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Transfer Pricing in Nigeria: The ₦1.74 Billion Warning, and What the 2025 Tax Act Just Changed

Published November 2, 2026

Transfer Pricing in Nigeria: The ₦1.74 Billion Warning, and What the 2025 Tax Act Just Changed

Two Landmark Rulings Expose a Compliance Risk Most Nigerian Businesses Have Never Tested

By Joe Adinma, FCA, FCTI — Managing Partner, Joe Adinma & Co. (Chartered Accountants)

Last updated: 29 October 2026

A container comes into port, invoiced from a supplier abroad that happens to sit inside the same group. There is no competing bid, no haggling at the gate — the price is whatever the two related companies agree it should be. But that does not mean the price goes unchecked. It means somebody has to go and build the comparison after the fact: what would an unrelated buyer have paid for the same goods, on the same terms? In February 2020, a Nigerian distributor found out exactly how that comparison gets built, and how expensive it is to build it badly. The Tax Appeal Tribunal ordered the company to pay almost ₦1.74 billion in additional tax, because “we picked a pricing method and stuck with it” turned out not to be the same thing as proving the price was fair.

That case — Prime Plastichem Nigeria Limited v. Federal Inland Revenue Service (FIRS, the federal tax authority at the time, now reconstituted as the Nigeria Revenue Service, NRS) — was Nigeria's first transfer pricing judgment. It will not be the last. Five years later, a different company fought the same tax authority and won — not over a price, but over whether FIRS's own regulations had ever been validly made at all. Between those two rulings sits a set of rules most businesses only meet when an assessment lands, and the Nigeria Tax Act (NTA) 2025 has now written a version of the same test directly into primary law. This is what both cases actually decided, what the rules require right now, and where the new Act has tightened the position rather than loosened it.

What Transfer Pricing Actually Polices

Transfer pricing is not a tax. It is a test applied to a transaction between two parties who are not really negotiating against each other — a Nigerian subsidiary and its foreign parent, two sister companies under one holding structure, a branch and the head office it reports to. Whenever “connected persons” trade with each other — goods, loans, royalties, management fees, shared services — the law asks: would two unrelated businesses have agreed to this price, on these terms? That is the arm's length standard, and it applies to every controlled transaction a business has, regardless of size. Nigeria's current Income Tax (Transfer Pricing) Regulations, 2018 exist to make a business prove it, year after year.

What size changes is the paperwork, not the obligation — and even the paperwork duty has more than one clock running on it. Any company whose controlled transactions pass ₦300 million in a year must keep contemporaneous documentation ready, prepared within six months of the financial year-end. Below that line, a business may choose not to maintain the file at all — but the tax authority can still demand one by formal notice, and the law then allows 90 days to produce it from scratch. Once a documentation request actually lands, a separate and shorter clock starts: 21 days to submit what should already exist. On top of documentation, the regulations separately require a TP declaration when controlled transactions first arise, an updated declaration whenever the position changes materially, and an annual disclosure of the transactions themselves — three distinct filings, not one. Multinational groups with consolidated revenue above ₦160 billion face a further layer still: Country-by-Country Reporting (CbCR), built to let tax authorities compare profit, tax paid and headcount across every jurisdiction a group operates in — though, as a later section explains, the regulation behind that specific layer is now in serious legal doubt.

The penalties attach to specific failures, not vaguely to being unready. Miss the 21-day deadline to submit documentation once it has been formally requested, and the cost is the higher of ₦10 million or 1% of the total value of controlled transactions, plus ₦10,000 for every day the failure continues. Miss the 90-day deadline that applies below the ₦300 million threshold once documentation has been demanded by notice, and the cost is 1% of the value of the transactions concerned, plus the same ₦10,000 daily charge. A missing or late TP declaration costs ₦10 million plus ₦10,000 a day on its own; failing to update it when required costs ₦25,000 a day; incorrect or missing disclosure of a controlled transaction costs the higher of ₦10 million or 1% of the value involved. Simply never having built a documentation file, before anyone has asked for it, falls under a general offence provision rather than one of these fixed figures — which is cold comfort, since the moment a request does arrive, the clock is already running, and there is rarely enough time left to build a file from nothing.

