Nigeria is ready for transfer pricing, are you?

Many of our readers have an exposure to transfer pricing risk in Nigeria, it being the largest African economy by GDP in 2017. So I thought I would share an update on Nigeria’s transfer pricing.

Nigeria has aligned its transfer pricing rules to the recommended approach in the 2017 OECD Guidelines. This includes the CBCR, master file and local file documentation approach as per Chapter V. What I wanted to highlight though is that the Federal Inland Revenue Services (FIRS) has also introduced other changes, including:


MNE with cross border related party transactions of NGN300mil or more will have to prepare and retain master file and local file documentation. NGN300mil is a very low threshold, which is less than USD1mil.


Even though the 2017 OECD Guidelines have been adopted, no specific mention is made in relation to low value-adding services.


Again, the OECD Guidelines have been adopted, but the revised regulations go one step further and place a cap of 5% of EBITDA as the maximum amount deductible for tax purposes in respect of the IP.

Capital rich low functions entities

In line with the OECD Guidelines, these type of entities would only earn a risk free return.


The revised regulations have incorporated specific penalties for non compliance of these new regulations.

There are additional changes that were introduced, including dispute resolution, connected persons or APA matters.  As these are more technical and fact dependent I have not discussed them further.

The key take away is that Nigeria has implemented the OECD recommendations as espoused in the OECD Guidelines. There are some smaller nuisances, the main one being the deductibility of license fees for IP where this is more than 5% of EBITDA. But overall, I believe this is a great step in the right direction, and having another African country aligning itself to the OECD doesn’t hurt.


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