FIRS introduces new income tax regulations

The Federal Inland Revenue Service has filed in the gazette a new regulation, titled Income Tax (transfer pricing) Regulations to ensure that Nigeria is able to tax businesses on an appropriate basis corresponding to the economic activities carried out in the country.

According to a statement made available to our correspondent on Monday, the regulations, which commenced on August 2, 2012, are applicable after the date.

It said, “A company with an accounting year end date of December 31 will be required to have its TP documentation in place for the accounting year commencing January 1, 2013 rather than 2012. This was designed to allow taxpayers some reasonable transition time.”

The rules, according to the statement, cover all transactions between “connected taxable persons” which is broadly defined to include individuals, permanent establishments created by head offices, subsidiaries, associates, partnerships, joint ventures and trusts.

Specifically, the rules will apply to sale and purchase of goods, lease or sale of tangible assets, licensing, transfer or use of intangible assets, provision of services, lending or borrowing of money, manufacturing arrangements and any transaction, which might affect profit and loss or any other incidental matter.

It said, “Every taxable person that will be affected must prepare documentation to demonstrate the arm’s length nature of their related party transactions.

“The documentation will usually include information on the group’s structure and business activities of the related parties, details of the related party transactions; the pricing method adopted; the reasons for selecting the method; and information on comparable transactions between unrelated parties.”

The Head of Tax and Corporate Advisory at PwC, Mr. Taiwo Oyedele, said, “In the recent past, the FIRS has been involved in capacity building with support from major international organisations such as the International Monetary Fund in order to ensure that the FIRS officers are able to effectively enforce compliance with the TP Regulations. It is, therefore, important that taxpayers begin to immediately review their related party transactions and consider ways to comply effectively with the new rules while managing any potential exposures alongside.”