The Tax Appeal Tribunal (TAT or “the Tribunal”) sitting in Lagos recently delivered judgement in the case between Prime Plastichem Nigeria Limited (PPNL or “the Appellant”) and the Federal Inland Revenue Service (FIRS or “the Respondent”) on Transfer Pricing (TP).
PPNL is a private limited liability company engaged in trading of imported plastics and petrochemicals in Nigeria. During 2013 and 2014 financial years (FYs), PPNL entered into a related party transaction with Vinmar Overseas Limited (VOL) for the supply of petrochemical products.
PPNL adopted the Comparable Uncontrolled Price (CUP) TP method to test whether the terms of the transaction with VOL for 2013 FY were at arm’s length.
In 2014 FY, PPNL changed the testing method to Transactional Net Margin Method (TNMM) using Operating Margin (OM) as the Profit Level Indicator (PLI). This, according to PPNL, was due to lack of information required for applying CUP. While the FIRS agreed with the change, it opted for Gross Profit Margin (GPM) as the most appropriate PLI, albeit for the two years. This led to an additional assessment of N1.7 billion.
The Tax Appeal Tribunal or TAT ruled in favor of the FIRS on all the issues raised by PPNL.
This is significant as it was the first TP judgement delivered in Nigeria since inception of the TP Regulations in 2012, according to tax and audit firm KPMG.
“A review of the issues tabled before the TAT by the Appellant shows that the Appellant based its case largely on the powers of the FIRS to make the adjustment. On the other hand, the FIRS based its response on core TP technical position to support the approach adopted,” said Wole Obayomi, Partner & Head, Tax, Regulatory & People Services KPMG Nigeria.