a. Concept of connected taxable persons and category of persons regarded as connected persons Connected taxable persons include persons, individual, entities, companies, partnerships, joint ventures, trust or associations (collectively referred to as “connected taxable persons”). Also includes the persons referred to in section 13, section 22 of CITA, section 15 of PPTA, section 10 of PITA, article 9 of OECD Model Tax Convention and “associated enterprise” in OECD guidelines.

The following persons will be regarded as connected taxable persons (that is, related parties) within the context of the Transfer Pricing Regulation, 2018:

i. any entity dealing with a related party (associate subsidiary, joint venture);

ii. members of a local group of companies;

iii. members of a conglomerate; iv. multinationals; v. an entity in a group located in a free trade zone;

vi. a group entity that has a pioneer status; vii. intra company profits which is taxable under different regimes for example, tax exempt export profits;

viii. loss making entity within a profitable group; ix. related parties subject to tax at different rates; and

x. permanent establishment.

Under the 2018 Regulations, the definition of connected persons have been widened to accommodate where one person has the ability to control or influence the other person in making financial, commercial or operational decisions, or there is a third person who has the ability to control or influence both persons in making financial, commercial, or operational decisions.

b. Dispute resolution under Income Tax (Transfer Pricing) Regulations, 2018

i. Based on the 2018 guidelines, a taxpayer who has any objection on assessment cannot approach the Decision Review Panel for a review of the assessment received from FIRS.

ii. Taxpayers are now expected to lodge their complaints with the Head, FIRS Transfer Pricing Unit (TPU) within 30 days of the date of receipt of the assessment notice.

iii. Effective March 12, 2018, the Head of TPU has the prerogative to decide whether or not to refer the taxpayer’s objection to the Decision Review Panel.

c. Regulation measures used in mitigating against potential activities in tax havens To avoid tax competition, many high tax jurisdictions have enacted legislations to counter the tax sheltering potential of tax havens.

Generally, such legislations tend to operate in one of the following seven ways:

i. attributing the income and gains of the company or trust in the tax haven to a taxpayer in the high-tax jurisdiction on an arising basis. Controlled foreign corporation legislation is an example of this;

ii. transfer pricing rules, standardisation of which has been greatly helped by the promulgation of OECD guidelines;

iii. restrictions on deductibility, or imposition of a withholding tax when payments are made to off shore recipients;

iv. taxation of receipts from the entity in the tax haven, sometimes enhanced by notional interest to reflect the element of deferred payment. The EU withholding tax is probably the best example of this;

v. exit charges, or taxing of unrealised capital gains when an individual, trust or company emigrates;

vi. many jurisdictions employ blunter rules, for example, in France, securities regulations are such that it is not possible to have a public bond issue through a company incorporated in a tax haven; and

vii. also becoming increasingly popular is “forced disclosure” of tax mitigation schemes. Broadly, these involve the revenue authorities compelling tax advisers to reveal details of the scheme, so that the loopholes can be closed during the following tax year, usually by one of the five methods indicated above. Although not specifically aimed at tax havens, given that so many tax mitigation schemes involve the use of offshore structures, the effect is much the same.