On November 2024, the Federal Inland Revenue Service (FIRS), under its information Circular issued a Guideline marked No: 2024/006, titled: “Guidelines On Advance Pricing Agreements (APAs)”

These Guidelines are issued pursuant to Section 8(1)(u) of the FIRS (Establishment) Act 2007 (as amended) and Regulation 9(12) of the Income Tax (Transfer Pricing) Regulations 2018, to provide guidance to taxpayers, tax practitioners, tax officers and the general public on the procedure and conditions for Advance Pricing Agreement (APA) in Nigeria, as well as administration of executed APAs.

The Guidelines should be read with the Guidelines on Mutual Agreement Procedure (MAP) (Information Circular 2023/04).

Below is the detailed of the Guidelines:

Introduction

Regulation 4 of the Income Tax (Transfer Pricing) Regulations 2018 and relevant tax legislation require that transactions between connected taxpayers should not differ from those obtainable in similar transactions between independent persons under comparable circumstances. In other words, the conditions imposed on such transactions shall be in accordance with the Arm’s Length Principle.

Advance Pricing Agreement (APA)

An APA is an arrangement between a taxpayer(s) and a tax administration that determines, in advance of controlled transactions, an appropriate set of criteria (e.g., transfer pricing methodology, comparables, and appropriate adjustments thereto, as well as critical assumptions as to future events) for the determination of the transfer price of those transactions that accords with the Arm’s Length Principle over a fixed period based on the fulfilment of certain terms and conditions. An APA could be unilateral, bilateral, or multilateral.

The APA process is voluntary and complements the various mechanisms for resolving transfer pricing (TP) disputes. It is flexible in scope, as it may cover all or part of the transfer pricing issues of a taxpayer. The discussion of transfer pricing issues in a nonadversarial environment, as envisaged under an APA process, can stimulate the free flow of information and promote mutual understanding among all parties.

Types of APA

The Service may enter into any of the following forms of APA with the taxpayer(s):

Unilateral APA – is an arrangement between the Service and a taxpayer concerning the appropriate transfer pricing of the covered controlled transactions. A unilateral APA does not include the participation of a tax treaty partner and the terms of the agreement may not be accepted by the tax authority of a tax treaty partner as being arm’s length. As such, Unilateral APA may not totally remove the risk of double taxation.

Bilateral APA – is an APA that involves a taxpayer in Nigeria, its connected persons resident in a foreign country, the Service, and the Competent Authority (CA) of that connected person. A bilateral APA, typically, is negotiated by the CAs of contracting parties under the MAP provisions of the relevant tax treaty.

Multilateral APA – is an APA that involves a taxpayer in Nigeria, its Connected persons resident in two or more foreign countries, the Service, and the CAs of countries of residence of those connected persons. The multilateral APA is typically concluded using the MAP provisions of the relevant tax treaties and negotiated by the CAs of the relevant jurisdictions.

A unilateral APA may be considered where: The controlled transaction is with a jurisdiction that Nigeria does not have an existing tax treaty; there is an existing tax treaty but the tax treaty partner in a bilateral APA process, or all the tax treaty partners in a multilateral APA process, do not wish to participate in or continue with the process, or do not have APA programme; there is an existing tax treaty but the Service and the tax treaty partner(s) are unable to reach an agreement or; where there is an existing treaty but its provisions are not adequate, appropriate, or applicable to the APA process.

Where circumstances warrant, an application for unilateral APA may be converted to a bilateral or multilateral APA upon a request by the taxpayer subject to the agreement of the Service and the tax treaty partner(s).

A request for a bilateral or multilateral APA may be considered, where: (i) the controlled transaction is with jurisdiction(s) that Nigeria has a tax treaty in force; (ii) the treaty between Nigeria and the other jurisdiction(s) have an Article on Mutual Agreement Procedure and its provisions are adequate for the APA process; and (iii) a corresponding APA program exists in the other jurisdiction(s).

It should be noted that the Service strongly encourages bilateral or multilateral APAs whenever it is considered expedient.

Objectives of the APA Process

An effective APA process will prevent costly and time-consuming audits, and possible litigations that may arise from such transfer pricing disputes.

An APA process is beneficial to both the taxpayer and tax authorities as it: a. provides reasonable certainty on the TP treatment of relevant transactions; b. resolves transfer pricing issues for multiple years thereby ensuring effective utilisation of resources by both the taxpayer and tax authorities; c. promotes consistency, and reasonableness of TP outcomes, reduce arbitrariness and prevents tax evasion; d. minimises the rigors of TP audit and delivers TP outcomes based on the terms of the agreement; e. reduces compliance costs over the term of the APA; and f. removes the risk of double taxation in the case of a bilateral or multilateral APA.

