Profit Shifting and Transfer Mispricing in Nigeria: A Comprehensive Legal Analysis of Multinational Tax Avoidance

Introduction

Profit shifting and transfer mispricing represent one of the most sophisticated and damaging forms of tax avoidance employed by multinational enterprises (MNEs) operating in Nigeria. These practices involve the deliberate manipulation of cross-border transactions between related entities to artificially shift profits out of Nigeria into low‑tax or no‑tax jurisdictions, thereby depriving the Nigerian government of substantial tax revenues.

The magnitude of the problem is staggering. The Nigerian government estimates that the country loses approximately $15 billion annually to profit shifting and aggressive tax avoidance practices by multinational corporations. Some estimates place the figure as high as $18 billion annually.

In the oil and gas sector alone, tax avoidance is estimated at about ₦3 trillion per year. More broadly, Nigeria loses an estimated $88.6 billion annually to illicit financial flows (IFFs), primarily through manipulative commercial transactions disguised as legitimate trade.

These losses do not merely represent financial wrongdoing but constitute a structural drain on the nation’s economy, undermining job creation, public services, and economic sovereignty. As the Minister of Finance and Coordinating Minister for the Economy, Mr. Wale Edun, declared, profit shifting and adverse tax transactions have resulted in “fewer hospitals, schools, roads, and bridges, and police officers on the streets as well as undermined jobs creation and poverty eradication”.

This article provides a comprehensive legal analysis of profit shifting and transfer mispricing under Nigerian law, examining the techniques employed by multinationals, the legal framework designed to combat these practices, judicial pronouncements, the economic impact, and the enforcement mechanisms available to Nigerian tax authorities.

1. Conceptual Framework: Profit Shifting and Transfer Mispricing

1.1 Definition of Profit Shifting

Profit shifting is defined as “when multinational companies reduce their tax burden by moving the location of their profits from high-tax countries to low-tax jurisdictions and tax havens”. This is typically achieved by structuring intra‑group transactions in ways that allocate profits to entities located in jurisdictions with favourable tax regimes, while allocating expenses or losses to entities in higher‑tax jurisdictions such as Nigeria.

1.2 Definition of Transfer Mispricing

Transfer pricing refers to the prices at which related parties, such as a parent company and its foreign subsidiary, transact with each other for goods, services, intangibles, or financing. Transfer mispricing occurs when these prices deviate from the arm’s length principle, that is, the price that would have been charged between independent parties in an open market. Transfer mispricing is the primary mechanism through which profit shifting is accomplished.

The Federal Inland Revenue Service (now replaced by the Nigeria Revenue Service) uses TP audits “to confirm that companies do not shift profits by avoiding tax obligations in Nigeria”. When mispricing is detected, a “TP adjustment” can be made, which “can significantly alter a company’s financial position, affecting cash flow, profitability, and overall business performance”.

1.3 Illicit Financial Flows (IFFs) and Profit Shifting

The Executive Chairman of the Federal Inland Revenue Service (FIRS), Dr. Zacch Adedeji, has described illicit financial flows as “one of the most critical challenges threatening Nigeria’s fiscal stability”. Illicit financial flows are “the ‘in-between pipes of our national wealth'”, which “undermine revenue generation, erode tax bases, promote corruption, and reduce the resources available for critical investments in health, education, infrastructure, and social protection”.

The FIRS Chairman further identified three core sources of IFFs: criminal activity, corruption, and, most significantly, commercial transactions involving multinational corporations that shift profits offshore, thereby avoiding taxes in Nigeria. As Mr. Edun aptly put it, IFFs are “a hydra-headed monster” that “takes various forms, from terrorist financing to corporate tax evasions”.

2. Common Profit Shifting Techniques Used by Multinationals in Nigeria

Multinational enterprises employ a range of sophisticated techniques to shift profits out of Nigeria. These techniques exploit gaps in domestic tax laws, weak enforcement mechanisms, and inconsistencies in international tax frameworks.

2.1 Trade Mispricing

The most prevalent method of profit shifting is the manipulation of prices in cross‑border transactions involving tangible goods. Multinationals may over-invoice imports, paying artificially high prices for goods purchased from related foreign suppliers, which reduces taxable profits in Nigeria by inflating the cost of goods sold. Conversely, they may under-invoice exports, selling Nigerian‑produced goods to related foreign buyers at artificially low prices, which similarly reduces Nigerian taxable profits by understating sales revenue.

