Nigeria losing trillions from non-regulation of Transfer Pricing – PWC

BY MICHAEL EBOH

Nigeria is losing trillions of  naira for the non-implementation of Transfer Pricing regulations, says PricewaterhouseCoopers, PWC, Nigeria Limited.

Transfer Pricing, TP, is a term used to describe all aspects of intercompany pricing arrangement between related business entities, including transfers of tangible goods, services, intellectual property and financing transactions.

Speaking in Lagos, Mr. Taiwo Oyedele, Partner/Director, Tax & Corporate Advisory Services, said effectively regulating Transfer Pricing, TP, will help increase Nigeria’s earning potentials, especially earnings from tax.

According to him, Nigeria’s tax earnings, taking out taxation from oil revenue, contribute only about two per cent to the country’s, Gross Domestic Product, GDP, compared to other climes where it contributes about 35 per cent to their GDP.

“This is just to give you a rough idea that we are still scratching the surface when it comes to tax compliance, tax enforcement and the whole laxity around tax payment. I can not really tell you exactly how much Nigeria is losing, but I can tell you that it is running into millions of naira,” he noted.

Oyedele stated further that the rising level of global trade and commerce has made it expedient for tax authorities to undertake closer monitoring of transactions between related parties in order to ensure that tax revenues are not inappropriately allocated to other countries or tax jurisdictions.

He, however, explained that Transfer Pricing could also be an issue for related parties, resident within the same tax jurisdiction.

“Generally, TP regulations are designed to address cross border related parties. However, there are many instances where it will be necessary for local entities to apply the rules. For example, where one entity is under pioneer status, or a loss making entity within a profitable group, or related parties subject to tax at different rates and so on. As a result, there is merit in local groups preparing their Transfer Pricing policy documentation,” he stated.

Oyedele disclosed that a local Transfer Pricing should be developed to ensure that the local company complies with the local requirements which should as much as possible, be consistent with the global group policy.

However, he said, “The most appropriate method to determine whether transfer prices are consistent with prices between independent parties is the one that best reflect the economic reality and circumstances of the transaction. The TP regulations will contain some factors to be considered for this purpose.