The Case That Went Against the Taxpayer

Prime Plastichem buys industrial plastics and petrochemicals from a related overseas supplier and distributes them in Nigeria — the container-at-the-port scenario is not a metaphor here; it is the fact pattern. For the 2013 and 2014 tax years in question, the governing rules were the Transfer Pricing Regulations, 2012 (later replaced by the 2018 Regulations, though the core obligations carried forward largely unchanged). For 2013, the company priced its purchases using the Comparable Uncontrolled Price Method (CUP), benchmarking against what unrelated buyers paid for similar goods. For 2014, it switched to the Transactional Net Margin Method (TNMM), telling FIRS it could no longer find reliable comparable data for the first method — a switch that is not improper on its own; a genuine change in comparability, function or available data can justify one. What sinks a case like this is not the switch itself but what happens next: FIRS reviewed both years, rejected the comparables behind the CUP approach, insisted on TNMM for both years, and — this is the part transfer pricing specialists still argue about — chose Gross Profit Margin as the indicator, an odd fit for TNMM, a method built around net profitability, not gross margin. The additional assessment came to almost ₦1.74 billion.

The Tribunal sided with FIRS on every point that mattered. It held that the taxpayer, not the tax authority, carries the burden of proving a price meets the arm's length standard — and Prime Plastichem had not discharged that burden for either year. What the Tribunal actually condemned was not the switch between methods but the absence of reliable comparable data to support either one — exactly the kind of weakness the regulations were written to catch. The company's last argument — that the panel reviewing its objection had never been properly constituted — also failed: the Tribunal held that the 30-day window to escalate a transfer pricing assessment runs from the day the taxpayer receives it, not from any announcement that the review panel exists. Waiting for an invitation that never came was not a defence.

What the 5% Cap Actually Costs You

Royalty payments to a connected person — for the use of a trademark, a formula, a licence — are capped under Regulation 7(5) of the 2018 Regulations, and the cap is easy to misapply if you measure the wrong base. It is not 5% of ordinary EBITDA. It is 5% of earnings before interest, tax, depreciation, amortisation and the royalty itself — the earnings figure calculated as if the royalty had never been paid. The distinction matters in practice: take a Nigerian distributor whose EBITDA, after paying a ₦60 million royalty to a related overseas brand owner, comes to ₦500 million for the year. Add the royalty back and the base for the cap is ₦560 million, not ₦500 million. Five per cent of that is ₦28 million — the maximum deductible royalty — leaving ₦32 million of the ₦60 million non-deductible. The company still pays the full ₦60 million under its licence agreement; it simply pays ₦32 million of it out of profit that has already carried its full tax burden. This example assumes Regulation 7(5) governs the payment, and that every other deductibility condition — genuine commercial rationale, proper documentation, correct characterisation as a transfer of rights rather than an alienation of them — is otherwise satisfied; it illustrates the cap's mechanics, not a universal formula.

This is a close cousin of a rule we have already covered in these pages: the NTA 2025's separate 30%-of-EBITDA cap on interest paid to a connected person. That cap limits deductible interest on intercompany loans; this one limits deductible royalties on intercompany licences. Different number, different line item, same underlying worry — that a Nigerian subsidiary can be made to look less profitable than it really is simply by paying its own group for things the group itself created.

The Case That Went Against the Taxman

Five years on, a different company won — and not on a question of pricing at all. Checkpoint Software Technologies' Nigerian entity had been hit with administrative penalty notices for filing its 2019 and 2020 Country-by-Country notifications late. It objected on a more fundamental ground: FIRS's own governing Board — the body its enabling Act requires to approve subsidiary legislation — did not exist between 2012 and 2020. If there was no Board, the company argued, there was no one lawfully able to make the CbCR Regulations in the first place, and no valid regulation to be penalised under. A second defect compounded the first: the regulations rested on an OECD agreement, the CbC Multilateral Competent Authority Agreement, that Nigeria's National Assembly had never ratified as a treaty.

The Tax Appeal Tribunal agreed in 2023, and the Federal High Court in Lagos dismissed FIRS's appeal in May 2025, upholding both findings. This is not a loophole or a clerical slip. It is a constitutional question about who is legally entitled to make a rule that binds Nigerian taxpayers — and the answer the courts gave is that a regulator cannot create a binding obligation through a process that skipped its own legal foundations.