In both scenarios, profits are effectively shifted to the related entity located in a low‑tax jurisdiction. According to estimates, Nigeria loses an estimated $88.6 billion annually to IFFs “primarily through manipulative commercial transactions masked as legitimate trade”.

2.2 Service and Royalty Payments

Multinationals frequently channel profits out of Nigeria through inflated payments for management fees, technical services, royalties, or other intangible property. A Nigerian subsidiary may pay excessive royalties to a foreign parent company for the use of intellectual property, trademarks, or technology. These payments are deductible for tax purposes in Nigeria, thereby reducing the subsidiary’s taxable profits, while the income is often taxed at very low rates in the recipient jurisdiction.

Under Regulation 7(5) of the Income Tax (Transfer Pricing) Regulations 2018, such royalty deductions are restricted to 5% of earnings before interest, tax, depreciation, amortisation, and the consideration (EBITDAC) derived from the commercial activity in which the rights are exploited. However, this restriction does not eliminate the practice entirely.

2.3 Intercompany Loans and Interest Deductions

Another common profit shifting technique involves the use of intercompany loans. A Nigerian subsidiary may borrow funds from its foreign parent company at artificially high interest rates, generating substantial interest deductions in Nigeria while shifting profits to the foreign lender. Alternatively, the loan may be structured at artificially low interest rates, which also distorts the allocation of profits.

Tax authorities scrutinise intercompany loans carefully. As one commentator has noted, if interest charged on an intercompany loan is too high, the Nigerian subsidiary’s profits may be understated; if it is too low, the lender’s profits may be understated. Either way, the tax base in Nigeria can be eroded.

The Finance Act 2019 introduced thin capitalisation‑related rules restricting interest deductibility to 30% of earnings before interest, tax, depreciation, and EBITDA. However, as the search results indicate, “Nigeria does not have thin capitalisation rules” in the strict sense; rather, interest deductibility rules were introduced to prevent excessive interest deductions on loans from related parties.

2.4 Profit Allocation to Low‑Tax Jurisdictions via Controlled Foreign Companies

Multinationals often establish Controlled Foreign Companies (CFCs) in low‑tax jurisdictions to hold intellectual property, provide financing, or perform other functions. Profits are then allocated to these CFCs, where they are taxed at very low rates, rather than being repatriated to Nigeria where they would be subject to higher taxation.

To combat this, the Finance Act 2022 introduced Controlled Foreign Company (CFC) rules targeting “income diversion to low‑tax jurisdictions”. Under these rules, “income of a foreign company controlled by Nigerian residents may be attributed to Nigerian shareholders and subject to taxation in Nigeria”. The Nigeria Tax Act 2025 has further strengthened these provisions, with the primary goal of ensuring “profits earned in low‑tax jurisdictions are properly taxed and to prevent tax avoidance by undistributed profits linked to Nigerian corporations or shareholders”.

The CFC rules are designed “to prevent Nigerian companies from avoiding tax by keeping profits in foreign subsidiaries instead of bringing the money back into Nigeria”.

2.5 Treaty Shopping

Treaty shopping involves routing investments through a third country that has a favourable double taxation agreement (DTA) with Nigeria, in order to access treaty benefits, such as reduced withholding tax rates,that would not otherwise be available. For example, a company resident in a non‑treaty jurisdiction may incorporate a subsidiary in the Netherlands (which has a DTA with Nigeria) and channel its Nigerian income through that subsidiary to benefit from lower withholding tax rates.

Nigeria has signed DTAs with fourteen countries, with eight more pending ratification. The country also signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) in 2017, which introduces a Principal Purpose Test (PPT) “to assess the commercial substance of the arrangement” and counteract treaty abuse. According to one source, with the introduction of the MLI and the PPT, “Nigerian tax authorities will have more effective regulatory tools to deal with treaty abuse and other tax avoidance behaviors in cross‑border transactions”.

2.6 Digital Economy Profit Shifting

With the rise of the digital economy, multinational technology companies can generate substantial revenue from Nigerian users without having a physical presence in the country. Traditional tax rules, based on the concept of a permanent establishment, often fail to capture this revenue.

To address this, Nigeria introduced the Significant Economic Presence (SEP) rule in 2020, which taxes MNEs that earn ₦25 million or more annually from remotely providing digital services to Nigerian customers, as well as MNEs that remotely provide technical, professional, management, and consulting services. In January 2022, Nigeria introduced a 7.5% value‑added tax (VAT) on digital services supplied by non‑resident firms with at least $25,000 in annual turnover.

