The Problem
A prominent Nigerian multinational in the manufacturing sector, operating subsidiaries across the globe, faced significant challenges with its transfer pricing practices. As the group expanded its cross-border operations, tax authorities in Nigeria and other jurisdictions scrutinised its intercompany pricing for goods, services, and intellectual property transfers.
The client faced allegations of non-adherence to the arm’s length principle, a cornerstone of global transfer pricing regulations. These allegations led to disputes with the Federal Inland Revenue Service (FIRS), claims of profit shifting, underreporting of revenue, and potential tax evasion. This not only jeopardised the client’s compliance standing but also exposed it to substantial financial risks, including penalties, double taxation, and erosion of investor confidence.
Additionally, the client’s existing transfer pricing practices were misaligned with its broader financial strategy, hindering optimal profitability across subsidiaries. The lack of a consistent pricing framework also complicated financial reporting, audit compliance, and intercompany transaction monitoring.
The Solution
Our team of transfer pricing specialists developed a strategic approach to resolve the issues, ensuring full compliance with regulatory requirements while aligning transfer pricing practices with the client’s broader financial goals.
We conducted a detailed diagnostic, including a functional and risk analysis of intercompany transactions, to identify discrepancies between the client’s pricing structures and transfer pricing standards, such as the Nigerian Transfer Pricing Regulations (2018) and OECD guidelines. Using economic comparability analysis, we benchmarked transactions against industry standards to establish arm’s length pricing for goods, services, and royalties.
To address these issues, we developed a comprehensive transfer pricing policy tailored to the client’s unique operational and financial structure. This policy standardised pricing mechanisms across the group, ensuring consistency and transparency in intercompany dealings. Robust documentation, including local and master files, was prepared to capture the economic rationale behind each transaction, minimising the risk of future disputes.
Our team also facilitated negotiations with the FIRS to secure Advance Pricing Agreements (APAs), providing clarity and certainty over critical intercompany transactions and significantly reducing audit risks.
The Result
The implementation of the new transfer pricing policy and APAs resolved all ongoing disputes with tax authorities, enabling the client to achieve full compliance with local regulations. The streamlined policy aligned transfer pricing practices with the client’s financial strategy, optimising the allocation of profits among subsidiaries and improving group-level profitability.
The enhanced transparency fostered stronger relationships with regulators and boosted the client’s compliance reputation. The resolution of disputes and reduction in tax-related risks reassured stakeholders, significantly improving investor confidence.
By minimising tax risks and aligning transfer pricing practices with financial goals, the client achieved greater global competitiveness and positioned itself for long-term growth and sustainability.