What that ruling settles is narrower than it might first appear. The operative relief binds only Checkpoint Software and FIRS; for every other taxpayer, the Federal High Court's reasoning is persuasive rather than automatically binding — the kind of precedent a tribunal would be expected to take seriously, without being strictly compelled to follow it. Professional commentary on the case goes further than a first read suggests: some analysts argue that, strictly speaking, no Country-by-Country reporting framework currently rests on sound legal footing in Nigeria, and that FIRS can, and most likely will, appeal the ruling rather than let it stand. Nothing about this is settled.

The decision does not touch the 2018 Transfer Pricing Regulations as a whole, and it does not disturb the arm's length standard Prime Plastichem was held to five years earlier. A business should not assume either extreme — that every Country-by-Country obligation has simply vanished, or that a ruling between two other parties has no bearing on its own position. Until an appeal is decided one way or the other, keeping the underlying documentation ready costs little and concedes nothing.

What the Nigeria Tax Act 2025 Adds to This

None of what follows reaches backward. The Nigeria Tax Act 2025 took effect on 1 January 2026; the Federal Ministry of Finance's transition guidelines are explicit that liabilities, assessments, audits and disputes relating to earlier periods — including transactions like Prime Plastichem's, from 2013 and 2014 — stay governed by whichever law applied at the time. What the Act changes is the law a business is working under from 2026 onward.

The new Act moves the arm's length test out of subsidiary regulations and into primary legislation. Section 191 treats a transaction between connected persons as artificial or fictitious where it was not priced the way independent parties would have priced it, giving the tax authority a direct statutory power to disregard or adjust it. Section 192 goes further and states the requirement outright: transactions between related parties must be conducted at arm's length. Together, these give the arm's length standard a footing in the Act itself, rather than resting on regulations alone — a wider, harder-to-challenge hook than FIRS had under the 2018 Regulations on their own, and one a taxpayer can still appeal.

Section 17(5)(e) adds a specific rule on top of that general test: a Nigerian permanent establishment of a non-resident company cannot deduct royalties, fees or similar payments for the use of patents or other rights paid to its own non-resident owner or that owner's connected persons, except as genuine reimbursement of actual expenses. That sits directly beside the existing 5% cap in Regulation 7(5) of the 2018 Regulations. The two survive side by side: Section 198's revocation list is narrow, specific, and touches no transfer pricing instrument, while Section 192 itself names “the Transfer Pricing Regulations” as the mechanism for making arm's length adjustments — real textual grounds for treating the 2018 Regulations as continuing, even if the complete picture is ultimately a question for a full legal opinion rather than a single clause.

For a Nigerian permanent establishment specifically, Section 17(5)(e) reads as the stricter, controlling rule — a straight disallowance rather than a 5% allowance. For an ordinary Nigerian subsidiary that is separately incorporated, rather than operating as a branch, the Regulation 7(5) cap continues to apply as it always has. Where a business sits between those two categories, or is unsure which one it is, that is worth confirming directly rather than assuming.

Tax “connected persons” is also not the same test as “related party” under IAS 24. The two overlap heavily in practice, but a business's financial statement disclosures and its transfer pricing position are answering different questions, built on different definitions — one should not be assumed to settle the other.

Who This Actually Reaches

Nothing here requires a multinational logo. “Connected persons” catches a Lagos holding company and its Port Harcourt subsidiary just as readily as a Nigerian branch and its parent in another country. It catches the management fee one group company charges another, the interest on an intercompany loan, the royalty for using a shared brand name, the markup on goods moved between related entities before they reach a customer. An oil-service company in Port Harcourt billing its sister company for shared equipment, a family-owned manufacturing group splitting production and distribution across two related entities, a Nigerian subsidiary importing from a parent company's regional hub — none of these need a foreign head office to fall inside the regime. Any business trading with a related party above the ₦300 million threshold is inside it, logo or no logo.

Where the facts are genuinely difficult to defend after the event, a business can also apply to agree its pricing method with the tax authority in advance, through an Advance Pricing Agreement, rather than defend it years later in front of a tribunal. FIRS's APA Guidelines, issued in December 2024, set the entry bar deliberately high: at least US$10 million a year for a single covered transaction, or US$50 million for a group of them, a non-refundable US$20,000 application deposit, and a maximum three-year term with a possible three-year rollback. That puts the route out of reach for most domestic businesses below that scale — it is built for the handful of transactions large enough, and contested enough, to be worth agreeing in advance.

