NIGERIA'S APPROACH TO TRANSFER PRICING: SCOPE OF NRS POWERS, COMPLIANCE EXPECTATIONS, AND THE BOUNDARIES OF ENFORCEMENT

Abstract

Transfer pricing has become an important aspect of Nigeria's tax administration, particularly as multinational enterprises and Nigerian companies increasingly engage in transactions with related parties across different jurisdictions. The pricing of intra-group transactions can have a significant effect on the amount of taxable income attributable to Nigeria. As a result, the Nigerian tax authorities have developed a regulatory framework intended to ensure that transactions between connected persons are conducted in compliance with the arm's length principle and that taxable profits are appropriately allocated to Nigeria.

This article examines Nigeria’s approach to transfer pricing, focusing on the powers of the Nigeria Revenue Service (NRS) to administer and enforce transfer pricing rules. It considers taxpayers’ obligations regarding declarations, disclosures, documentation, and tax audits, as well as the tax administration’s powers to make transfer pricing adjustments and obtain taxpayer information. Finally, it analyzes the legal limits of enforcement.

Keywords

Transfer Pricing; Nigeria Revenue Service; Arm's Length Principle; Connected Persons; Tax Compliance; Tax Enforcement.

Introduction

Companies operating in Nigeria frequently enter into transactions with related entities, such as parent companies, subsidiaries, affiliates, or other companies under common ownership or control. These transactions may include the purchase and sale of goods, provision of services, licensing of intellectual property, financing arrangements, and other intra-group transactions. Where these transactions are not conducted on an arm's length basis, they may affect the amount of profit recognized in Nigeria and consequently the amount of tax payable.

Nigeria introduced a formal transfer pricing regime through the Income Tax (Transfer Pricing) Regulations 2012. Subsequently, it replaced those Regulations with the Income Tax (Transfer Pricing) Regulations 2018. The 2018 Regulations provide a more detailed framework for the application of the arm's length principle, documentation, disclosure, compliance, and administrative penalties. They also reflect developments in international transfer pricing practice, including principles contained in the Organization for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines, and the broader global efforts against Base Erosion and Profit Shifting (BEPS).

The introduction of the Nigeria Tax Act 2025 has further consolidated the legal framework on tax in the country. The Act, which came into force on January 01, 2026, requires companies involved in arrangements with related parties to ensure that the terms and conditions of those arrangements are at arm's length. It also permits the relevant tax authority to make adjustments where it considers that a related-party arrangement has not been conducted on arm's length terms.

The administration of these rules must, however, be distinguished from the tax authority’s general enforcement powers. While the tax authority has significant powers to request information, conduct audits, issue assessments, and enforce tax liabilities, these powers must still be exercised within the limits set by law. Transfer pricing enforcement therefore requires a balance between protecting Nigeria’s tax base and ensuring that taxpayers are not subjected to adjustments that go beyond what is permitted under the applicable laws and regulations.

Nigeria's Legal Framework for Transfer Pricing

Nigeria's transfer pricing regime has developed over time. Before the introduction of specific transfer pricing regulations, Nigerian tax laws contained provisions for dealing with transactions between connected persons where the transactions appeared to be artificial or fictitious. These provisions were found in different tax statutes and have now been consolidated under the Nigeria Tax Act 2025. The General Anti-Avoidance Rules (GAARs) were also relied upon by the tax authorities to deal with arrangements that were considered to have been entered into mainly for the purpose of avoiding tax. However, the absence of clear guidelines on how the GAARs should be applied made them less effective in dealing with transfer pricing issues.

A more specific framework was introduced with the Income Tax (Transfer Pricing) Regulations 2012. The Regulations provided clearer guidance on how transactions between related parties should be priced. However, concerns over compliance led to the introduction of the Income Tax (Transfer Pricing) Regulations 2018, which replaced the 2012 Regulations. The 2018 Regulations were also intended to bring Nigeria's transfer pricing rules more in line with international developments, particularly the OECD Base Erosion and Profit Shifting (BEPS) project.

Furthermore, the administration and enforcement of the transfer pricing regime is now the responsibility of the Nigeria Revenue Service (NRS), which replaced the Federal Inland Revenue Service (FIRS) from January 01, 2026. The NRS is responsible for matters such as transfer pricing audits, reviewing compliance with documentation requirements and making adjustments where transactions are found not to comply with the applicable rules.

The Scope of the Tax Authority's Transfer Pricing Powers

In Nigeria, the relevant tax authority has wide powers to enforce the transfer pricing rules, but those powers must be exercised within the limits of the law and generally apply to transactions between related parties. Under section 191(2) and (3) of the Nigeria Tax Act 2025 as well as Regulation 4(3) of the Income Tax (Transfer Pricing) Regulations, 2018, where the tax authority finds that a transaction does not meet this standard, it can make an adjustment to reflect what would reasonably have been agreed between independent parties. The rules cover more than the sale and purchase of goods and can apply to the sale or lease of assets, intangible property, services, loans and other financing arrangements, manufacturing arrangements, and other transactions affecting a company’s profits or losses.

