FIRS, KPMG caution companies over transfer pricing
BY MICHAEL EBOH
The Federal Inland Revenue Service, FIRS, and KPMG have cautioned companies on the need to take issues of transfer pricing seriously, so as to avoid pitfalls that would hurt the profitability and growth of their businesses.
They said Transfer Pricing, if not properly attended to can bring about reputational crisis in an organisation and might lead to issues of financial misstatements.
Transfer pricing is the price at which goods, services or intellectual property are transferred between company divisions and departments within one country or between related companies of a multinational organisation across international borders.
Speaking at the KPMG Transfer Pricing seminar in Lagos, Mr. Ajayi Bamidele, Director, Large Taxpayers Department, FIRS, said transfer pricing regulation was put forward to help company avoid double taxation and ensure that the country tax companies appropriately.
Also speaking, Mr. Tayo Ogungbenro, Partner & Head, Transfer Pricing, Advisory Services, KPMG, said a poorly or partially implemented transfer pricing may lead to materially misstated financial statements, increased tax liabilities and tax penalties.
He maintained that if not properly handled transfer pricing issues can bring about image crisis for an organisation, while the company would be faced with sanctions from the tax authorities and other agencies of government.
According to him, without a clear end-to-end understanding of how intercompany transactions are executed, significant inefficiencies can creep in, leading to frustrations within many parts of an enterprise.
He said, “As with any business system, it is very difficult to achieve intended results unless explicit processes and controls are defined and implemented.
“Furthermore, any business systems featuring multiple handoffs and without a single point of accountability is vulnerable to breakdown.”
Also speaking, Ms Teresa Quinones, Partner and Transfer Pricing Leader, KPMG, advised Nigerian companies that are members of a group of companies, whether multinational or local need to proactively take practical coordinated steps to understand transfer pricing requirements, the risk areas and how to address them.
She identified some of the challenges confronting confronting companies in developing countries to include, “Lack of know and requisite skill sets on transfer pricing; identifying all transactions subject to the arm’s length rule is tedious, with some often omitted.
“Demonstrating arm’s length nature is difficult and time-consuming; lack of data on comparables in local environment; determining appropriate comparable database for use among others.”
On the way forward for companies, Tayo Ogungbero said companies should carry out a gap analysis to identify currently risky transfer pricing arrangements and undertake a restructuring for tax inefficiency.
He also advised companies to adjust the terms and conditions of related party transactions to comply with the arm’s length principles.
He disclosed that KPMG is properly positioned to assist companies in transfer pricing issues, as it currently has 74 transfer pricing partners worldwide, local dedicated team in Nigeria who are being constantly trained to update their knowledge base and a requisite technology, leveraging on the Orbis database.