 

Mutual Expectations

The APA process enables taxpayers to assure themselves that their controlled transactions are accepted as complying with the Arm’s Length Principle. It must, however, be noted that the APA process is entirely voluntary (to the taxpayer) and must not be used as a cover for abusive tax planning or to achieve double non-taxation.

In order to achieve a successful outcome and notwithstanding the fact that it is a statutory process, the APA process requires the collaboration and mutual trust of all the parties, the APA is entered into on the understanding that: a. all parties must cooperate fully with each other, including undertaking open and ongoing dialogue in the development of the APA; b. each APA request will be treated on its own merits in accordance with its own facts and circumstances; c. each party will act transparently, in particular, each party will disclose all relevant and material facts, and d. each party will provide a prompt and complete response to all reasonable enquiries.

Legal Framework for APA

Regulation 9 of the Income Tax (Transfer Pricing) Regulations 2018, provides the legal basis for a taxpayer to request for an APA. Upon an application, the Service may enter into an agreement with the connected person to determine the arm’s length price (ALP) or specify the criteria by which the ALP could be determined for a controlled transaction.

Persons Covered

For the purposes of this Guidelines, an APA may cover transactions between: a. two or more connected persons; b. a permanent establishment, fixed base, or any taxable presence and its head office; or c. two permanent establishments, fixed bases or other taxable presence of the same person.

Operation of an APA

The APA operates based on assumptions that are supported by facts of a proposed transaction. Determinations are made after detailed review and, to the extent appropriate, verification of the factual assumptions on which the determination of legal consequences is based. Furthermore, the APA is subject to continuous monitoring through an annual review process to confirm that facts, circumstances, and other assumptions do not change materially throughout the APA period.

An APA establishes the arm’s length price or the methodology for determining the arm’s length price for future controlled transactions. However, it may not be used to determine the future profit subject to taxation in Nigeria.

An APA will apply for a period not exceeding three (3) years, commencing from the start date indicated in the APA (or any other period as may be stipulated in the relevant law or Regulations). However, the agreed methodology may apply to a maximum of three (3) prior years in the case of a rollback. The taxpayer(s) must indicate the years to be covered by the APA in its application or Assurance Provided by an APA.

Where the taxpayer(s) has agreed to and complied with the terms of an APA, the Service will be bound administratively by the terms of the APA provided that the taxpayer complies with its requirements, and there is no deviation from the critical assumptions of the APA.

 

Where there are no changes to all the critical assumptions and the requirements are complied with as stipulated in the APA, the Service shall not make TP adjustments on the taxable profits arising from the covered controlled transactions

In the case of a unilateral APA, where the country of a connected person makes a TP adjustment to the covered transaction resulting in double taxation, the Service will endeavour to support the unilateral APA. However, the Service may deviate from the terms of the unilateral APA in order to solve an MAP negotiation with a tax treaty partner.

Term of an APA

An APA will apply for a period not exceeding three (3) years commencing from the start date indicated in the APA (or any other period as may be stipulated in the relevant law or Regulations).

However, the agreed methodology may apply to a maximum of 3 prior years in the case of a rollback.

Eligibility for an APA Application

For a taxpayer to be eligible to apply for an APA, such taxpayer must: (i) be a company resident in Nigeria or a non-resident company having a permanent establishment, significant economic presence, or any other taxable presence in Nigeria; and (ii) have controlled transaction(s) of the threshold stipulated in paragraph 11.3 of these Guidelines.

Administration of the APA

Cost of an APA Application: i. A taxpayer(s) shall be responsible for all costs that are directly incurred by the Service in processing an APA application. Such costs may include the cost of engaging an expert, travel costs for field visitations, and other costs directly incurred for that particular APA. ii. The cost shall be payable by the taxpayer(s) to the Service as follows: (a) A non-refundable deposit of $20,000 as an application fee to cover the process; and (b) Where the costs directly incurred for the APA exceed the nonrefundable deposit, payment, or reimbursements of the excess cost incurred by the Service over the non-refundable deposit in (a) above. (c) A non-refundable deposit of $5,000 as a renewal fee upon application for renewal of the APA iii. The non-refundable deposit shall be payable after the pre-filing meeting and the communication of the acceptance of the APA proposal into the APA programme. The evidence of payment shall be included in the APA application. iv. Any excess cost above the non-refundable deposit shall be communicated to the taxpayer(s) in writing before the agreed terms of the APA are communicated. Payment or reimbursement of the excess cost shall be made before the Service executes the final APA agreement. The evidence of payment shall be forwarded to the Service upon payment.

Transactions Covered by the APA:

i.The scope of an APA includes covered controlled transactions of the taxpayer as agreed by the Service. It may cover different groups of controlled transactions, including transfers of tangible or intangible property or services.

ii.  A specific issue or limited APA will not be appropriate where the transactions covered by the application are highly interrelated with transactions not covered by the application or where there is a need to analyse transfer pricing issues in a wider context because of intentional set-offs. The Service may, nevertheless, consider an APA application which is limited to specific groups of controlled transactions provided that there is justification for such limitation.

