the law firm of Olajide Oyewole LLP and She is excited to take up the challenges that growth/development brings in law practice presents.