Transfer Pricing Compliance and Tax Revenue Implications for Nigeria

This study examines transfer pricing compliance among multinational enterprises operating in Nigeria and its implications for corporate tax revenue. Transfer pricing, which involves the setting of prices for transactions between related entities within the same multinational group, is widely recognized as a significant avenue for base erosion and profit shifting in developing economies. Nigeria introduced transfer pricing regulations in 2012 and has since revised them multiple times to align with OECD guidelines. However, compliance rates and enforcement effectiveness remain subjects of concern. This study uses a mixed-method approach, combining analysis of FIRS transfer pricing audit reports from 2018 to 2023 with interviews of 40 tax practitioners, transfer pricing specialists, and FIRS officers. Compliance assessment covers documentation requirements, arm's length principle application, and country-by-country reporting. The revenue implications of identified non-compliance are estimated using available audit adjustment data. Results reveal that transfer pricing non-compliance, particularly in the oil and gas, pharmaceutical, and technology sectors, results in significant downward adjustments to taxable income and substantial revenue losses. Documentation quality among multinationals has improved since the 2018 regulations but remains inadequate in many cases. The study concludes that transfer pricing enforcement must be substantially strengthened to protect Nigeria's corporate tax base. It recommends that FIRS expand its specialized transfer pricing audit unit and ratify the multilateral instrument for automatic exchange of country-by-country reports.

Keywords: transfer pricing, BEPS, multinational enterprises, Nigeria, FIRS.