Threshold

For these Guidelines, the minimum threshold for any APA application is: a. the equivalent of USD 10 million for each covered controlled transaction (single transaction) for each year; or b. the equivalent of USD 50 million in the case of a group of covered controlled transactions (group of transactions) for each year covered in the APA.

APA Request

a.  All requests for APA, including a request for a pre-filing meeting should be made in writing, addressed to the Executive Chairman for the attention of:

The Director,

Competent Authority Department,

Federal Inland Revenue Service,

2ndFloor Revenue House Annex,

No. 26 Sokode Crescent,

Wuse Zone 5 Abuja.

Email Address: acatreatiesandmap@firs.gov.ng.

b.  A bilateral or multilateral APA may be initiated through an application to be submitted to the CA of the treaty partner in line with the provisions of the Article on MAP in the relevant tax treaty.

Stages of the APA process

The APA process has the following distinct stages:

Stage 1: Pre-filing meeting

Stage 2: Formal application

Stage 3: Analysis and Evaluation

Stage 4: Negotiations and Agreement

Stage 5: Drafting, Execution and Monitoring

APA Proposal

i.  An APA proposal containing the details set out in Appendix 2 shall be submitted to the Service for review. The pre-filing meeting may be scheduled within 30 days after the submission of an APA proposal.

ii. The APA proposal shall include projections, correspondences, or any relevant information indicating the possible value of the transaction(s) intended to be covered by the APA.

iii. The APA proposal will be discussed at a pre-filing meeting in order to ensure that both the Service and the taxpayer have a common understanding of the requirements.

Stage 1 – Pre-Filing Meeting

i.  A pre-filing meeting is a preliminary consultation before formally submitting an APA application. This meeting is mandatory.

ii. The purpose of the pre-filing meeting is to enable the taxpayer and the APA team to assess the possibility of successful completion of the APA. It allows the Service to make an informed decision as to whether the application should be filed. It is an opportunity to clarify the expectations of both sides. The model pre-filing meeting agenda is set out in Appendix

iii. The issues to be discussed in the pre-filing meeting include: a. the nature and scope of the proposed APA; b. the specific matters to be agreed such as the transfer pricing method(s), determination of ALP; c. the APA process, including case plan, filing of the APA application, negotiation process, and conclusion; d. confirm if the APA would be unilateral, bilateral or multilateral; and e. identify collateral issues (if any), as well as the treatment or approach to be adopted in addressing such issues

Once the scope of the proposed APA has been agreed, changes to it can only be made in exceptional circumstances, including: a. changes to the controlled transactions; b. emergence of new issues of significant tax risk; c. new issues that are raised by the CA of the tax treaty partner(s) in the case of a bilateral or multilateral APA. d. any material changes in economic circumstances relating to the covered controlled transactions.

 

iv.  Any change to the scope of the APA must be agreed between the Service and the taxpayer. If an agreement cannot be reached on the scope of the APA, the Service shall not continue with the process.

v.  The Service requires full disclosure of all material facts relating to the covered controlled transactions and will not accept to hold a pre-filing meeting without sufficient information about the taxpayer and it operations.

vii. A pre-filing meeting binds neither the taxpayer nor the Service to agree to an APA. The meeting is not an indication or proof of filing of an APA application or that the application is in process. Furthermore, statements or representations, (oral or written) made by either the taxpayer or the Service are informal and, as such, are not binding on the parties.

viii. Pre-filing meetings for an APA request may commence not later than 6 months before the date of submission of the APA application (i.e., for an APA application intended to be submitted on 1 January 2025, the pre-filing meetings should commence no later than 1 July 2024). In the case of bilateral or multilateral APA, the time requirements of the tax treaty partner(s) should be taken into consideration.

ix.  Where an APA application does not reflect the Service’s understanding of the discussions at the pre-filing stage or any relevant document is not included, the applicant will be informed in writing of this fact and the applicant may be required to make amendments to the application within a specified time before proceeding with the APA process. Where such amendments are not made within 30 days to the satisfaction of the Service, the application may be rejected.

x.  In the case of Unilateral APA, where the Service is satisfied that the application and the accompanying documents are consistent with the discussions at the pre-filing stage, the application may be accepted, and an acknowledgment will be sent to the applicant in this regard.

xi.  In the case of a bilateral or multilateral APA application, the Service shall notify the CA(s) of the relevant tax treaty partner(s) of their interests in participating in the APA process, and to agree on a timetable for the APA process.

xii. Where a taxpayer(s) APA application is accepted into the APA process, the taxpayer will be notified in writing. The letter of acceptance will state that the APA application is accepted. Where an APA request is not accepted into the APA process, the Service shall provide the reasons for
that decision in writing.

xiii. The formal application for an APA should be submitted only after there is agreement with the Service on the scope of the APA, as well as any collateral issue and its treatment

