Lagos, Nigeria, March 20, 2013: Nigerian multinational and group structured companies have been urged to wake up to the reality of the new transfer pricing regulations issued by the Federal Inland Revenue Service (FIRS). This call was made recently at a stakeholders seminar organised by Pedabo, the Nigerian member firm of Morrison International.
The event which was held at the Civic Centre on Victoria Island was graced by corporate executives from across sectors of the Nigerian economy. Speakers included Mr. Sachin Vasudeva a transfer pricing expert from S.C. Vasudeva & Co, India, Mr. Ajayi Bamidele, a director with FIRS and Mr. Albert Folorunsho of Pedabo.
Speaking at the event, Mr. Folorunsho explained the concept of transfer pricing, its relevance in business and why it has become a tax issue. He also took participants through the processes and methods of determining the transfer price, as well as the nature of documentations companies are expected to put in place to defend the prices used in the valuation of their related party transactions.
In his presentation on the FIRS Expectation for Advance Pricing Agreement (APA), Mr. Ajayi Bamidele explained that the new transfer pricing regulations were in line with international best practice, to give effect to general provisions in Section 17 of the Personal Income Tax Act, Section 22 of the Companies Income Tax Act and Section 15 of the Petroleum Profits Tax Act, thereby setting parameters for the determination and verification of the armâ€™s length value of intercompany transactions. He further explained that the regulations were aimed at fighting tax evasion through over or under invoicing, provide level playing field between multinational and local enterprises and generally ensuring that the taxes paid in Nigeria are appropriate for the economic activities performed in Nigeria. Mr. Bamidele therefore explained that the opportunity for entering into Advance Pricing Agreement with taxpayers, was based on the desire of FIRS to minimise potential disputes that could arise from transfer pricing.
Mr. Sachin Vasudeva spoke on the Indian experience with transfer pricing after 10 years of implementation and noted the need for Nigeria to learn from some of the pitfalls suffered by India in the early and indeed current life of their transfer pricing implementation. Some suggestions included the need to clearly define the term â€œintangiblesâ€ as well as the need to include a limitation clause that excludes local group companies from filing transfer pricing returns until they attain a set threshold of intercompany transactions. These corrections, he advised, would help in ensuring that the compliance costs of small companies are not unduly increased, while also ensuring that the potentials for litigations are minimised. He however added that because transfer pricing is not more scientific than it is art, a number of litigations are likely to be witnessed in the cause of implementing the new rules in Nigeria, as has been the case in India. Mr. Vasudeva therefore implored affected companies to ensure they utilise the services of competent professionals to provide them with the needed guidance and documentation necessary to defend the pricing of their related party transactions.
While thanking participants for attending the seminar, the Managing Partner of Pedabo, Mr. Ajibade Fashina informed the audience that Pedabo, which was made the Nigerian representative firm of Morison International in 2012, has put in place a transfer pricing team that have been adequately trained on the subject, in addition to partnering with other Morison International member firms who already have extensive transfer pricing documentation experience. This is to ensure that Nigerian companies do not unduly suffer from the current dearth of expertise in transfer pricing documentation in Nigeria.