Nigeria: Interest On Intercompany Loan Incurred By An Oil Company Is Tax Deductible Subject To Transfer Pricing Rules

ATL-Editor 2 October 2014

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Nigeria: Interest On Intercompany Loan Incurred By An Oil Company Is Tax Deductible Subject To Transfer Pricing Rules

Last Updated: 30 September 2014

Article by Taiwo Oyedele

PwC Nigeria

The Tax Appeal Tribunal (TAT) on 18 September 2014 passed a judgement in a case between Nigeria Agip Oil Company Limited and the Federal Inland RevenueTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is...Revenue ServiceTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... (FIRS) regarding the deductibility of interests on intercompany loansIntercompany Loans are financial arrangements where one entity within a corporate group lends funds to another entity in the same group. These loans are common in multinational enterprises (MNEs) and are used to manage liquidity, fund operations, or finance specific projects. The terms and conditions of intercompany loans must adhere to transfer pricing regulations to ensure they reflect arm’s length....

The TAT ruled that in so farFunctional analysis is the cornerstone of transfer pricing and international tax compliance, ensuring that intercompany transactions adhere to the arm’s length principle. It evaluates the roles, contributions, and risk profiles of entities within a multinational enterprise (MNE) to determine how profits and costs should be allocated. This process ensures that related-party transactions reflect the pricing that independent enterprises would establish... as such intercompany loansIntercompany Loans are financial arrangements where one entity within a corporate group lends funds to another entity in the same group. These loans are common in multinational enterprises (MNEs) and are used to manage liquidity, fund operations, or finance specific projects. The terms and conditions of intercompany loans must adhere to transfer pricing regulations to ensure they reflect arm’s length... meet the arm’s length principles, in other words, if the terms are similar to a loan between unrelated parties, then the interest is tax deductible.

The FIRS has long held the view that interest on any intercompany loan by an upstream oil company is not tax deductible. The TAT ruling effectively supports common law principles and the need for a transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... analysis by related parties regarding such transactions.

See a copy of the ruling below and our tax alert for further insights.

Download Tax Alert – TAT Ruling on Intercompany Interest_Sep 2014

Download TAT Ruling – Interest on interco loan by oil companies

Categories: Africa, Nigeria, West Africa

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Nigeria: Interest On Intercompany Loan Incurred By An Oil Company Is Tax Deductible Subject To Transfer Pricing Rules

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