FIRS ALERT TAX PAYERS
Federal Inland Revenue Service (FIRS) Issues Guidelines on Advance Pricing Agreements (APAs)
The Federal Inland Revenue Service (FIRS) has released the much-anticipated Guidelines on Advance Pricing Agreements (APA), effective from 1 January 2025. These Guidelines operationalise the APA provisions in the Income Tax (Transfer Pricing) Regulations, 2018, setting out the framework for taxpayers to proactively manage their transfer pricing (TP) risks in Nigeria.
Below, we summarize the key points of the Guidelines:
An Advance Pricing Agreement (APA) is a voluntary arrangement between a taxpayer and a tax authority, specifying the TP(Transfer Pricing) methodology to be applied to intercompany transactions over a defined period. This ensures pricing certainty, reduces tax disputes, and facilitates smooth tax compliance.
Under the Nigerian framework:
· APAs may be unilateral (between a taxpayer and FIRS) or bilateral/multilateral (involving multiple tax authorities).
· They are particularly beneficial for taxpayers with significant intercompany transactions, as they offer clarity on TP treatment before transactions occur.
Eligibility and Thresholds
To qualify for an APA in Nigeria, companies must have a taxable presence and meet the following transaction thresholds:
· $10 million or its naira equivalent for a single transaction.
· $50 million or its naira equivalent for multiple intercompany transactions.
Application Process and Timelines
The APA process comprises five stages:
1. Pre-filing meeting
2. Formal application
3. Analysis and evaluation
4. Negotiation and agreement
5. Drafting, execution, and monitoring
The FIRS aims to complete:
· Unilateral APAs within 24 months.
· Bilateral/multilateral APAs within 36 months.
Duration, Renewal, and Rollback
An APA is valid for three years, with a possible renewal for another three years upon mutual agreement. The terms of an APA may be applied to prior years (rollback) for a maximum of three years, provided no court or tribunal ruling exists on the transactions in question.
Compliance and Reporting
Taxpayers must submit an annual compliance report to demonstrate adherence to APA terms. This report is due on the same date as the company’s income tax returns.
Costs and Administrative Fees
· A non-refundable deposit of $20,000 is required for APA applications, payable after acceptance into the APA program.
· Renewals require a deposit of $5,000.
· Taxpayers are responsible for all additional costs incurred by FIRS during the APA process.
Impact on TP Audits
While APAs provide certainty, they do not prevent FIRS from auditing other transactions outside the APA’s scope. However, agreed APA terms may be used to resolve prior TP audit disputes as a form of voluntary disclosure, without penalties, though interest will apply.
Our Perspective
The introduction of APAs in Nigeria is a step in the right direction, offering eligible taxpayers much-needed certainty and an opportunity to avoid costly disputes. Key highlights like rollback provisions and alignment with global best practices enhance the value of the regime.
However, concerns around the high application thresholds, significant costs, and short APA duration may deter some taxpayers. These are areas FIRS should consider addressing in subsequent revisions to the Guidelines.
For further insights, reach out to us or consult your tax advisor to determine how these changes may impact your operations.