The Tax Reform Acts 2025 mark a “transformative milestone in Nigeria’s approach to taxing the digital economy and cross‑border transactions”, expanding the tax net to include digital businesses, virtual asset activities, and non‑resident service providers.

3. The Legal Framework for Combating Profit Shifting and Transfer Mispricing in Nigeria

Nigeria has developed an increasingly robust legal framework to combat profit shifting and transfer mispricing, evolving from a largely unregulated environment to one with comprehensive statutory provisions, regulations, and anti‑avoidance rules.

3.1 The Income Tax (Transfer Pricing) Regulations 2018

The cornerstone of Nigeria’s transfer pricing regime is the Income Tax (Transfer Pricing) Regulations 2018, which replaced the earlier 2012 regulations. The 2018 Regulations were issued “to align with the related changes introduced to the 2017 OECD guidelines and the UN TP Manual” and “provide the legal framework for the application of the arm’s length principle to transactions between related persons”.

Key features of the 2018 Regulations include:

• The Arm’s Length Principle: All controlled transactions must be priced as if they were conducted between independent parties. Section 5 of the TP Regulations explicitly provides that “in determining whether a transaction is compliant with the arm’s length principle, such a transaction must be guided by the available TP methods”.
• Acceptable TP Methods: The Regulations recognise the following methods:
  • Comparable Uncontrolled Price (CUP) method
  • Resale Price method
  • Cost Plus method
  • Transactional Net Margin method (TNMM)
  • Transactional Profit Split method
  • Any other method prescribed by the Service
• TP Documentation Requirements: Taxpayers with controlled transactions must prepare contemporaneous documentation substantiating the arm’s length nature of their transactions, in a format consistent with the OECD guidelines. This includes a Master file, Local file, and Country‑by‑Country (CbC) Report for qualifying MNEs.
• Exemption Threshold: Taxpayers with total intercompany transactions below ₦300 million may opt not to maintain contemporaneous TP documentation, though the FIRS/NRS may demand documentation upon notice.
• Filing Obligations: A TP Declaration and TP Disclosure must be submitted alongside corporate tax returns, not later than 18 months after incorporation or within six months after the end of the accounting year, whichever is earlier.
• CbC Reporting: Nigeria signed the Multilateral Competent Authority Agreement on Country‑by‑Country Reporting (CbC MCAA) in January 2016 and has produced the Income Tax (Country‑by‑Country Reporting) Regulations 2018 for the implementation of CbC reporting.
• Advanced Pricing Agreements (APAs): The 2018 Regulations make provision for parties to enter into APAs with tax authorities to establish criteria for determining arm’s length pricing for future transactions. This allows connected parties and tax authorities to agree on the appropriate TP method in advance, thereby avoiding disputes. To give full effect to these provisions, the FIRS issued the Guidelines for Advanced Pricing Agreements (APAs) effective from 1st January 2025.
• Penalties for Non‑compliance: Failure to submit TP documentation within 21 days of a request attracts an administrative penalty of either ₦10 million or 1% of the value of the controlled transaction not disclosed, whichever is higher, plus ₦10,000 for each day the failure continues.

3.2 General Anti‑Avoidance Rule (GAAR): Finance Act 2022

The Finance Act 2022 introduced a comprehensive General Anti‑Avoidance Rule (GAAR) “to counteract arrangements or transactions that have the main purpose of obtaining a tax advantage. GAAR empowers tax authorities to disregard or recharacterise such transactions for tax purposes”. Under GAAR, “Businesses should ensure that their transactions have valid commercial purposes beyond obtaining tax advantages to avoid potential GAAR implications”.

This provision is a significant tool for challenging artificial or sham arrangements that lack economic substance, even if they comply with the literal wording of tax laws.

3.3 Controlled Foreign Company (CFC) Rules: Finance Act 2022 and Nigeria Tax Act 2025

CFC rules target income diversion to low‑tax jurisdictions. Under the Finance Act 2022, “income of a foreign company controlled by Nigerian residents may be attributed to Nigerian shareholders and subject to taxation in Nigeria”. The Nigeria Tax Act 2025 has strengthened these rules, introducing provisions for top‑up tax and minimum effective tax rate rules. The primary goal of these rules is to ensure “profits earned in low‑tax jurisdictions are properly taxed and to prevent tax avoidance by undistributed profits linked to Nigerian corporations or shareholders”.