Stage 2 – Formal Application

i.  Where the Service agrees to an APA process with taxpayer(s), the taxpayer(s) shall submit a formal APA application within the timeframe agreed at the pre-filing stage. The APA application shall set out the scope of the APA and the approach to the treatment of the collateral issues based on the agreement reached at the pre-filing stage. A copy of the formal APA application shall also be submitted to the tax treaty partner(s) concerned in the case of a bilateral or multilateral APA.

ii.  The APA application shall provide a detailed scope of the APA and how the identified collateral issues, if any, are to be addressed. Information to be provided in the APA application shall include: (a) the transactions, products, businesses or arrangements that will be covered; (b) all relevant entities to the controlled transactions involved; (c) the type of APA (d) all tax treaty partners of Nigeria which have been requested to participate (if any); (e) detailed functional analysis including industry analysis; (f) clear value chain analysis; (g) details of the proposed TP Method (TPM), the justifications for the proposed method and reasons for rejecting other methods; (h) the terms and conditions governing the application of the TPM including the critical assumptions; (i) information and documentation as agreed in the pre-filing meeting which may be updated as the need arises; and (j) any further information or documentation that may be of assistance to the progress of the APA application.

iii. All documentation shall be clearly labelled, indexed, and referenced.

iv.  The Service may request additional information while processing the application.

v.  Upon the filing of the formal APA application, all subsequent correspondences and representations shall be made through the team handling the APA application. The taxpayer will be informed of the name and contact details of the APA team lead upon the commencement of the APA process.

vi.  Correspondences in this respect may include email, video conferencing, or face-to-face meetings with the tax treaty partner(s), where significant issues need to be resolved in a confidential manner.

Documents to be submitted with an APA Application:

1. In addition to the documents and information specified in Appendix 6, the following documents and information should accompany an APA request: (i) a case plan; (ii) a Power of Attorney (if represented) (iii) any other relevant information that the Service may require to complete its processing of the APA application. (iv) a signed declaration statement as provided in Appendix 10 (IV) of this guideline.
2. The items listed in paragraph 1 is indicative of the general information or documentation required in a typical APA process; as such, it is neither exhaustive nor prescriptive.
3. Where the records or documents to be produced are voluminous, the taxpayer(s) may agree with the Service that they need not be submitted with the APA application, but the documents must be described, referenced and have their location stated in the application. The taxpayer must also undertake that the documents will be made available upon request by the Service.
4. The Service will decide on Unilateral APA applications whereas the decision, in the case of bilateral or multilateral APA application, will be by agreement of the Service and the other tax treaty partner(s).
5. When a taxpayer(s) APA application is accepted into the APA process, the taxpayer will be notified. The letter of acceptance will state that the APA application is accepted. Where an APA request is not accepted into the APA process, the Service shall provide the reasons for that decision.

APA Case Plan

i.  After the pre-filing meetings and the acceptance of the Unilateral APA application, the applicant is required to provide a draft APA case plan which will be discussed and agreed upon with the APA team. The APA case plan should contain a structured timeline and work plan jointly developed by the Service and the taxpayer. A model APA case plan is given in Appendix 3.

ii.  In the case of a bilateral or multilateral APA application, after a formal APA case plan is received, the Service will endeavour to agree on the timetable for the APA process with the tax treaty partner.

iii. The case plan will set out the information or documentation required by the Service, the date it is required, and the cooperation required in the process of gathering information.

iv.  The Service and the applicant shall endeavour to adhere to the timeline and the work plan. Where it becomes necessary to alter the plan, especially, as a result of changes in the scope of the APA, collateral issues, etc, the Service will seek agreement with the tax treaty partner(s) and the applicant shall amend the APA case plan to reflect those changes.

Other Information/Documentation Requirements

i.  The extent of information or documentation necessary to determine the appropriate arm’s length outcome will depend on the facts and circumstances of each case. Other information or documentation required by the Service to determine an APA application will be provided by the applicant as set out in Appendix 3 at the applicant’s cost and within the agreed timeframe.

ii.  In the case of a bilateral/multilateral APA, the taxpayer shall inform the Service of the information or documentation requested by the tax treaty partner(s) in relation to the APA application. The taxpayer must ensure that the Service is provided with copies of any information or documentation supplied to the tax treaty partner(s) in a timely manner, whether supplied by itself or by a connected person, to effectively synchronize the process.

iii. All documents submitted should be in the English language or in any other language accompanied by an English translation.

Collateral Issues

A collateral issue is an issue that is material and relevant to or is capable of affecting the outcome of the APA such as legal or administrative issues, tax treaty issues, or tax avoidance issues. It is not the same as ancillary or administrative issues integrally linked with the transfer pricing issues. Collateral issues, if any, may be processed in parallel with the APA where possible.

