Transfer Pricing

Nigeria: Implications of BEPS proposals

Nigeria’s tax authority—the Federal Inland Revenue Service—has incorporated into its tax audit procedures certain of the recommendations included in the OECD’s base erosion and profit shifting (BEPS) project.

For instance, the tax authority is scrutinizing transactions between Nigerian subsidiaries and their foreign related parties, especially those related parties located in “tax friendly” jurisdictions. The aim is to determine that these entities actually provide the services as contracted, and are not simply a “letter box” company.

Other developments in Nigeria reflecting the BEPS proposals include:

  • The Nigerian tax authority is currently examining whether certain arrangements reflect a mismatch when a taxpayer’s deduction for a payment is not included in the taxable income of the counterparty to the transaction.
  • Nigeria currently does not have controlled foreign corporation (CFC) rules, but it is expected such rules may be implemented soon.
  • Nigeria may introduce thin capitalization rule sooner than expected, thereby addressing base erosion involving interest deductions and other financial payments.
  • The Nigerian tax authority has started a review of companies’ transfer pricing policies and compliance documentation, and it is anticipated that the BEPS recommendations will further strengthen the tax authority’s resolve and determination to penalize contractual arrangements that vary from the parties’ conduct.
  • Nigeria’s tax authority has started to request that multinational entities in Nigeria submit country-by-country reports, and this has been incorporated into the audit process.

Read a November 2015 report [PDF 544 KB] prepared by the KPMG member firm in Nigeria: Base Erosion and Profit Shifting (BEPS): Explanatory Note and Implications for Nigeria

David Okwara

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