3.4 Interest Deductibility and Thin Capitalisation Rules

While Nigeria does not have strict thin capitalisation rules, the Finance Act 2019 introduced interest deductibility rules restricting interest deductions to 30% of EBITDA. The Finance Act 2022 further introduced “thin capitalization rules to prevent excessive interest deductions by limiting the amount of interest expenses that can be claimed on loans from related parties”. As a result, “Multinational companies need to carefully manage their debt-to-equity ratios to comply with these rules and avoid disallowance of interest deductions”.

3.5 The Nigeria Tax Act 2025 (NTA)

The Nigeria Tax Act (NTA), signed into law on 26 June 2025 and effective from 1 January 2026, has “overhauled the Nigerian tax system, repealing previous tax acts”. The reform aims “to modernise the tax administration, expand the tax base, and improve compliance”.

Key provisions relevant to profit shifting and transfer mispricing include:

• Expansion of the definition of ‘Nigerian Company’: The definition now includes “companies whose central/effective place of management or control is Nigeria”, which may render foreign entities that meet this criterion tax resident in Nigeria, making their global income taxable in Nigeria.
• Enlarged scope of taxable income of Non‑Resident Companies (NRCs): Payments to NRCs by Nigerian resident companies for services rendered offshore are now taxable, with limited exceptions.
• Deemed profit rules: Where actual profits from a Nigerian permanent establishment or SEP cannot be reliably determined, a deemed profit must apply, which “must not be less than 4% of the income generated from Nigeria”.
• Deemed distribution of profits of foreign controlled entities: The Act provides for the deemed distribution of profits of foreign controlled entities of Nigerian companies, “to the extent that it would not adversely impact the controlled entities”.

3.6 The Nigeria Revenue Service (NRS) and Enhanced Enforcement

The Nigeria Revenue Service (NRS) now replaces the FIRS as the central tax authority. The NRS Act provides that the NRS “must review the tax regimes and study revenue foregone from waivers”, and is “obligated to determine government losses from tax waivers and evasion”. This suggests that “future policy adjustments may be driven by NRS analyses of existing incentives”.

3.7 Nigeria’s Refusal to Endorse the OECD 2‑Pillar Solution

Notably, Nigeria has refused to endorse the OECD’s 2‑Pillar Solution for taxing digital companies, along with Kenya, Pakistan, and Sri Lanka. The FIRS explained that “Nigeria’s reluctance to endorse the Agreement is in the best interest of the country; and seeks to prevent revenue leakage from the country”. The FIRS expressed concerns that the threshold requirements (€20 billion global annual turnover and 10% profitability) would exclude most MNEs operating in Nigeria, and that the dispute resolution mechanism through international arbitration panels may not be favourable to Nigerian companies.

4. Case Law: Judicial Pronouncements on Transfer Pricing and Profit Shifting

4.1 Prime Plastichem Nigeria Limited v. FIRS (TAT/LZ/CIT/015/2017): Nigeria’s Maiden Transfer Pricing Judgment

The most significant transfer pricing case in Nigerian jurisprudence is Prime Plastichem Nigeria Limited v. FIRS, decided by the Tax Appeal Tribunal on 19 February 2020. This case has been described as “the maiden Transfer Pricing Judgment in Nigeria” which “finally arrived with a big bang”.

Facts:

Prime Plastichem Nigeria Limited (PPNL) was engaged in the business of importing plastics and petroleum products from a foreign related party, Vinmar Overseas Limited (VOL), for sale to third parties in the Nigerian market. For the 2013 financial year, PPNL applied the Internal Comparable Uncontrolled Price (CUP) method, using internal data showing that VOL sold the same products to independent parties. However, for the 2014 financial year, because VOL did not sell to third party customers in Nigeria, PPNL instead applied the Transactional Net Margin Method (TNMM), leading to an inconsistency in the TP method applied across years.

The FIRS reviewed PPNL’s controlled transactions, disregarded the CUP analysis applied for 2013, applied the TNMM to both 2013 and 2014 transactions, and issued an assessment of ₦1.74 billion in additional tax liabilities.

Issue:

Whether the FIRS was entitled to disregard the CUP method used by PPNL and apply the TNMM, and whether the Gross Profit Margin (GPM) was the appropriate Profit Level Indicator (PLI).

