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Nigeria: Benchmarking related-party transactions, transfer pricing methods (tribunal decision)

Nigeria: Benchmarking related-party transactions

The Tax Appeal Tribunal, in Lagos, accepted the tax authorities’ benchmarking of the taxpayer’s transfer pricing transactions using the Transactional Net Margin Method (TNMM) in a case concerning purchases of plastics and petrochemicals by the taxpayer from a foreign related party.

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The case is: Prime Plastichem Nigeria Ltd. v. Federal Inland Revenue Service (19 February 2020)

The taxpayer, a private limited liability company, engaged in the import and trading of plastics and petrochemicals. The tax authorities conducted an audit of the taxpayer’s transactions with related parties and determined an additional tax liability of over N1.7 billion after applying the TNMM in its analysis of the taxpayer’s transfer pricing transactions. The taxpayer sought judicial review by the tribunal.

The issues before the tribunal included:

  • Whether the action of the Federal Inland Revenue Service (FIRS) in benchmarking the taxpayer’s transfer pricing transactions using the TNMM for 2013 and 2014 was valid and in accordance with Nigeria’s transfer pricing regulations and the Organisation for Economic Cooperation and Development/United Nation (OECD/UN) transfer pricing guidelines
  • Whether the use by FIRS of the gross profit margin method as the profit level indicator for the transfer pricing transactions was valid and in accordance with the transfer pricing regulations and OECD/UN guidelines
  • Whether the taxpayer’s failure to timely file supported the imposition of penalties and interest imposed by FIRS

The tribunal decided in favor of FIRS on all issues, and rejected the taxpayer’s appeal.


Read a February 2020 report prepared by the KPMG member firm in Nigeria

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