Abstract
This study examined the impact of transfer pricing regulations on corporate tax revenue in Nigeria. The study was motivated by concerns that multinational enterprises may manipulate the prices of transactions between related entities to shift taxable profits from Nigeria to jurisdictions with lower tax rates, thereby reducing the country’s corporate tax base. In response, the Nigerian government introduced transfer pricing regulations to promote arm’s-length pricing, improve tax compliance, prevent profit shifting, and protect government revenue. The study aimed to assess the effectiveness of transfer pricing regulations in improving corporate tax revenue, examine their influence on tax compliance among multinational enterprises, and identify the challenges affecting their implementation in Nigeria. The study adopted an ex-post facto research design and relied entirely on secondary data. Relevant data were obtained from the Federal Inland Revenue Service (FIRS), National Bureau of Statistics (NBS), Central Bank of Nigeria (CBN), annual reports of selected multinational companies, government publications, academic journals, and other relevant sources. The study examined trends in corporate income tax revenue alongside indicators of transfer pricing regulation and compliance over the selected study period. Descriptive statistics were used to analyse the data, while correlation and regression analysis were employed to determine the relationship between transfer pricing regulation and corporate tax revenue. The findings revealed that transfer pricing regulations have a positive and significant influence on corporate tax revenue in Nigeria. The implementation of transfer pricing documentation requirements, disclosure obligations, related-party transaction reporting, and the arm’s-length principle has strengthened the ability of tax authorities to identify potentially abusive transactions and protect taxable profits. The study further found that improved transfer pricing enforcement contributes to greater tax compliance and reduces opportunities for aggressive profit shifting. However, inadequate technical expertise, limited access to reliable comparable transaction data, complex multinational transactions, lengthy dispute-resolution processes, and difficulties in monitoring cross-border transactions continue to constrain effective enforcement. The study concluded that effective transfer pricing regulation is an important instrument for protecting Nigeria’s corporate tax base and improving government revenue. It recommended that the FIRS should strengthen its technical capacity, improve access to international transaction databases, enhance data-sharing and cooperation with foreign tax authorities, strengthen risk-based transfer pricing audits, and improve taxpayer education and dispute-resolution mechanisms to ensure more effective compliance.
Keywords: Transfer Pricing, Transfer Pricing Regulations, Corporate Tax Revenue, Tax Compliance, Multinational Enterprises, Profit Shifting, FIRS, Nigeria.
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Taxation remains one of the most reliable sources of government revenue across the world, and Nigeria is not an exception. As the nation continues to search for ways of reducing its dependence on oil revenue, the taxation of corporate entities, particularly multinational companies operating within its borders, has become a subject of growing policy attention. Multinational corporations conduct a substantial share of world trade through transactions among related entities located in different tax jurisdictions. These intra group transactions, commonly referred to as related party transactions, create room for the practice known as transfer pricing, which is the pricing arrangement adopted when goods, services, intangible assets, or financial resources are exchanged between associated enterprises within the same corporate group (Kalra & Afzal, 2023).
Transfer pricing in itself is a legitimate and necessary business practice that allows multinational groups to allocate resources efficiently among their subsidiaries. However, when the prices charged in these intra group transactions depart from what independent parties would have agreed upon under comparable conditions, the practice becomes a tool for shifting taxable profits from high tax jurisdictions to low tax jurisdictions or tax havens. This manipulation, often described as transfer mispricing, erodes the domestic tax base of the countries where real economic activity takes place and denies governments, especially those of developing economies such as