By Regulation 4, the authority can examine whether the terms of a related-party transaction are consistent with the arm’s-length principle by considering factors such as the functions performed, assets used, risks assumed, contractual terms, economic circumstances, and comparability with independent transactions. It can also request relevant information and documents, including contracts, invoices, financial statements, transfer pricing policies, and the analysis supporting the pricing method. However, these powers are not unlimited. The authority cannot simply replace a taxpayer’s commercial judgment because it considers a transaction unusual or unprofitable; any adjustment must be connected to the applicable transfer pricing rules and aimed at determining the correct tax liability. The Transfer Pricing Regulations also allow some flexibility in choosing the appropriate pricing method where the prescribed methods are unsuitable, provided the resulting outcome remains consistent with the arm’s-length principle.

The Nigeria Tax Act 2025 therefore provides an important statutory foundation for the current transfer pricing framework, while the Transfer Pricing Regulations provide the practical rules for applying the arm’s-length principle.

Compliance expectations

The NRS’ powers represent one side of the transfer pricing regime, while the taxpayers compliance represents the other. The Regulations place a substantial burden on connected taxable persons to be able to demonstrate, proactively and with evidence, that their related-party transactions comply with the arm's length principle.

Under Nigeria's Income Tax (Transfer Pricing) Regulations, 2018, transfer pricing compliance is not limited to ensuring that related-party transactions are priced at arm's length. The Regulations impose a broader obligation on connected persons to declare, disclose, document and substantiate their controlled transactions. In effect, the taxpayer is expected to be able to demonstrate, with contemporaneous evidence, that its related-party dealings comply with the arm's length principle.

The first requirement is the obligation to declare relationships with connected persons. Regulation 13 requires a connected person to declare its relationship with other connected persons in Nigeria or elsewhere. The declaration is to be made in the prescribed form and submitted to the Service within the period stipulated by the Regulations. The Regulations also require an updated declaration where specified changes occur in the taxpayer's ownership or corporate structure, including certain mergers, acquisitions, changes involving the parent company, or other circumstances capable of affecting the taxpayer's connected-person status.

Closely related to this is the obligation to disclose controlled transactions. Regulation 14 requires a connected person, for each year of assessment, to disclose transactions subject to the Regulations without waiting for a specific request from the Service. The disclosure is required within the prescribed statutory period, with administrative penalties attaching to failures or late compliance.

Perhaps the most significant compliance expectation is contemporaneous documentation. Regulation 16 requires a connected person to maintain sufficient information, data and analysis to demonstrate that the pricing of its controlled transactions is consistent with the arm's length principle. This documentation must be in place before the due date for filing the relevant income tax return and must be produced to the Service upon written request. The Service may also request additional information where necessary for the effective conduct of an audit.

The burden is therefore placed substantially on the taxpayer to establish its compliance. Regulation 16 expressly provides that the burden of proof that the conditions of a controlled transaction are consistent with the arm's length principle rests on the taxable person. A taxpayer satisfies this burden by producing documentation that supports the arm's length nature of the taxable profits arising from its controlled transactions.

The documentation expected under the 2018 Regulations is also substantive rather than merely formal. The Schedule to the Regulations requires information concerning the multinational enterprise's global structure and business, the Nigerian entity's local operations, related-party relationships, controlled transactions, functions performed, assets employed and risks assumed, as well as the taxpayer's comparability analysis and the selection and application of its transfer pricing methodology.

Accordingly, a taxpayer should be able to answer, with evidence, basic questions such as: What transaction took place? Who were the parties? What functions did each party perform? What assets and risks were involved? How was the price determined? What transfer pricing method was adopted? Why was that method appropriate? What comparable transactions or financial information support the result? These are not merely matters of good practice; they go directly to the taxpayer's ability to discharge the evidential burden imposed by the Regulations.

The Regulations also impose record-retention obligations. Regulation 25 requires relevant accounting and business records, including ledgers, cashbooks, journals, bank statements, invoices and other records from which tax returns were prepared, to be retained for six years from the date of the relevant tax return.

The overall expectation under the 2018 Regulations is therefore one of proactive and demonstrable compliance. A taxpayer should not wait for a transfer pricing audit before attempting to justify its related-party transactions. The appropriate approach is to identify controlled transactions at the outset, apply an appropriate transfer pricing methodology, maintain contemporaneous documentation, make the required declarations and disclosures, preserve the underlying records, and ensure that the evidence is sufficient to demonstrate that the resulting profits are consistent with the arm's length principle.

