Transfer pricing regulations berth in Nigeria
Transfer pricing describes the process of setting the prices at which related entities transfer physical good, intangible property or services between each other. The prices paid for these goods or services have a direct impact on the profits of the seller and by implication, on tax. Unlike transactions between independent parities, when related parties deal with each other, there may be less emphasis on ensuring that the prices of the goods and services exchanged reflect market circumstances.
This and other factors necessitated the need for the formulation of transfer pricing legislation, regulations and guidelines. Transfer pricing regulations are meant to ensure that all transactions between related entities are carried out at arm’s length.
The Federal Inland Revenue Service (FIRS) recently released to the public, a Federal Gazette on the Income Tax (Transfer Pricing) Regulations No 1, 2012 ('the Regulations') to address the shortcomings of Principal Tax Laws in Nigeria on related party transactions. The Regulations, which have an effective date of 2 August 2012, aims to prevent tax base erosion, ensure certainty on the treatment of related party transactions and reducing the risk of economic double taxation. The Regulations can be seen as the efforts of the Nigerian Government to shift the over-dependence on oil revenue to Tax
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