Treatment of Collateral Issues

i.  Where a collateral issue is identified, the Service and the taxpayer will seek to agree during the pre-filing stage on how the collateral issues would be addressed.

ii.  Where a collateral issue arises for which, there is no established position, the Service may, whilst ensuring confidentiality of the taxpayer’s transactions, seek expert advice.

iii. There may be circumstances where the issue to be considered has implications to a particular class of transactions or arrangements or taxpayers. This may mean that the APA would progress in parallel with the development of the Service’s position.

Critical Assumptions

i.  An APA will define the critical assumptions that are very significant in relation to the covered controlled transactions. They can be any fact about the taxpayer, an affiliate, a third party, an industry or general economic conditions. An assumption is critical where its change may significantly affect the appropriateness of the substantive terms of the APA or the basis upon which it was agreed. Critical assumptions that should be considered include those items listed in Appendix 8.

ii.  All parties shall seek to identify existing facts, including reasonable probabilities, at the formal application stage. This is critical to an effective APA process since any changes may materially affect the suitability of the transfer pricing methodology or its application.

iii.  This information should be identified, disclosed and included by the taxpayer as critical assumptions in the APA agreement and ensure that the facts which form the basis of such agreement remain the same during the entire term of the APA.

Breach of Critical Assumptions

i.  A taxpayer is required to notify the Service immediately it becomes aware that a change in the critical assumptions has, may have, or may occur. The Service may request for proof or explanation in order to determine: (a) if a change has indeed occurred, (b) when it occurred, (c) the significance of the change that occurred to the APA, and (d) any adjustment that may be required in order to preserve the APA.

ii.  Where the taxpayer fails to notify the Service that a change in the critical assumptions has occurred and the Service becomes aware of such breach, the Service may terminate the APA.

iii.  If there is a breach of a critical assumption, and an agreement on a revised transfer pricing methodology cannot be reached after discussion with the taxpayer and, where applicable, the tax treaty partner(s), the Service may terminate the APA.

iv.  The Service will assess whether the taxpayer could reasonably have been expected to foresee or anticipate the event or circumstances at the time the APA was signed, and whether the agreed transfer pricing methodology has sufficiently taken this into account.

v.  In some cases, a breach in a critical assumption that produces negligible effects as established by the Service may not require any change in the APA. In such situations, the APA may still apply for its remaining term.

vi.  Where the APA is revised, the effective date of the revision will be stated in the revised APA. The revision of an APA will not extend the tenure of the original APA.

vii. If an APA cannot be revised, the APA will be terminated. The termination will take effect from the beginning of the year in which the event giving rise to the change in circumstances occurred.

Time-frame for Concluding an APA

i.  Upon the acceptance of a taxpayer’s APA formal application, the Service will endeavour to conclude the process as follows: (i) in the case of a unilateral APA, within 24 months; and (ii) in the case of a bilateral or multilateral APA, within 36 months.

ii.  The actual time taken to complete an APA will depend on the followings: (i) progress of negotiations with CAs of the tax treaty partner(s), (ii) timely provision of relevant information and documents by the taxpayer to the Service; and (iii) the complexity of the issues.

Acceptance or Rejection of the APA Application

1. The Service will consider every application and decide whether or not to accept an APA application. The Service shall notify the taxpayer(s) of the decision taken accordingly.
2. Upon acceptance of a taxpayers APA application into the APA programme the taxpayer shall receive written notification. For bilateral or multilateral APA; the relevant CA shall also be notified.
3. Where an APA request is not accepted into the APA process, the Service shall provide the reasons for the rejection.

Stage 3 – Analysis and Evaluation

Analysis and Evaluation of Information and Documentation Provided in APA Application

i.  Upon acceptance of the formal APA application, the Service will analyse and evaluate the data submitted. The Service may contact the taxpayer to discuss and clarify the information or documentation submitted. If necessary, the Service will request for further information or documentation considered relevant to the application.

ii. Where the Service agrees to pursue a unilateral APA with an applicant, the APA team will negotiate with the applicant concerning all aspects of the APA process, including possible subsequent revisions, terminations, and renewal.

iii. In the case of a Bilateral or Multilateral APA, there will be a mutual exchange of briefs between the CA of Nigeria and the CAs of the tax treaty partners concerning the APA process, including possible subsequent revisions, terminations, and renewal, in accordance with the relevant tax treaties.

iv.  Where the APA team forms an evaluation different from that contained in the taxpayer’s application, it will discuss its evaluation with the taxpayer and seek a mutually acceptable agreement with the taxpayer on its position. In a Bilateral or Multilateral APA, the Competent Authorities will exchange their position papers, setting out their views on the evaluation of the APA request.