The Arm’s Length Principle and Transfer Pricing Compliance

Nigeria’s transfer pricing rules require related-party transactions to be conducted on an arm’s-length basis, as provided under section 191(1)(a) of the Nigeria Tax Act 2025 and Regulation 4 of the Income Tax (Transfer Pricing) Regulations 2018. In simple terms, the terms of a related-party transaction should be similar to what independent parties would have agreed in comparable circumstances. This applies to transactions involving goods, assets, services, intangible property, loans and other dealings between connected persons. Where the tax authority finds that a transaction does not reflect arm’s-length conditions, it may adjust the taxable result.

Regulation 5 of the Transfer Pricing Regulations provides several methods for determining whether a transaction is at arm’s length, including the comparable uncontrolled price, resale price, cost plus, transactional net margin and transactional profit split methods. Where these methods are unsuitable, another method may be used if it produces a more reliable result. Taxpayers should be able to support their chosen method with relevant information, including the functions performed, assets used, risks assumed, contractual terms and comparable transactions. The rules also contain specific provisions for certain commodity transactions where reliable quoted market prices are available. The arm’s-length principle therefore serves both as the standard against which the tax authority assesses related-party transactions and as the basis on which taxpayers can support their pricing position.

Transfer pricing compliance in Nigeria involves more than reporting related-party transactions in a tax return. Taxpayers must identify their related parties and controlled transactions, make the required transfer pricing declarations and annual disclosures, and maintain appropriate supporting documentation. This may include relevant agreements, financial information, details of the functions performed and risks assumed, comparability analysis and the method used to determine the appropriate price. For qualifying multinational groups, country-by-country reporting may also apply. Also, Section 31 of the Nigeria Tax Administration Act 2025 and Regulation 16 of the Transfer Pricing Regulations require taxpayers to maintain adequate books and records to support their tax position. Transfer pricing compliance should therefore be treated as an ongoing process, with taxpayers keeping proper records and ensuring that their related-party pricing can be explained and defended if reviewed by the tax authority.

The Boundaries of Enforcement

Tax enforcement in Nigeria is broad, but it is not unlimited. Tax authorities can assess tax, request information, conduct audits, impose penalties and take recovery action, but they must act within the powers given to them by law. For example, the Nigeria Tax Administration Act 2025 allows the relevant tax authority to request returns, books, records and other information needed to determine a taxpayer’s liability or carry out its statutory functions. The authority therefore cannot treat its information-gathering powers as an unrestricted right to demand unrelated information.

Enforcement is also limited by jurisdiction and procedure. The law determines which tax authority is responsible for a particular tax or taxpayer, and the authority must follow the procedures provided for assessments, objections, appeals and recovery. Penalties must also have a legal basis. Specifically, Regulation 20 of the Income Tax (Transfer Pricing) Regulations 2018 provides for administrative penalties where a taxpayer breaches the Regulations and no specific penalty is prescribed. Criminal liability is different and requires a specific offence to be established through the proper legal process.

For transfer pricing, the main limit is the arm’s-length principle. The tax authority can review related-party transactions, request supporting records and adjust taxable profits where the transaction is not at arm’s length. However, any adjustment must be based on the applicable rules and the facts of the transaction. The authority cannot simply replace the taxpayer’s price with a preferred price. In practice, therefore, Nigeria’s tax enforcement powers are strong, but they must always be exercised within the boundaries of jurisdiction, procedure, evidence and the law.

Conclusion

Nigeria’s transfer pricing framework reflects a deliberate attempt to balance effective protection of the Nigerian tax base with the taxpayer’s right to certainty and lawful tax administration. The NRS possesses significant powers to scrutinise related-party transactions, request information, conduct audits and make adjustments where the arm’s length principle has not been satisfied. Those powers, however, are not without limits; they must be exercised within the applicable statutory and regulatory framework and supported by the facts, evidence and methodology relevant to the transaction.

The 2018 Transfer Pricing Regulations and the Nigeria Tax Act 2025 provide the framework for ensuring that related-party transactions are conducted on arm’s-length terms. The tax authority has significant powers to obtain information, conduct audits and make adjustments where those transactions do not meet the required standard.

For taxpayers, the 2018 Regulations impose an equally important responsibility. Compliance is not merely a matter of reporting related-party transactions. It requires taxpayers to identify their connected persons and controlled transactions, make the required declarations and disclosures, maintain contemporaneous documentation, preserve relevant records and be able to substantiate the basis for their transfer pricing position. In particular, the burden of demonstrating that the conditions of a controlled transaction are consistent with the arm’s length principle rests on the taxpayer.

For taxpayers, transfer pricing compliance should be an ongoing process rather than just an annual filing exercise. Companies should keep proper documentation, regularly review related-party transactions and ensure that their pricing can be explained and supported if reviewed by the tax authority. As tax administration becomes more data-driven, the effectiveness of Nigeria’s transfer pricing regime will depend on maintaining this balance: protecting the integrity of Nigeria’s tax base without converting transfer pricing enforcement into an unrestricted power to rewrite legitimate commercial arrangements. The objective should remain what the regime is fundamentally designed to achieve: ensuring that profits properly attributable to economic activities in Nigeria are identified and taxed in accordance with law.