TP Ticker – July 2018 (2)
New Nigerian TP Regulations
On 19 March 2018, Nigeria’s Federal Income Revenue Service (“FIRS”) published new ‘Income Tax (Transfer Pricing) Regulations 2018’. These guidelines reflect updates of the OECD and UN guidelines and replace the previous TP regulations from 2012. An example of this is the new concept of ‘capital-rich, low-function companies’. These are defined as companies with relatively high amounts of equity or equity-equivalents but limited capacity to exercise risk-controlling function. In line with the respective OECD guidance, the Nigerian regulations stipulate that such companies ‘for tax purposes, shall not be allocated the profits associated with those risks’ but rather the ‘profits or losses associated with the financial risks would be allocated to the entity (or entities) that manage those risks and have the capacity to bear them’. Another new provision is a limitation of deductions relating to intangibles. Specifically, the new regulations stipulate that such deductions shall not exceed 5 percent of EBITDA (earnings before interest, tax, depreciation, and amortization), except where this transaction is the alienation of the intangible. While the regulations reflect the OECD and UN guidelines and explicitly state that they are to be interpreted consistent with these international standards, they also reiterate that in cases of inconsistency, the domestic law takes precedence.
In our view, the updated regulations reflect the current trend in translating the recent developments in the international TP guidelines into domestic legislations. Such updates are always a sign that the local administrations reflect on the implications of transfer pricing and endeavor to increase their capacity to engage in economic discussions. Formulaic stipulations as the 5-percent threshold for intangible-related deductions on the other hand, are a sign that the tax authorities still consider their capacities too limited to engage in deeper examinations. In cases like this a fact-based analysis may lead to results that are not covered by the legal requirement, which can lead to double taxation issues. Multinational enterprises are well advised to examine such situations and appropriate mitigation measures in advance.
The revised Nigerian TP regulations can be found on the website of the FIRS here: https://www.firs.gov.ng/wp-content/uploads/2021/06/Official-Gazette-of-TP-Regulations-2018.pdf
New Zealand:
On 27 June 2018, New Zealand’s “Taxation (Neutralising Base Erosion and Profit Shifting) Bill” has received royal assent after its third reading in the parliament and was enacted as law. This law includes a number of regulations directly and indirectly relevant for the transfer pricing of multinationals operating in New Zealand. An example are complex rules for setting the credit rating in cross-border borrowings from overseas related parties. While providing a degree of certainty, these may collide with guidelines on the transfer pricing for financial transactions currently under preparation by the OECD. Furthermore, the bill contains deadlines for the provision of transfer pricing documentation and foresees penalties for taxpayers who fail in providing these.
The enacted version of the bill can be found on the website of the Parliamentary Counsel Office here: http://www.legislation.govt.nz/bill/government/2017/0003/latest/DLM7505806.html