Decision:

The Tax Appeal Tribunal upheld the FIRS’s assessment, holding that the ₦1.74 billion assessment was lawful. The Tribunal found that:

1. PPNL had not been able to provide a satisfactory explanation for its use of the CUP for 2013 where there was insufficient information available to reliably apply the CUP.
2. PPNL had not applied the TNMM consistently across years.
3. The Gross Profit Margin (GPM) was the applicable PLI because “the Gross Profit Margin is in line with best practices and the fact that it also took into account the various factors enumerated by the OECD”.

Significance:

This landmark judgment established that:

• The arm’s length principle is strictly enforceable in Nigeria.
• Inconsistent application of TP methods across financial years can trigger additional assessments.
• The Tax Appeal Tribunal will defer to the FIRS’s choice of TP method and PLI where the taxpayer cannot justify its own methodology.
• The decision of the TAT “can be said to be in full motion” for Nigeria’s TP regime.

The case also illustrates that “the Appellant in the above‑mentioned case (PPNL) was inconsistent in the TP method adopted for its transactions and may have triggered an assessment on its transaction”. As one commentator noted, “the choice of TP method is to be decided after a proper comparability analysis on each TP method and its effect on the transaction given all available and reliable information”.

4.2 Halliburton West Africa Limited v. FIRS

In Halliburton West Africa Limited v. FIRS, the court held that administrative circulars issued by the tax authority are not legally binding, as “it does not have the force of law and cannot override the provisions of a treaty or domestic legislation”. This case affirms that while the FIRS/NRS may issue guidance, such guidance cannot override the express provisions of DTAs or domestic laws.

4.3 Check Point Software Technologies V. V. Nig Ltd

In the 2023 judgment of the Tax Appeal Tribunal in Check Point Software Technologies V. V. Nig Ltd, the Tribunal addressed issues relating to CbC reporting regulations, holding that “Nigeria does not have an extant CBC Regulations today; the CBC Regulations purportedly made by the FIRS is destitute of legal effect”. This case highlights ongoing legal uncertainties in the implementation of certain aspects of Nigeria’s transfer pricing framework.

5. Case Study: Glencore’s Illicit Activities in Nigeria

A stark illustration of the types of illicit financial flows associated with profit shifting and corruption is the Glencore case, which involved the Swiss commodities firm paying bribes to secure preferential access to oil in Nigeria and other African countries.

Glencore admitted to a “decade‑long scheme to make and conceal corrupt payments and bribes through intermediaries for the benefit of foreign officials in multiple countries”. Britain’s Serious Fraud Office found that Glencore had paid bribes worth $29 million to secure access to oil in Cameroon, Equatorial Guinea, Ivory Coast, Nigeria, and South Sudan.

In Nigeria specifically, “Glencore entered into multiple agreements to purchase crude oil and refined products from Nigeria’s state-owned oil company” and “paid bribes, through its agent, NG Ltd, to Nigerian National Petroleum Corporation (NNPC) officials to induce them to or reward them for, making decisions such as who would be a term contract holder”. The tax consultant issued fraudulent invoices to disguise the bribery payments, and in total, “Glencore paid approximately $27 million in bribes through the tax consultant”.

In June 2022, Glencore pleaded guilty to seven counts of bribery. According to the U.S. Department of Justice, the company paid approximately $52 million in bribes to officials in Nigeria between 2007 and 2018, through which it earned profits of about $124 million.

This case demonstrates how corruption, bribery, and profit shifting are often intertwined, with fraudulent invoices and mispriced transactions used to disguise illicit payments while simultaneously eroding Nigeria’s tax base.

6. The Economic Impact of Profit Shifting on Nigeria

6.1 Magnitude of Revenue Loss

The economic impact of profit shifting on Nigeria is devastating. The government estimates that Nigeria loses approximately $15 billion annually to profit shifting and aggressive tax avoidance practices. Some estimates place the figure between $15 billion and $18 billion annually.

More broadly, Nigeria loses an estimated $88.6 billion annually to illicit financial flows (IFFs).

In the oil and gas sector alone, “tax avoidance (particularly from oil rigs) is estimated at about ₦3 trillion per year”. The FIRS Executive Chairman has repeatedly highlighted that Nigeria loses billions of naira annually due to aggressive tax avoidance by multinational corporations.

