An Overview of the Reporting and Compliance requirements under the Income Tax (Country by Country Reporting) Regulations.

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dc.contributor.authorIsau Olatunji Ahmed
dc.date.accessioned2026-05-14T10:33:22Z
dc.date.available2026-05-14T10:33:22Z
dc.date.issued2020
dc.description.abstractThe technological advancements in transportation and communication led to the emergence of Multinational Corporation (MNC) groups. A MNC group consist of a ‘parent company’ and ‘subsidiary companies’ that are located in different countries thereby creating a ‘parent-subsidiary relationship’. The geographical boundaries between companies within the group means that it is possible for international transfer of goods and services to occur. The process of setting the price of such transaction is known as ‘transfer pricing’ while the price charged is known as ‘transfer price’. The MNCs sometimes exploit their ‘parent-subsidiary relationship’ to avoid tax which can impact negatively on revenue accruable to the government. This is commonly referred to as abuse of transfer pricing, transfer pricing manipulation, transfer mispricing, incorrect pricing, unjustified pricing or non-arm’s length pricing. Abuse of transfer pricing simply means the intentional over-invoicing or pricing or under-invoicing or pricing of the transfer prices of goods and services of an intra-company transaction for the purpose of reducing the global tax burden of a MNC group. In this regard, overpricing of outbound transfers can be used to shift profits or income out of a subsidiary located in a high-tax jurisdiction or country to a low tax jurisdiction/country while underpricing of inbound transfers can be used to minimise the tax payable in a high tax jurisdiction. Abuse of transfer pricing is now generally considered as a major threat to the tax base of many countries impacting negatively on their revenue generation. To regulate transfer pricing in order to prevent the possibility of its abuse by MNCs, the Organisation of Economic Cooperation and Development (OECD) through its Model Tax Convention of 1963 recommended the ‘arm’s length principle’ (ALP) as the international standard for assessing and regulating transfer pricing. The application of the ALP is predicated on treating the members of a MNC group (that is, the parent-company and its subsidiaries located in different countries) as separate, distinct or independent entities and using the price charged by independent entities in a similar comparable transaction to benchmark the transfer price to be charged. In its effort to provide guidance on the application of the ALP, the OECD released a Transfer Pricing Guidelines in 1979 which was later updated in 1995 known as the ‘OECD Transfer Pricing Guidelines (OECD TPG 1995)’. The 1995 OECD TPG was in 2010 with the introduction of another guideline known as the ‘OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations’ which was in response to the enormous changes and challenges posed by the new globalised economy. One of the criticism often levied against the OECD TPG 2010 is that it did not specify the documents to be included in a transfer pricing documentation package as taxpayers were only required to provide reasonable documents to show that their intra-company transactions were conducted at arm’s length. The absence of specific documents in this regard constitute a serious challenge to the application of the ALP because both the taxpayers and the tax authorities may not necessarily have ideas about the types of documents to be provided. To correct this anomaly, the OECD recommended the introduction of a three-tiered standardised transfer pricing documentation framework: (i) Master File; (ii) Local File; and (iii) a Country-by-Country Report. This recommendation was part of the 15-Action Plan developed by the OECD and the G20 to address the issue of Profit shifting under a general package known as Base Erosion and Profit Shifting (BEPS) Project. In Nigeria, prior to 2018, transfer pricing was regulated in the country through the Income Tax (Transfer Pricing) Regulations 2012 which was based on the 2010 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. This means that the Income Tax (Transfer Pricing) Regulations 2012 was not immune from the criticism levied against the 2010 OECD TPG in that it did not specify the documents to be included in a transfer pricing documentation package. For example, the Income Tax (Transfer Pricing) Regulation 2012 did not specify the list of documents to be included in the transfer pricing documentation package, it only requires the MNCs to provide sufficient information or data to verify that their controlled transactions are consistent with the ALP. This created a lot of uncertainties with regard to the minimum transfer pricing documentation requirements. The uncertainties in this regard resulted in conflict between the MNCs and the FIRS as to the documents to be provided. It also created ambiguities in transfer pricing documentation leading to an increment in compliance cost on the part of the taxpayer and also leading to conflict between the taxpayers and the FIRS. It was therefore in response to the OECD recommendation and to ensure certainty in transfer pricing documentation that the Nigerian government through the Federal Inland Revenue Service (FIRS) released the Income Tax (Country by Country Reporting) Regulations on 19th June 2018. This is seen as a significant attempt by the Nigerian government to ensure certainty in transfer pricing documentation requirements and to reduce compliance burdens on the MNCs in line with the OECD recommendation. This article examines Action 13 of the OECD/G20 BEPS Project and the reporting and compliance requirements under the Income Tax (Country by Country Reporting) Regulations 2018.
dc.identifier.citationIn Contemporary Issues in Nigerian Law, Security and Good Governance: Essays in Honours of Chief Wole Olanipekun SAN OFR Yahya Duro Uthman Hambali et al. (eds.) 134-163. I
dc.identifier.isbn978-978-978-587-2
dc.identifier.urihttps://kwasuspace.kwasu.edu.ng/handle/123456789/7148
dc.language.isoen
dc.publisherFaculty of Law, University of Ilorin, College of Law, Kwara State University, Faculty of Law, Al-Hikmah University and Nigerian Bar Association Ilorin Branch.
dc.titleAn Overview of the Reporting and Compliance requirements under the Income Tax (Country by Country Reporting) Regulations.
dc.typeBook chapter
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