Are The Transfer Pricing Regulations A Clog To Business Sustainability In Nigeria?

Nigeria's population of over 190 million and its continuously expanding consumer market have made it an investment destination of interest to foreign investors for some time due in part to its low corporate taxes relative to other countries. The Income Tax (Transfer Pricing) Regulations 2018 provide guidance on the application of the arm's length principle in related-party transactions which would typically involve a Nigerian incorporated entity and its foreign affiliate. The 2018 TP Regulations which replaced the 2012 version, introduced a regime of specific administrative penalties for noncompliance with the filing of TP forms and documentations. The objective of this paper is to determine whether the TP Regulations are a clog to business sustainability in Nigeria. This paper finds that the TP Regulations where enforced to the letter, may stifle the Nigerian business environment and proposes that in order not to clog operations of small and medium-sized businesses, the right of the Federal Inland Revenue Service (FIRS) to require submission of TP documentation by companies with a controlled transaction value of less than N300 million should be activated only in the most deserving of circumstances. The paper also proposes that large businesses within the TP Regulations net, should proactively prepare their TP returns ahead of their audited accounts to anticipate and address TP issues which could be flagged by FIRS in its review of the audited accounts.