Page 9 - EY-VG_Eylul_2021_v2

shall be calculated and declared as reverse charge on hard price of the related party transaction. However, in 2014
copy or soft copy until 31.8.2021(*). Calculated VAT shall be PPNL applied the Transactional Net Profit Margin Method
paid in this period as well. (“TNMM”) to analyze exactly the same transaction. The
reason for this change was cited as the fact that Vinmar
Those subject to balance sheet basis should open separate Overseas Limited did not conduct transactions with third
provision accounts in the liabilities of the balance sheet for parties in Nigeria in 2014, and therefore, comparable data
assets which are recognized. If the provision for commodities were unavailable. After reviewing PPNL's TP reports, the
are paid to shareholders or if the enterprise is liquidated, it authority did not find it appropriate for the company to
shall not be taxed through being deemed as an item of the select CUP in 2013 based on internal comparables and
capital. However, provision for “machinery, equipment and emphasized that TNMM was the most appropriate method for
fixtures” shall be deemed as “accumulated depreciation”. 2013 and 2014. Furthermore, the Administration has found
it appropriate to use gross profit margin instead of operating
Those which are not available in the enterprise profit margin (as applied by PPNL in TP reports) as a profit
but recognized on legal books level indicator while applying TNMM. PPNL also raised
objections on many procedural issues during the trial, but
Taxpayers shall ensure demonstration of actual position all of the objections were rejected on the basis of evidence.
of their records through issuing invoices for commodities, Taking into account all of these, the Administration has made
machinery, equipment and fixtures, which are not physically an additional assessment of ➢ 1,738,481,875.33 (including
available in the enterprise but recognized on its legal penalties and interest) to PPNL.
books, until 31.8.2021(*) and fulfilling all types of related
obligations. First installment of VAT to be paid due to above This case is significant as it is Nigeria's first transfer pricing
transactions shall be paid within the declaration period decision since the Transfer Pricing Regulations came into
while other installments shall be paid in 2nd and 4th months force in 2012. It was underlined that it is important to
following the declaration submission period. prepare a complete and unproblematic transfer pricing
report that is in compliance with local legislations in order to
(*) Application, notification and declaration periods, expiring reduce the risk. OECD Guideline suggests that “A methodical,
on 31.8.2021, have been extended for one month according consistent approach should provide some continuity or
to Presidency Decree numbered 4420. linkage in the whole analytical process, thereby maintaining
a constant relationship amongst the various steps: from
the preliminary analysis of the conditions of the controlled
This is the summary of the article published in the transaction, to the selection of the transfer pricing method,
Ekonomist magazine’s issue 2021/17, dated 22.08.2021. through to the identification of potential comparables
and ultimately a conclusion about whether the controlled
transactions being examined are consistent with the arm’s
length principle…” and the result of this case actually
Significant Transfer Pricing supported this approach of the OECD.

Disputes – IV
Nigeria’s First Transfer Pricing
Judgment

On February 19, 2020, the Nigerian Tax Appeal Tribunal
delivered its judgment in Prime Plastichem Nigeria Limited
(“PPNL”) case, which is significant as it is the first transfer
pricing (“TP”) case in Nigeria. PPNL moved toward the
tribunal having disappointed with the additional assessment
in the amount of ➢➢➢➢➢➢➢➢➢➢➢➢ 1,738,481,875.33. This additional
assessment was issued by the Federal Inland Revenue Service
for both 2013 and 2014 and the Tribunal dismissed PPNL’s
appeal completely.
To sum up, this company’s main business is trading of
petrochemicals and plastics and it operates in Nigeria. In
accordance with the provisions of the Income Tax Regulations
No. 1 published in 2012, the company simultaneously
prepared transfer pricing reports for 2013 and 2014 and
submitted them to the Administration upon request. PPNL
indicated that its only related party transaction in 2013 and
2014 was the “purchase of petrochemicals” from Vinmar Explanations in this article reflect the writer's personal view on the
Overseas Limited which is one of PPNL’s related parties. matter. EY and/or Kuzey YMM ve Bağımsız Denetim A.Ş. disclaim any
Since this related party also sells similar products to third responsibility in respect of the information and explanations in the
parties in Nigeria, in the 2013 TP report, PPNL used internal article. Please be advised to first receive professional assistance from
comparables and applied the Comparable Uncontrolled the related experts before initiating an application regarding a specific
Price Method (“CUP”) for determination of the arm's length matter, since the legislation is changed frequently and is open to different
interpretations.
September 2021 9