There are currently no provisions for group taxation, group relief, or group filing of tax returns in Nigeria. Each legal entity within a group is treated as distinct and separate for CIT purposes.
The transfer pricing regulations are applied in a manner consistent with the arm’s-length principle in Article 9 of the United Nations (UN) and OECD Model Tax Conventions on Income and Capital and the OECD Transfer Pricing Guidelines for Multi-national Enterprises and Tax Administrations. However, where there are inconsistencies between the model conventions and the local legislation, the provisions of the relevant local tax laws shall prevail.
The rules cover all transactions between ‘connected taxable persons’, which is broadly defined to include individuals, PEs created by head offices, subsidiaries, associates, partnerships, joint ventures, and trusts to the extent that they participate directly or indirectly in the management, control, or capital of another, or both of which have common control, management, or shareholders. Specifically, the rules apply to sale and purchase of goods; lease or sale of tangible assets; licensing, transfer, or use of intangible assets; provision of services; lending or borrowing of money; manufacturing arrangements; and any transaction that may affect profit and loss or any other incidental matter.
The rules are applicable to both domestic and cross-border related-party transactions.
Nigeria has no thin capitalisation rules. However, interest charged between related parties is expected to reflect arm’s-length transactions. The tax authority may disallow any related-party interest considered to be excessive.
Note that the tax authorities are currently considering introducing a formal thin capitalisation rule with a likely 3:1 debt-to-equity ratio.
Controlled foreign companies (CFCs)
There are no specific CFC rules in Nigeria.