Use of Subject Matter Experts

i.  Where the Service is of the view that the assistance of an expert is required in certain areas, the Service will seek the assistance of an expert. Any person to be engaged as an expert must: a) possess adequate academic or professional qualifications and experience in the relevant field where the advice is being sought; b) not be engaged in advisory work that is more than ancillary or incidental to the main activities of the taxpayer within 3 years prior to the APA request for which he is to be engaged as an expert; c) not have served as a tax official in the tax authority of Nigeria or that of the relevant tax treaty partners within 3 years prior to the APA request for which he is to be engaged as an expert; and d) not have provided tax, accounting, audit, or related services to the applicant or its associates within 3 years prior to the APA request for which he is to be engaged as an expert.

ii.  The expert may be required to comment on the adequacy of the taxpayer(s)’s economic study and address the questions and concerns of the Service and that of the tax treaty partner(s). He may provide an opinion on whether the proposed business arrangement is the most appropriate.

iii. The expert’s opinion will not bind the Service but it shall be taken into consideration in its decisions. Where the expert’s opinion is adopted by the Service, it would be considered as the opinion of the Service. This, however, would not be binding on the taxpayer(s) or the tax treaty partner(s), in accepting or rejecting the ruling. iv. The expert will have access to relevant information provided under the APA process, having due regard to the area in which the advice is being sought, the confidentiality and conflict of interest considerations, and subject to the secrecy provisions as contained in the tax laws.

iii.  Where the Service is relying on the opinion of an expert, where possible, the Service may share the advice of the expert with the taxpayer(s) or the CA of the tax treaty partner(s). Share of the expert advice will depend on the position of the Service in respect of the advice and whether or not the expert’s report contains confidential third-party information.

Stage 4 – Negotiation and Agreement of the APA

APA negotiation involves the examination of the taxpayer’s proposals, gathering and analysis of material facts, evaluation of available data including the involvement of each connected party in respect of the controlled transactions and discussion of findings, inferences, and decisions taken with the taxpayers and the CA of the treaty partner in the case of a bilateral/multilateral APA.

Negotiations under Unilateral APA

a.  In the case of the unilateral APA, the Service will prepare the draft of agreed APA terms in consultation with the applicant. The purpose of the draft APA terms is to ensure that the taxpayer and the Service have a common understanding of the issues to be agreed in the APA.

b.  The Service will inform the taxpayer of the resolution of the collateral issues. The resolution of collateral issues will not form part of the content of the APA. In most circumstances, the collateral issues need to be resolved prior to finalising the APA.

Negotiations with tax treaty partner(s)

i.  At the commencement of the APA process, the taxpayer should ensure that its overseas connected person(s) meet the APA application requirements of the tax treaty partner(s). Each tax treaty partner will respectively undertake an evaluation and analysis of the case from its perspective and may contribute information or insights not known to the Service or take different positions in relation to the appropriate transfer pricing indices.

ii.  The Authorised CA of Nigeria may liaise directly with the tax treaty partner(s) to discuss or clarify specific issues in respect of the bilateral or multilateral APA; or exchange position papers setting out its views under the MAP Article of the relevant tax treaty.

iii. The authorised CA of Nigeria will negotiate its preferred terms and conditions for the APA with the other tax treaty partner(s) to reconcile any difference to produce mutually agreeable terms and conditions for the APA.

iv.  The Service will inform the taxpayer if the negotiations break down because: (a) the APA application is not accepted by the other treaty partner(s); (b) agreement on the scope of the APA cannot be reached; (c) the taxpayer withdraws its application; or (d) the Service or other treaty partner(s) withdraw from the APA process;

v.  Where the APA negotiation breaks down, any request made to the Service by a taxpayer(s) for a review of the decision of the Service on the processing of the APA application may be referred to the Decision Review Panel set up under Regulation 21 of the Income Tax (Transfer Pricing) Regulations 2018 or a body that replaces it.

vi.  Where it is recognised that an agreement which differs from the initial position of the Service may be reached with the CA of the tax treaty partner(s), the Service shall communicate the fact to the taxpayer(s). The communication shall contain a request that the taxpayer(s) includes a statement in writing, confirming the acceptance of the agreed terms and conditions of the APA.

vii. The taxpayer(s) shall confirm acceptance of the agreed terms and conditions of the APA in writing not later than 30 days after the receipt of the communication from the Service, failure of which the APA application may be rejected.

viii. After the confirmation, the Service and the tax treaty partner(s) shall finalise the terms and conditions of the APA.