As the Minister of Finance has stated, these losses translate directly into “fewer hospitals, schools, roads, and bridges, and police officers on the streets as well as undermined jobs creation and poverty eradication”.

6.2 Impact on Foreign Direct Investment (FDI) and Business Environment

Frequent TP audits and adjustments can “create an environment of uncertainty for businesses, particularly MNEs considering investment in Nigeria”. “If businesses perceive the tax environment as unpredictable or overly aggressive, they may shift their operations to more tax‑friendly jurisdictions. This would have a negative effect on economic growth and development”.

At the same time, profit shifting by existing MNEs reduces the tax revenue available for investment in infrastructure, education, and healthcare, investments that would otherwise make Nigeria a more attractive destination for FDI.

6.3 The Compliance Burden on Nigerian Businesses

For many companies, “the uncertainty surrounding TP enforcement in Nigeria makes it difficult to plan effectively for the future”. “Additional tax assessments, penalties, and interest can put businesses under significant financial strain”. “For companies operating with thin profit margins, these unexpected tax burdens can lead to liquidity challenges, forcing them to either cut costs, delay expansion projects, or seek additional financing”. This is “particularly detrimental to capital-intensive industries such as manufacturing and telecommunications, where cash flow is crucial for operational sustainability”.

7. Enforcement Challenges and Weaknesses in the Global Framework

7.1 Weak Global Frameworks

The persistence of profit shifting in Nigeria is facilitated in part by weaknesses in the global international tax framework. The OECD’s BEPS project has made progress, but its implementation has been uneven. Notably, Nigeria has refused to endorse the OECD’s 2‑Pillar Solution, which the FIRS considers to be insufficiently protective of Nigeria’s revenue interests.

The limited network of Double Taxation Conventions (DTCs) and the inherent limitations of the machinery for exchanging information are also significant challenges. As one study noted, “cross‑border tax evasion remains a big problem owing to a limited network of double tax conventions (DTCs) and inherent limitations of the machinery in limiting exchange of information to distinct requests”.

7.2 Enforcement Challenges in Nigeria

Despite the robust legal framework, enforcement remains a significant challenge. As the Minister of Finance acknowledged, “laws alone are not enough, and that is why we are gathered here to align policy, enforcement, and institutional efforts across the board”.

Specific enforcement challenges include:

• Limited digital tracking capabilities: Enforcement of the SEP rules faces challenges “due to limited digital tracking capabilities and disputes over profit attribution”.
• Disputes over profit attribution: There are ongoing disputes about how to attribute profits to digital activities in the absence of a physical presence.
• Legal challenges to NRS authority: The legal basis for certain enforcement actions, such as CbC reporting requirements, has been challenged in court, as seen in the Check Point Software Technologies case.
• Complexity and resource constraints: Transfer pricing audits are highly complex and resource‑intensive, requiring specialised expertise that may not always be available within the tax authority.
• Treaty shopping and the limited network of DTAs: Nigeria’s limited network of DTAs and the potential for treaty shopping remain significant vulnerabilities.

7.3 The Role of the Multilateral Instrument (MLI)

Nigeria signed the MLI in 2017 and has listed its non‑compliant agreements. “The agreements that will be modified by the MLI will come into compliance with the minimum standard once the provisions of the MLI take effect”. Nigeria is implementing the minimum standard through the inclusion of the preamble statement and the Principal Purpose Test (PPT). The PPT is designed to help Nigerian tax authorities identify and counteract treaty shopping arrangements.

8. Recent Developments and Reforms

8.1 The Nigeria Tax Act 2025 and Nigeria Tax Administration Act 2025

The enactment of the Nigeria Tax Act (NTA) 2025 and the Nigeria Tax Administration Act (NTAA) 2025 represents a significant milestone in Nigeria’s efforts to combat profit shifting. These Acts, which take effect from 1 January 2026, consolidate previous tax legislation, expand the tax base, and enhance enforcement powers.

8.2 Suspension of Tax Exemption Certificates

In July 2025, the FIRS officially halted the issuance of tax exemption certificates to all categories of taxpayers, including pioneer status companies, NGOs, and businesses operating within Nigeria’s free trade zones. The Executive Chairman noted that Nigeria loses billions annually due to aggressive tax avoidance by multinational corporations.

