By Elizabeth Adegbesan
The Central Bank of Nigeria , CBN, will commence implementation of uniform standards on transfer pricing arrangements in the Nigerian banking industry from June 2021, following the release of guidelines for Shared Services Arrangements for banks and Other Financial Institutions (OFIs).
In a circular signed by Director, Financial Policy and Regulation Department, Kevin Amigo, CBN stated: “The absence of standards on shared services and transfer pricing arrangements in the Nigerian banking industry was evidenced on the uneven management of shared services with the attendant concerns on governance, financial and tax management practices.
“The Central Bank of Nigeria (CBN) in response thereto, issued an Exposure Draft on November 18, 2019 to streamline the activities of institutions engaged in shared services and transfer pricing. The Exposure Draft also sought to harvest stakeholders’ opinions on the abuses including the use of shared services arrangements as a tax shield.
“The effective date for the full compliance with the provisions of the Guidelines shall be June 1, 2022.”
According to CBN, the objectives of the guidelines are: “To set out supervisory expectation in respect of shared services arrangements between a parent company and its subsidiary; to ensure that the fees received or paid reflect the services rendered, taking into account the assets used and the risks assumed; to ensure that financial institutions comply with the extant transfer pricing regulation in Nigeria; and to reduce operational cost of benefitting institutions.”
The provisions of the guidelines were limited to merchant banks, financial holding companies, OFIs, payment services banks and other payment services licensed by the CBN; provided that the financial institution is either a parent company operating in Nigeria and licensed by the CBN or a subsidiary company licensed by the CBN and carrying on its operations in Nigeria.