FIRS issues deadline for transfer pricing compliance

Nigeria's Federal Inland Revenue Service (FIRS) issued a public notice last week, instructing taxpayers who have not fully complied with their transfer pricing obligations to do so before the 31st of December. This move comes as part of an effort to improve compliance with transfer pricing regulations in the country. Seun Adu, Partner and Head of Transfer Pricing at PwC Nigeria, shed light on the issues surrounding transfer pricing compliance and the implications of the new regulations in a recent interview with CNBC Africa. The discussion revolved around the challenges faced by taxpayers, the potential impact on multinational companies, and the changes introduced in the new regulations. One of the key points raised by Adu was the introduction of penalties for non-compliance in the 2018 regulations. The FIRS has now given taxpayers until the end of December to address past non-compliance issues. While the intention behind the deadline is to provide a grace period for taxpayers to rectify their compliance issues, there is some contention regarding the retrospective application of the new regulations. The regulations state that penalties should apply to future periods, starting after the effective date of 12th March 2018. However, the FIRS has indicated that these penalties will also be enforced for past years, creating uncertainty among taxpayers. The conversation around transfer pricing is not exclusive to Nigeria, as it is a global issue that affects multinational companies operating in multiple jurisdictions. However, what sets Nigeria apart is that the regulations also impact domestic groups with multiple entities operating within the country. This broad application of the rules means that both multinational corporations and domestic groups need to ensure compliance with the transfer pricing regulations to avoid penalties and potential disputes with the tax authorities. The new regulations introduced several changes to align with global best practices in transfer pricing. The adoption of OECD recommendations, African tax administrators forum guidelines, and lessons learned by the FIRS aimed to enhance the transparency and effectiveness of transfer pricing practices in Nigeria. Despite efforts to clarify the rules, there may still be room for interpretation and subjectivity, leading to potential disputes in the future. The significance of transfer pricing compliance extends beyond mere regulatory requirements; it also reflects Nigeria's commitment to improving tax transparency and revenue collection. The deadline set by the FIRS underscores the urgency for taxpayers to review and adjust their transfer pricing practices to align with the new regulations. Failure to comply could result in financial penalties and reputational risks for businesses operating in the country. The impact of the new regulations on multinational companies cannot be understated, especially considering recent high-profile cases like the MTN saga. The heightened scrutiny on transfer pricing practices signals a shift towards stricter enforcement and regulatory oversight in Nigeria. As the deadline for compliance approaches, businesses must prioritize reviewing their transfer pricing arrangements and addressing any non-compliance issues to avoid potential legal and financial consequences. In conclusion, the deadline set by the FIRS for transfer pricing compliance represents a significant milestone in Nigeria's efforts to enhance tax compliance and transparency. The challenges and uncertainties surrounding the retrospective application of penalties and the broad scope of the regulations highlight the complexities involved in ensuring compliance with transfer pricing rules. As the deadline looms, taxpayers must act swiftly to assess their transfer pricing practices and make necessary adjustments to avoid penalties and legal disputes in the future.