Nigeria has activated its Advance Pricing Agreement (APA) regime. The Federal Inland Revenue Service (the Service) released detailed APA Guidelines on 27 November 2024, and they took effect on 1 January 2025.
For years, taxpayers subject to transfer pricing rules have faced uncertainty over their controlled transactions. The questions have included which transfer prices apply, which method to use and what adjustments may follow.
The Advance Pricing Agreement guidelines aim to reduce that uncertainty and improve compliance. They let taxpayers and the tax authority agree in advance on the transfer pricing method and other terms for specific transactions. The key question is whether the Guidelines are robust enough to deliver that clarity and benefit both sides.
What an Advance Pricing Agreement is
Multinational groups conduct a large share of cross-border trade between their own entities. Reportedly, intra-group transactions make up about a third of cross-border transactions each year. Transfer pricing rules therefore require those transactions to be priced at arm’s length.
Setting the right price is rarely simple. Management and the tax authority may reasonably disagree on method, comparables and adjustments. An APA settles those points in advance. As a result, it gives certainty and reduces the risk of later challenge.
Types of APA
- Unilateral: between the Service and the taxpayer alone. However, a foreign tax authority is not bound, so double taxation remains possible.
- Bilateral: involves the Nigerian taxpayer, its connected person abroad, the Service and that country’s competent authority.
- Multilateral: the same, but with connected persons in two or more foreign countries.
For bilateral and multilateral APAs, the 2023 Mutual Agreement Procedure Guidelines also apply.
Who can apply under the Advance Pricing Agreement guidelines
An APA can cover transactions between connected persons, between a permanent establishment and its head office, or between two taxable presences of the same person. It can also cover an agreed group of transactions.
Eligibility has two limbs. First, the applicant must be a Nigerian resident company, or a non-resident with a permanent establishment, significant economic presence or other taxable presence in Nigeria. Second, the transactions must meet a threshold: the equivalent of USD 10 million a year for a single transaction, or USD 50 million a year for a group.
Applications go to the Executive Chairman of the Service. The taxpayer pays a non-refundable deposit of USD 20,000 and also bears the Service’s direct costs, such as experts and site visits.
How an APA operates
An APA rests on critical assumptions about future transactions. Consequently, both sides must monitor and review it every year. While the taxpayer complies with its terms and the assumptions hold, the APA binds the Service, which cannot make transfer pricing adjustments to the covered transactions.
Our article reviews the Guidelines in full, addresses key concerns and compares similar regimes elsewhere. Our case alert on country-by-country reporting and our analysis of taxing non-resident companies cover related cross-border tax issues.
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