Before Your Books Close for the Year

Transfer pricing is not only a question for whenever a query letter arrives. Year-end is when the actual numbers can drift from the arm's length range a business set out to hit: currency movement, an unusual quarter, a cost that spiked mid-year. A true-up adjustment made before the accounts close, with the economic reasoning documented alongside it, is a routine correction. The same adjustment proposed after the auditors have signed off, with no paper trail behind it, reads to a reviewing officer as something else entirely — and a downward adjustment with no counterpart, no filed justification, invites exactly the scrutiny it was meant to avoid. If your financial year ends in December, treat the weeks before your books close — not the scramble in January afterward — as the window to check this.

The Financial Statements May Reveal What the Tax Return Does Not

A transfer pricing file can be technically complete and still not survive contact with the rest of a company's own paperwork. The documentation describes one pricing method; the general ledger shows an intercompany balance that was adjusted part-way through the year, with no note explaining why; the audited financial statements carry IAS 24 related-party disclosures that tell a slightly different story from the one the tax computation tells. None of that is visible from inside the tax file alone. It only surfaces when someone reads the documentation, the ledger, the computation and the disclosures side by side — the way an audit is built to do, rather than the way a tax return usually gets prepared. That is a narrower, more specific kind of scrutiny than most businesses run on themselves, and it is exactly the kind a combined audit-and-tax review exists to catch before a reviewing officer does.

What Directors and Finance Teams Should Check Before Signing the Accounts

  • Do we trade — goods, services, loans, royalties, management fees — with any company under common ownership or control, in Nigeria or abroad, and have we identified all of it, including transactions below ₦300 million?

  • Does the combined value of those transactions pass ₦300 million in a year, triggering the contemporaneous documentation duty — and if not, do we know the 90-day clock that starts if the tax authority asks anyway?

  • Does our transfer pricing documentation exist today, prepared within six months of our last financial year-end — or only as a promise to build it if asked?

  • Have we filed our TP declaration, kept it updated, and made our annual disclosure — treating these as three separate obligations, not one?

  • Have we used the same pricing method consistently year to year, and can we show the commercial reason, if we ever switched?

  • Do we pay royalties or similar payments to a related party, and have we tested the deduction against the correct base — 5% of earnings before the royalty itself, under Regulation 7(5), or the stricter Section 17(5)(e) disallowance if we are a Nigerian permanent establishment?

  • Can we show the commercial benefit, contractual basis and arm's length pricing behind every management fee, service charge, loan and royalty running between related companies — not just that an agreement exists?

  • Does our transfer pricing position reconcile with our audited financial statements, tax computations and IAS 24 related-party disclosures, or could a reviewer spot a mismatch between them?

  • Do we know the date our last transfer pricing filing or declaration was due — and can we prove, on paper, that we met it?

How We Sourced This

This article draws on the Nigeria Tax Act 2025 (sections 17(5)(e), 191, 192 and 198), the Income Tax (Transfer Pricing) Regulations 2018 and 2012, FIRS's December 2024 Advance Pricing Agreement Guidelines, the OECD's October 2025 Nigeria country profile, the Federal Ministry of Finance's June 2026 transition guidelines, and the reported judgments in Prime Plastichem v. FIRS (Tax Appeal Tribunal, 19 February 2020) and Checkpoint Software v. FIRS (Tax Appeal Tribunal, August 2023; Federal High Court, 5 May 2025). Every figure and statutory reference is checked against at least two independent sources, and against the Act's own text directly where that text could be reached; where sources disagreed, the primary legal text controls.

The Price Nobody Outside the Group Can Check

That container still comes into port, still invoiced at a price only the two related companies agreed to. The law has not changed what it is asking — whether a stranger would have paid the same — only how directly it now asks it, and how expensive it has become to answer wrong. One company found that out in 2020, at a cost of almost ₦1.74 billion. Another found, in 2025, that the regulator itself is not exempt from having to follow its own rules correctly. The next ruling on this will come from somebody's transaction, not a hypothetical one.

Transfer pricing applies to every related-party transaction, whatever its size — Joe Adinma & Co. can review your position before a query letter arrives, not after one.

Sources

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