• 15 Marks

AT – Nov 2014 – L3 – SC – Q5 – Transfer Pricing

Explain transfer pricing objectives, treatment of permanent establishments, and disclosure requirements under FIRS.

You are the Tax Manager of Forum Tax Associates and recently represented your firm at a Workshop organised by the Federal Inland Revenue Service (FIRS), Western Zone, on Transfer Pricing Regulations in Nigeria.

The Workshop was to create awareness on the filing requirements and compliance with the provisions of “The Income Tax (Transfer Pricing) Regulations 2012.”

The Workshop, which was held on the 20th Floor of the Nigeria Stock Exchange building, was fully attended by Company Auditors, Tax Practitioners, Stock Brokers, Bankers, and other Stakeholders.

From the notes you took at the Workshop, you presented a report to the Managing Partner, Forum Tax Associates, on Wednesday, 3 September 2014. The Managing Partner thanked you for a good job and highlighted some key areas of the regulations that will serve as a guide to the staff of the firm.

Required:
Prepare a technical briefing for the staff explaining the following key areas noted by the Managing Partner:
a) Objectives of the application of Transfer Pricing Regulations. (6 Marks)
b) Treatment of Permanent Establishment. (2 Marks)
c) Contents of a Transfer Pricing Disclosure to be submitted by Companies to the FIRS. (7 Marks)

a) Objectives of the application of Transfer Pricing Regulations (6 Marks):

  1. To prevent tax avoidance by ensuring that related-party transactions are conducted at arm’s length.
  2. To protect the Nigerian tax base by curbing profit shifting by multinational enterprises.
  3. To provide guidelines for determining the arm’s length price for transactions among connected entities.
  4. To minimize disputes between taxpayers and tax authorities through clear documentation and methodologies.
  5. To ensure transparency in the pricing of cross-border transactions.
  6. To align Nigerian tax practices with international best practices, such as those outlined in the OECD Guidelines.

b) Treatment of Permanent Establishment (2 Marks):

  1. A permanent establishment is treated as a distinct and separate entity for tax purposes.
  2. Transactions between a permanent establishment and its head office or other related entities are subject to the arm’s length principle.

c) Contents of a Transfer Pricing Disclosure to be submitted by Companies to the FIRS (7 Marks):

  1. A declaration of connected persons engaged in transactions with the reporting company.
  2. Details of the nature and value of transactions conducted with related parties.
  3. Methods used in determining the arm’s length pricing for inter-company transactions.
  4. Transfer pricing policy applied to the company’s related-party transactions.
  5. Country-by-country reporting, if applicable, for multinational enterprises.
  6. Documentation of the comparable data used for benchmarking transactions.
  7. Confirmation of compliance with the Income Tax (Transfer Pricing) Regulations 2012.
Back to all questions

Pick a Form

Professional Tutor Application Form
Academic Tutor Application Form
Student Tutor Application Form