Drafting, Execution and Monitoring

i.  APA is a document setting out the terms of the agreement signed by the applicant and the Service, and it is binding on all the parties.

ii.  In the case of a unilateral APA, where the taxpayer(s) accepts the negotiated terms, the Service will agree with the applicant. The Service will communicate the agreed terms of the APA to the taxpayer(s) in writing. The form of the APA is as provided in the Model Unilateral/Bilateral/Multilateral APA Implementation Agreement in Appendix 7 on (https://www.firs.gov.ng/pdf/NIGERIA_APA_GUIDELINES-1.pdf).

iii. In the case of a bilateral or multilateral APA, where the taxpayer(s) accepts the negotiated terms, the Service will enter into a bilateral or multilateral agreement with the tax treaty partner(s). The Service will communicate the agreed terms of the APA to the taxpayer in writing.

iv.  The form of the APA is as provided in the Model Unilateral/ Bilateral/Multilateral APA Implementation Agreement in Appendix 7 on FIRS website via this link https://www.firs.gov.ng/pdf/NIGERIA_APA_GUIDELINES-1.pdf).

v.  The principal officer of the taxpayer(s) is required to sign a copy of the APA and return it to the Service for sign-off.

(v) Any cost incurred by the Service in processing a request for a rollback of the APA shall be borne by the taxpayer.

Commencement of an APA

i.  The commencement date of an APA will be the date indicated in the APA, which corresponds to the beginning of the financial year indicated in the taxpayer’s application or a mutually agreed financial year. The specific requirements of the relevant tax treaty partner(s) shall be taken into account.

ii.  The duration of the APA shall not exceed three (3) years or the tenure stipulated in the relevant legislation).

Delayed Finalisation

i.  If finalisation of an APA application is delayed beyond the expected duration from the taxpayer(s)’s requested commencement date, the Service will normally seek to specify a later commencement date for the APA. However, the Service will seek to preserve the three (3) years duration of an APA or the tenure stipulated in the relevant legislation.

ii.  Where a later commencement date is specified for the APA, the methodology agreed in the APA may be rolled back to the prior year(s) covered by the original application. In the case of a bilateral or multilateral APA, the same treatment will be accorded to the taxpayer upon agreement with the CA(s) of the tax treaty partner(s).

Rollback of APA

i.  A rollback of APA means the application of the elements agreed in an APA to controlled transactions carried out prior to the coming into force of the APA. The rollback shall not exceed (3) three years, immediately preceding the commencement of the APA.

ii.  As regards the rollback years, the APA may specify the ALP or specify the manner in which ALP shall be determined. The manner of determining ALP in the rollback years with respect to any controlled transaction will be the same as the manner agreed in the APA.

Conditions for Rollback

The following are the conditions for rollback:  a. The controlled transactions are the same as the controlled transactions to which the APA applies; b. All relevant tax returns for the relevant rollback years have been filed; c. The taxpayer(s) must apply to the Service, in the prescribed form (Appendix 10 on FIRS website via this link – https://www.firs.gov.ng/pdf/NIGERIA_APA_GUIDELINES-1.pdf), requesting for a rollback;  d. Rollback application should cover only years not under audit in which the controlled transactions have taken place.

Limitation of Rollback Request

Rollback provisions shall not apply to controlled transactions on which a court of competent jurisdiction or a tax tribunal has issued a ruling on the appropriate ALP at any time before or after the signing of the APA.

Prior Year Transfer Pricing Issues

a.  Prior-year transfer pricing issues will be treated as collateral issues to the APA. The principles developed in an APA should provide the basis for resolving issues in prior years’ audit, as well as past years not yet under audit. This will depend on the availability of all relevant information in respect of the prior years and the changes in the taxpayer(s)’s circumstances.

b.  Where the provision of information for an APA results in an adjustment to a prior year’s income tax returns, the adjustment will be treated as though the taxpayer(s) had made a voluntary disclosure, provided that an audit has not already been commenced, or the Service had not previously contacted the taxpayer(s) or their representatives with respect to the prior year’s returns.

c.  Where an audit has not commenced, additional tax, if any, will generally be calculated based on voluntary disclosure made by the taxpayer in relation to each prior year. In such cases, penalties will not apply but interest will apply. However, where audit has commenced, the penalties will apply to additional tax assessed in line with the law.

In summary, the following principles are incorporated into the practice for APA rollbacks: a. the Service will not give an undertaking that years prior to an APA will not be audited; b. there may be situations where the principles developed in an APA might provide a basis for resolving issues for prior years; c. prior year adjustments resulting from an APA request will be treated as though the taxpayer(s) has made a voluntary disclosure, provided that compliance activity has not commenced or been notified;

Annual Compliance Report

i.  The taxpayer, as part of the APA process, is required to prepare and submit an Annual Compliance Report (ACR), for each year of the APA. The ACR shall contain sufficient information on actual results for the year and to demonstrate compliance with the terms of the APA. The list of the documents and other information to be included in the ACR can be found in Appendix 9.

ii.  The taxpayer must complete the ACR form in Appendix 9 for each year of the APA. This should be supported by a financial analysis of compliance with the APA, as well as detailed information on any compensating adjustments made. In the completed ACR form, the principal officer shall make a declaration that the facts presented in the report are true, accurate, and complete.

iii.  The ACR shall be submitted for each accounting period covered by the APA and shall be due for filing on the due date of filing the annual company income tax returns.

