The Government has observed almost six years of significant efforts to align its domestic tax laws and regulations with international initiatives on modernization of its tax principles and enhancement of transparency and disclosure requirements. These efforts included the introduction of Income Tax (Transfer Pricing) Regulations No.1 in August 2012, which adopted international best practices for determining the arm’s length/market value of transactions between related parties. Nigeria has also been participating in global initiatives aimed at tackling tax evasion and tax revenue leakages.
Nigeria’s transfer pricing regulations do not include specific requirements for CCAs, and the tax authorities (FIRS) have not released any administrative guidelines. Therefore, taxpayers engaging in CCAs should ensure that the terms of the arrangements do not conflict with domestic laws and regulations. Determining the arm’s length nature of “cost contribution arrangements” (CCAs) make the differences. Some potential areas in which a CCA may conflict with Nigerian law. These are cost deductibility incurred outside Nigeria, deductibility of R&D costs, restrictions on R&D costs, and mis-classification of CCAs.