8.3 EFCC’s Jurisdiction to Prosecute Tax Evasion

The Court of Appeal has held that the Economic and Financial Crimes Commission (EFCC) has the legal power to investigate and prosecute tax evasion, effectively ending the argument that only the FIRS could handle tax matters. Tax evasion is now firmly within the purview of Nigeria’s anti‑corruption agencies.

8.4 National Conference on Illicit Financial Flows

In July 2025, Nigeria hosted a national conference on Illicit Financial Flows with the theme, “Combating Illicit Financial Flows: Strengthening Nigeria’s Domestic Resource Mobilisation”. The conference brought together policymakers, tax authorities, and international partners to develop strategies for combating IFFs and strengthening domestic revenue mobilisation.

9. Conclusion and Recommendations

Profit shifting and transfer mispricing constitute one of the most significant threats to Nigeria’s fiscal stability and economic development. The Nigerian government estimates annual losses of approximately $15‑18 billion to these practices, resources that could otherwise fund healthcare, education, infrastructure, and social protection.

Nigeria has developed a comprehensive legal framework to combat profit shifting, including:

• The Income Tax (Transfer Pricing) Regulations 2018, which provide a detailed framework for implementing the arm’s length principle, including documentation requirements, acceptable TP methods, APA procedures, and penalties for non‑compliance.
• GAAR, CFC rules, and thin capitalisation rules introduced through the Finance Act 2022.
• The Nigeria Tax Act 2025, which expands the tax base, strengthens the taxation of non‑resident companies, and enhances enforcement.
• The Significant Economic Presence (SEP) rule, which taxes digital MNEs earning revenue from Nigerian customers.
• Nigeria’s signature of the MLI, which introduces the Principal Purpose Test to combat treaty shopping.
• The establishment of the Nigeria Revenue Service (NRS), with an explicit mandate to study revenue foregone from waivers and evasion.

However, significant challenges remain. The limited network of double tax conventions, weaknesses in global frameworks, the complexity of transfer pricing audits, the resource constraints faced by tax authorities, and the legal uncertainties surrounding aspects of the TP regime all continue to impede effective enforcement.

Key Recommendations for Nigeria

1. Strengthen enforcement capacity: Invest in training, technology, and expertise within the NRS to conduct complex TP audits effectively.
2. Enhance international cooperation: Expand Nigeria’s network of double tax conventions with appropriate anti‑abuse provisions, and fully implement the automatic exchange of information mechanisms.
3. Adopt a substance‑over‑form approach: Nigerian courts and tax authorities should continue to develop jurisprudence that disregards artificial arrangements lacking economic substance.
4. Increase penalties for non‑compliance: Strengthen penalties for failure to maintain and submit TP documentation, and for engaging in aggressive tax avoidance schemes.
5. Promote transparency: Encourage multinational enterprises to publish country‑by‑country reports and engage in advanced pricing agreements to reduce disputes.
6. Address the digital economy: Continue to develop and enforce the SEP rules, and consider whether unilateral digital services taxes are appropriate in light of Nigeria’s refusal to endorse the OECD 2‑Pillar Solution.
7. Harmonise anti‑avoidance rules: Ensure consistency between GAAR, CFC rules, thin capitalisation rules, and the provisions of DTAs.
8. Coordinate with anti‑corruption agencies: Leverage the EFCC’s jurisdiction to prosecute tax evasion as a financial crime, and coordinate investigations into profit shifting that involves corruption.

Key Recommendations for Multinational Enterprises

1. Maintain robust TP documentation: Ensure that contemporaneous documentation is prepared in line with OECD guidelines and Nigerian regulations, including Master file, Local file, and CbC reports where applicable.
2. Apply TP methods consistently: Avoid inconsistent application of TP methods across financial years, as seen in the Prime Plastichem case.
3. Conduct proper comparability analyses: Ensure that the choice of TP method is justified by a thorough comparability analysis.
4. Consider Advanced Pricing Agreements (APAs): For complex or high‑value transactions, consider entering into an APA with the NRS to obtain certainty regarding arm’s length pricing.
5. Ensure commercial substance: Ensure that all cross‑border transactions have valid commercial purposes beyond obtaining tax advantages, to avoid the application of GAAR.
6. Monitor compliance with CFC and thin capitalisation rules: Review holding structures, financing arrangements, and debt‑to‑equity ratios to ensure compliance.
7. Seek professional advice: Engage qualified tax professionals with expertise in Nigerian transfer pricing and international tax law.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult qualified legal practitioners for advice specific to their circumstances.