Accounting Project Topics

Transfer Pricing and Business Profit Taxation of Multinational Companies in Nigeria

Transfer Pricing and Business Profit Taxation of Multinational Companies in Nigeria

Transfer Pricing and Business Profit Taxation of Multinational Companies in Nigeria

Chapter One


The objectives of the study are;

  1. To determine transfer pricing and business profit taxation of multinational companies in Nigeria.
  2. To ascertain the relationship between transfer pricing and business profit taxation of multinational companies in Nigeria
  3. To find the challenges of transfer pricing in multinational companies in Nigeria



Transfer Pricing In Nigeria

As a developing nation with a wealth of natural resources including proven oil and gas reserves and significant mineral deposits Nigeria is enjoying an increasing influx of foreign investment and business activity. As a result of the establishment of multinational companies in Nigeria and the increased volume of intercompany transactions both in terms of the number and the value between these local affiliates and their foreign counterparts, transfer pricing is a matter of serious concern to the Federal Inland Revenue Service (FIRS). In an attempt to combat perceived income shifting by foreign taxpayers out of Nigeria, FIRS published new transfer pricing rules on September 21, 2012. These latest rules signal a new level of sophistication of the Nigerian government in terms of addressing international commerce and taxation and reflect the move toward formal transfer pricing rules in other developing nations. Consequently, it is critical for corporate taxpayers and their advisors to educate themselves on the new rules and understand the trends and precedents set by this recent legislation in the context of their own business strategy in the region. There have always been rules in the Nigerian tax laws the guide related party transactions. These are contained in the anti-avoidance provisions embedded in various tax laws particularly in Section 22 of the Companies Income Tax Act (CITA) Cap C21, LFN 2004, as amended by the CIT (Amendment) Act of 2007. This section provides that “Where the Board is of the opinion that any disposition [defined as trust, grant, covenant agreement or arrangement] is not in fact given effect to or any transaction which reduces or would reduce the amount of any tax payable is artificial or fictitious, it may disregard any such disposition or direct that such adjustments shall be made as respects liability to tax as it considers appropriate so as to counteract the reduction of liability to tax affected, or reduction which would otherwise be affected, by the transaction and any company concerned shall be assessable accordingly”. The section further provides that transactions between related persons shall be deemed to be artificial or fictitious if, in the opinion of the Board, those transactions have not been made on terms which might fairly have been expected to have been made by persons engaged in the same or similar activities dealing with one another at arm’s length. The Petroleum Profits Tax Act (PPTA) has a similar provision in Section 15. So has the Personal Income Tax Act (PITA) in Section 17. Going by the rules, they were rather too broad and loose to give any guidance to the taxpayers or the tax authority on how transfer prices can be determined. In the absence of proper Transfer Pricing Guidelines, the Court did not envisage any situation where a tax authority could effectively challenge any pricing model adopted by a company with respect to its related party transactions. However, the FIRS has decided to introduce detailed Transfer Pricing rules. This decision of course, is a good step in the right direction. It will provide a common basis for the review of taxpayers’ financial records during the audit of related party transactions.

 The Evolution Of Transfer Pricing

It is imperative to point out here that transfer pricing has a lot to do with the economic principles that apply to a fluid market place. However, new approaches and techniques to arrive at the appropriate transfer price from the perspective of one or more actors in the system are constantly being evolved. The Organization for Economic Cooperation and Development (OECD) guidelines which was published in 1995, represent a consensus among the OECD member countries most of which are developed nations. The guidelines have been adopted to a very large extent, in domestic transfer pricing regulations. Another transfer pricing framework of note which has evolved over time is the USA Transfer Pricing Regulations (26 USC 482). As a matter of fact, transfer pricing as it is today, is about the most important tax issue globally. The reason is because what we refer to as “multinational companies” in Nigeria include both large corporate groups and smaller companies that have one or more subsidiaries or permanent establishments in countries other than those where the parent company or head office is located. The parent companies of large multinationals usually have intermediaries all over the world. Hence decision making in such organization may be highly centralized or decentralized, depending on the organizational structure, with profit responsibility allocated to member companies in the group. Transfer pricing, as stated earlier, has become a high profile issue over the past few decades as a result of the following reasons among others:




Research design

The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to transfer pricing  and business profit taxation of multinational companies

Sources of data collection

Data were collected from two main sources namely:

(i)Primary source and

(ii)Secondary source

Primary source:

These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.

Secondary source:

These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.

Population of the study

Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information on transfer pricing and business profit taxation of multinational companies. 200 staff of NNPC, Lagos state  was selected randomly by the researcher as the population of the study.




Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey.  This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.





It is important to ascertain that the objective of this study was to ascertain transfer pricing and business profit taxation of multinational companies in Nigeria.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of transfer pricing and business profit taxation of multinational companies in Nigeria 


This study was on transfer pricing and business profit taxation of multinational companies in Nigeria.  Three objectives were raised which included; To determine transfer pricing and business profit taxation of multinational companies in Nigeria, to ascertain the relationship between transfer pricing and business profit taxation of multinational companies in Nigeria, to find the challenges of transfer pricing in multinational companies in Nigeria. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of NNPC, Lagos state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made administrative staff, human resource managers, senior staff and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies


The impact of transfer pricing arrangements and analysis on financial reporting cuts across multiple areas ranging from the preparation of separate company financial statements, acquisition accounting, business restructuring, to valuation allowances. However, the cause and effect relationship of transfer pricing to pre-tax and income tax accounting should be given serious attention when financial statements are being prepared. The implementation of transfer pricing poses some sort of difficulty to the government and taxpayers alike. This is partly due to the amount of resources involved which in most cases include skilled human resources and cost compliance. On the side of the government, the administration of transfer pricing requires a whole lot of resources, and most developing countries do not have such resources at their disposal to be able to effectively administer their transfer pricing regulations. The world has no doubt, become a global village with its implications for businesses in diverse geographical locations. In the increasing global business environment, many multinational companies do not consider national borders an impediment to conducting business hence, cross-border business activities are on the increase. But the challenge is that fiscal authorities are finding it difficult to track economic activities within their territories to harness the associated benefits to stimulate the growth of local economies.


Nevertheless, it is strongly recommended that appropriate transfer prices be established for intra-group and/or intra-firm transfer of goods, intangibles and services.


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