Nigeria: Transfer pricing method; appellate tribunal decision in case of first impression

Nigeria: Transfer pricing method

The Tax Appeal Tribunal sitting in Lagos issued a decision in a case of first impression regarding interpretation of the transfer pricing regulations as implemented in 2012.


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The appellate tribunal held for the Federal Inland Revenue Service on the issues in this case (the taxpayer largely based its position on contesting the authority of the Federal Inland Revenue Service to make the transfer pricing adjustment whereas the tax administration focused its response on the core transfer pricing technical position and whether that supported the approach adopted by the taxpayer).

The case is: Prime Plastichem Nigeria Ltd. v. Federal Inland Revenue Service


The taxpayer—a private limited liability company engaged in the trading of imported plastics and petrochemicals in Nigeria—entered into related-party transactions with an international company for the supply of petrochemical products for financial years (FY) 2013 and 2014.

  • For FY 2013, the taxpayer adopted the comparable uncontrolled price (CUP) method to test whether the terms of the transaction with the related international company were at arm’s length.
  • For FY 2014 FY, the taxpayer changed the testing method to the transactional net margin method (TNMM), using the operating margin as the profit level indicator. This change, according to the taxpayer, was due to a lack of information required for applying the CUP method for that year.

The Federal Inland Revenue Service agreed with the transfer pricing method change, but selected the gross profit margin as the most appropriate profit level indicator (for the two years). This led to an additional assessment of ₦1.7 billion (approximately U.S. $4.4 million).

Among the issues raised by the taxpayer were the following:

  • Whether the Federal Inland Revenue Service’s action in benchmarking the taxpayer’s transfer pricing transaction using TNMM for FY 2013 and FY 2014 was valid and in accordance with Nigeria’s transfer pricing regulations (2012) and OECD and UN guidelines
  • Whether the Federal Inland Revenue Service’s action of using the gross profit margin as the profit level indicator was valid and in accordance with the transfer pricing regulations, and with OECD and UN guidelines

Another issue concerned a penalty assessment for the taxpayer’s failure to file the tax returns within the period prescribed by the tax laws.

The tribunal held for the Federal Inland Revenue Service on all the issues. 

KPMG observation

This case is viewed as a landmark judgement and in particular as indicative of the growth of application of the transfer pricing regulations in Nigeria. The decision highlights the importance of maintaining robust transfer pricing documentation and the need for taxpayers to pay more attention to their transfer pricing issues by determining the availability of ample information to defend the arm’s length nature of their related-party transactions.

From a technical point of view, the decision could possibly have been different if both the taxpayer and the tax authorities had made use of expert witnesses to clarify and further strengthen their separate arguments. As noted by transfer pricing professionals, it is common practice to use expert witnesses in those court proceedings requiring technical knowledge. The use of expert witnesses could have provided a platform for an in-depth and technically sound judgement as their expertise could have provided clarity on certain key issues, such as the transfer pricing method selection procedure, the application of the method selected, and the rationale behind a change in methodology. Some believe that the appellate tribunal based its judgement on information that was made available to it by the parties, and that this did not allow for a more informed decision.

Read a May 2020 report [PDF 548 KB] prepared by the KPMG member firm in Nigeria

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