Transfer Pricing Services
What is Transfer Pricing? Does it apply to my business? How? What do I need to do?
These are questions we have encountered numberless times during our work in this field.
Well, ‘Transfer Pricing’ simply means the prices at which goods and services are ‘transferred’, exchanged or sold between/ among related persons (both natural persons and legal persons/ businesses). Financial and tax authorities all over the world, and here in Nigeria (as you can imagine), are very much interested in the practice of transfer pricing, mainly for these two reasons:
- To ensure that related parties or persons comply to best practices regarding pricing of goods and services when sold between or among themselves. The major concern is usually, “Is there integrity and independence in financial dealings between/among related persons?”, “Are the prices at ‘Arm’s Length‘? That is, “Are they the same prices at which these goods and services would be sold or exchanged with third parties/unrelated/ independent parties?
- Transfer prices which are not at ‘arm’s length‘ not only distort the credibility/transparency of financial transactions, but also distorts the credibility, accuracy and completeness of the accounting records/ financial reports, and very importantly, the correctness of associated taxes payable.
So, when group companies operating solely in Nigeria ask us if they should be worried about Transfer Pricing (given that any consequential tax adjustments among the related entities would be netted off to the same Nigerian tax authority) the two major concerns above should answer the question.
And if ‘tax’ is not a motivating reason enough for your business(es) to comply to best practices in Transfer Pricing, let the need to achieve independence in your financial dealings, and the need to achieve correctness, credibility and completeness of your financial records/ reports compel you/your business(es) to comply to best practices in Transfer Pricing.
In fact, here is an open expo – ‘Persons’ who should pay close attention to Transfer Pricing Regulations in Nigeria are:
- Connected persons– both juridical and natural persons
- Connected persons taxable under the Companies Income Tax Act (CITA), Value Added Tax Act (VATA), Capital Gains Tax Act (CGTA), Personal Income Tax Act (PITA) and the Petroleum Profits Tax Act (PPTA)
- Connected persons engaging in over NGN 300million total value of transactions with related persons per annum – these are the ‘persons’ required to keep updating/ revising their transfer pricing documentations every year. Other ‘persons’ not doing this volume are required to prepare one documentation covering/ guiding their financial dealings with related parties, but may not be disturbed to keep updating it every year.
- Connected persons changing their group structure through mergers, acquisitions, sale or any such arrangement
- Connected persons changing directors (appointment or retirement)
- Connected persons trading in export or import commodities
- Connected persons charging for low-value intra-group services (that is, where no actual service is rendered; or service rendered does not add economic or commercial value; or a third party would not be willing to pay for such service, and if at all, not at the amount stated)
- Connected persons engaging in transactions involving exploitation of intangibles (other than the actual transfer of ownership of that intangible)
- Companies with huge capital base for funding of connected persons, but with little or no capacity to manage the risks involved in the activities they are funding (described as ‘Capital-Rich, Low-Function Companies)
Connected persons are defined in general terms to mean persons who have the ability to control or influence one another in making commercial or operational decisions, or there is a third person who has the ability to control or influence both personal in making financial, commercial or operational decisions.
The Organization for Economic Cooperation and Development (OECD)’s Transfer Pricing Guidelines (TPG) for Multinational Enterprises and Tax Administrations govern transfer pricing practices among member countries worldwide, while the Transfer Pricing (TP) Regulations of 2018 (issued by the tax authorities in Nigeria) govern Transfer Pricing practices in Nigeria.
In line with the requirements of the TP Regulations in Nigeria, we offer the under listed services. Please make your pick and we will take it up from there.