Transfer Pricing Compliance and Tax Avoidance by Multinational Enterprises in Nigeria

This study empirically analyses transfer pricing compliance practices among multinational enterprises (MNEs) operating in Nigeria and examines the extent to which non-arm's length pricing contributes to corporate tax avoidance. Transfer mispricing by MNEs is estimated to cost Nigeria billions of naira annually in foregone corporate tax revenue, yet the empirical evidence base specific to the Nigerian context remains thin. Using a quantitative and documentary research design, the study analyses country-by-country reporting data voluntarily shared by the FIRS, transfer pricing audit assessment records, and financial statement data from 45 MNEs with Nigerian subsidiaries spanning the oil and gas, telecommunications, and fast-moving consumer goods sectors. The panel dataset covers six years and employs fixed-effects regression with effective tax rate and book-tax gap as dependent variables. Robustness checks use the Lev-Nissim methodology for estimating unusual accruals linked to related-party transactions. The study expects to find statistically significant evidence that MNEs with complex intragroup royalty, service, and loan transactions record systematically lower effective tax rates, consistent with profit-shifting behaviour. It further anticipates that post-2017 transfer pricing regulation tightening is associated with a modest narrowing of the book-tax gap. Contributions include constructing the first comprehensive book-tax gap dataset for MNEs in Nigeria. Recommendations address FIRS audit prioritisation, advance pricing agreements, and beneficial ownership transparency. Keywords: transfer pricing, tax avoidance, multinational enterprises, book-tax gap, Nigeria.