The Nigeria Transfer Pricing Regulations (NTPR) 2018 include various compliance obligations for taxpayers, one of which is the filing of annual statutory Transfer Pricing (TP) returns with the Federal Inland Revenue Service (FIRS).

While the requirement to file TP returns is not new as there were provisions for this in the 2012 TP Regulations, there was medium compliance by taxpayers due to the lack of TP specific penalties. The introduction of steep administrative TP penalties (minimum of ₦10 million) for failure to file TP returns in the NTPR has made the filing of TP returns extremely important, with taxpayers and tax consultants making every effort to prepare and file TP returns before the deadline.

As such, the month of June is usually an extremely busy season for taxpayers and tax consultants, primarily because most companies in Nigeria have a December year-end and are required by law to file their TP returns six (6) months after the year-end i.e. on or before 30 June of the subsequent year.

The aggressive enforcement of TP compliance by the FIRS and the potential huge penalties for non-compliance makes it pertinent for taxpayers to understand what TP filing entails in order to ensure full compliance.

TP Returns Filing in Nigeria

The annual TP statutory returns consist of two (2) forms; the TP declaration and disclosure forms and supporting documents, which are to be filed with the tax authorities on or before six (6) months after the end of its accounting year or eighteen months after its date of incorporation, whichever is earlier.

The TP declaration form includes information about the company's business, shareholders, directors, related parties etc. and should be filed in the first year of compliance with updates made in years where there are changes to the company's business e.g. changes in shareholding structure, directors etc.

On the other hand, the TP disclosure form contains details of the Related Party Transactions (RPTs) conducted by an entity in a particular Financial Year (FY), such as the values, the related parties and the TP methods selected to test the transaction. The disclosure form is to be filed annually.

The TP forms are to be filed alongside the following supporting documents for the relevant year of assessment:

  • Audited financial statements
  • Income tax computation
  • Capital allowance computation
  • Self-assessment form (generated from TAX PRO-MAX upon filing of tax returns)
  • Evidence of payment of taxes

The NTPR includes administrative penalties for non-compliance with the TP returns filing obligations as listed below:

  1. Failure to file TP declaration within the specified period – ₦10 million in the first instance and ₦10,000 for every day the failure continues.
  2. Failure to file updated TP declaration/notification about changes in directors – ₦25,000 for each day in which failure continues.
  3. Failure to file TP disclosures within the specified period – The higher: of ₦10 million or 1% percent of the value of the controlled transaction not disclosed, and ₦10,000 for every day the failure continues.
  4. Incorrect disclosure of transactions – The higher of: ₦10 million or 1% percent of the value of the controlled transaction incorrectly disclosed.

TP Returns Filing Process

Prior to 2021, taxpayers were required to file their TP returns by submitting hard copy documents to the FIRS which would be acknowledged and stamped. This resulted in the FIRS receiving heaps of documents and large influx of people who wanted to file the returns.

In order to make the filing process more seamless and reduce the number of physical documents received by the FIRS, the FIRS began a switch to electronic filing of TP returns with introduction of the E-TP Plat 2.0 (the Portal) which was officially launched in 2020. The Portal allows for filing of TP returns as well as Country-by- Country (CbC) reports and notification forms and other attachments.

As such, TP Returns in Nigeria are now filed electronically using the Portal which was enforced as the sole channel for filing TP returns in 2022 as hard copy forms were no longer accepted. Taxpayers are required to complete an E-TP access application form to enable them register and obtain log-in details to the Portal.

The TP returns filing page of the Portal contains various sections namely:

  • TP Declarations – containing information on the taxpayer as stated above.
  • Disclosure Form – containing information on RPTs as stated above.
  • Disclosure: P&L and Balance Sheet – These sections summarise the P&L and Balance Sheet in the taxpayer's Financial Statements (FS).
  • TP Uploads – This section allows for the upload of supporting documents.

Once the above sections have been completed, the forms can be sent for review to the taxpayer who will receive a PDF summary of the information inputted on the Portal. Upon approval, the returns can be submitted on the Portal.

The FIRS reviews the filings and either accepts or rejects the filing. Where the returns are rejected, the taxpayer will be required to update the filings and refile.

Preparing for TP Filing

  1. Registration on the Portal: Taxpayers are advised to register early on the Portal where they do not have existing log-in details and visit the Portal immediately upon receipt of the login details from the FIRS to ensure access. Where a taxpayer has registered previously, the log-in details should be retrieved before the filing deadline to ensure that the Portal can be accessed.
  2. Availability of relevant information: Taxpayers should ensure that they have the information required to fill the TP forms. Specifically, it is important that accurate financial information necessary to fill the TP disclosure form is available to ensure the returns are completed on time. It is advisable that companies have their FS ready before filing of TP returns, where possible.
  3. Accuracy of financial information across group entities: It is important for group entities to reconcile transactions and transaction values being disclosed in the TP returns to eliminate potential discrepancies in the information being filed. This is important because, contradicting information in the TP returns may connote an incorrect disclosure by at least one of the entities in the group, which may attract a penalty or pose risks during TP audits.
  4. Availability of supporting documents: Taxpayers are encouraged to have the necessary supporting documents required for the TP filing. From prior year experiences, it was observed that the FIRS rejected TP returns where relevant supporting documents were not uploaded alongside the TP forms. Specifically, the FIRS requested that the signed audited FS must be uploaded alongside the TP returns forgetting the fact that FS are not primarily prepared for tax purposes and there can be different reasons resulting in delays in the finalisation of FS. Where the TP returns are rejected, taxpayers stand a risk of being levied administrative penalties by the FIRS.
    In cases where a taxpayer has requested for an extension of the Companies Income Tax (CIT) returns filing deadline the taxpayer will be unable to upload the CIT documents on the Portal. Where this occurs, the taxpayer should inform the FIRS TP team of this and update the Portal when the CIT returns are available.
  5. Ensure prompt filing of TP returns: Taxpayers are advised to avoid waiting till the deadline to file the TP returns, as the portal has been known to experience frequent downtimes.
  6. Accessing the Portal: Where a taxpayer experiences difficulties in using the Portal, the taxpayer should contact the FIRS immediately, to ensure quick resolution of the issue.
  7. Requesting for an extension: In the event that the TP returns will not be ready by the filing deadline, a request for an extension of the filing deadline should be made to the FIRS in line with the provisions for extension requests. However, the approval of such requests is at the discretion of the FIRS.

Key Takeaways

Given the enforcement of TP compliance by the tax authorities and the potential huge penalties, taxpayers need to be proactive in preparing for filing of TP returns. Relevant information for the TP filings should be available with appropriate review channels in place to ensure accuracy of the information being filed.

The FIRS should take measures to improve user experience by reducing the incidence of downtime and speeding up the registration process. Real time support and assistance should be provided to address technical issues or queries faced by taxpayers during the filing process. To ease the burden on taxpayers to provide supporting CIT documents, the FIRS should consider linking the TAXPRO MAX and the Portal rather than requiring taxpayers to re-upload documents that have already been submitted for CIT purposes.

As the June TP filing deadline draws near, it is important that taxpayers engage TP consultants to assist with the TP filing in order to avoid the potential imposition of penalties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.