iv.  When reviewing the ACR, the Service may request further information to clarify the contents of the ACR or to verify that the taxpayer(s) has complied with the terms of the APA. If the taxpayer fails to supply the additional information requested within 21 days of receiving the request from the Service, or any additional time the Service may allow, the Service may terminate the APA. Where the Service is satisfied that the taxpayer has complied with the terms of the APA, the Service will send a letter of acknowledgment of receipt to the taxpayer.

v.  If it becomes known that an ACR was false or misleading, an acknowledgment letter of receipt will not prevent any other follow-up actions by the Service.

vi.  If a taxpayer fails to comply with the annual reporting requirements, the Service will not be bound by the APA and may consider terminating the APA.

vii. Possible consequences of not complying with the annual reporting requirements or failing to supply additional information on request in relation to an ACR will be stated in the APA as a condition of its discontinuance.

Record-Keeping Requirements

i.  The taxpayer must retain all records relied upon in concluding the APA, including those used in applying for the APA, as well as documentation or supporting information provided in the ACR for six (6) years after the end of the APA period.

ii.  As a term or condition of the APA process, the Service will require taxpayer(s) to keep the records listed in Appendix 6. Upon a written request by the Service, the records shall be made available to the Service no later than 30 days of receiving the request.

APA Renewals

i.  An APA may be renewed with the agreement of all relevant parties including the tax treaty partner(s), where applicable. A request for renewal of an APA shall follow the same procedure and documentation that apply to the initial APA request.

ii.  The taxpayer must apply for renewal, at least, 9 months before the expiration of the APA for which renewal is sought.

iii. When requesting for the renewal of an APA, the taxpayer must establish, to the satisfaction of the Service, that there is compliance with the terms of the APA, and that all material facts were disclosed and properly stated.

iv.  Where the renewal involves material changes to the terms of the existing APA, then a new APA process must be negotiated.

v.  An APA may be renewed for a maximum term of 3 years or as stipulated in the relevant legislation.

Audits and APAs

i.  Notwithstanding the existence of an APA, the controlled transactions of a taxpayer in any year may be audited. However, only issues that are not subject to an APA may be covered in the audit.

ii.  A taxpayer may apply for an APA notwithstanding an ongoing tax audit exercise. Such application for APA shall only be in respect of transactions that are not the subject of the ongoing tax audit. Furthermore, the receipt of a taxpayer’s application for an APA shall not result to the discontinuation or postponement of an audit.

iii. An audit and the negotiation of an APA are separate processes. Each will be resolved separately unless the facts and circumstances of the APA and the audit years are sufficiently similar such that the outcome of the APA may be seamlessly applied to the audit issues without delaying either process.

iv.  The audit of issues relevant to an APA may be held in abeyance where all parties agreed that the APA will enable speedy completion of the audit.

v.  Where an audit has been wholly or partially suspended, the Service may, with written notice to the taxpayer(s), recommence the audit.

vi.  Where an audit has been wholly or partially suspended pending the outcome of an APA, any information obtained through the APA process shall not constitute voluntary disclosure. As such, any additional tax arising from the audit shall attract penalty and interest in line with extant legislation.

Compensating Adjustments

The APA process envisages the use of compensating adjustments, where the actual result of the tested party falls outside the agreed price or result but is within the critical assumption boundaries. The APA will specify the price, result, or point in the range to which a compensating adjustment should be made (refer to Appendix 7).

Termination of an APA

a.  In line with regulation 9(8) of the TP Regulations, the Service may give notice of termination of an APA to a taxpayer. Similarly, a taxpayer may, in line with regulation 9(9) of the TP Regulations, give a notice of termination of the APA to the Service.

b.  In relation to regulation 9(8)(d) of the TP Regulations, tax shelters, offshore structures, or any other tax arrangement or schemes directly or indirectly related to the controlled transactions must not be omitted from disclosure; all information or facts relating to such must be disclosed to the Service during the APA process.

c.  The termination of an APA shall take effect as specified under regulation 9(11) of the TP Regulations.

Effective Date

The effective date of these Guidelines is 1st January 2025.

Amendment or Review of Guidelines

The Service may, at any time, review, withdraw, amend, replace or publish an updated version of these guidelines.

Information and Enquiries

For information or enquiry on any provision of these Guidelines, please contact:

Director, Competent Authority Department

Federal Inland Revenue Service

2nd Floor Revenue House Annex,

No. 26 Sokode Crescent,

Wuse Zone 5, Abuja.

Email Address: acatreatiesandmap@firs.gov.ng

Visit our website: www.firs.gov.ng

Email: enquiries@firs.gov.ng

Telephones: 09074444441, 09074444442, 09072111111, 0907377777

 

Check appendices one to ten of the APAs Guidelines on the FIRS website via this link: https://www.firs.gov.ng/pdf/NIGERIA_APA_GUIDELINES-1.pdf