On 19 February 2020, the Tax Appeal Tribunal made a decision regarding a transfer pricing case, entitled “Prime Plastichem Nigeria Limited v Federal Inland Revenue Service (FIRS), in favour of the FIRS on all the issues raised for determination and consequently, dismissed the Comparable Uncontrolled Price (CUP) method used by the Company in its 2013 financial year. In this case, the Tribunal upheld additional assessments made by the FIRS on Prime Plastichem. The additional assessments arose from the Transfer Pricing adjustments made by the FIRS on a transaction between Prime Plastichem and its related parties.
The Tribunal primarily found that Prime Plastichem had failed to provide sufficient and reliable information for the application of the CUP method. In reaching its decision, the Tribunal, relied heavily on the arguments of the FIRS and held that the Transactional Net Margin Method (TNMM), using the Gross Profit Margin (GPM) as the Profit Level Indicator (PLI), was the appropriate method for the determination of the arm’s length price applicable to the related-party transaction in the relevant financial year.
