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Transfer Pricing (TP) is a mechanism mostly used in taxation and accounting which refers to the

rules and methods for pricing transactions within and between enterprises under common ownership

or control. Generally, It is the setting of prices for goods and services sold between controlled or

related legal entities within an enterprise. For example, if a subsidiary company sells goods or

provides services to a parent company, the cost of those goods/services paid by the parent to the

subsidiary is the transfer price.

Funds Transfer Pricing (FTP) is a method used to individually measure how much each source of

funding contributes to the overall profitability of a firm. The FTP process is most often used in the

banking industry as a means of outlining the areas of strength and weakness within the funding of

the institution.

Due to the evasive strategies of many organizations who attempt to use transactions involving cross

border management and control as an avenue to alter taxable income, transfer pricing rules allow

tax authorities to adjust prices for most cross-border intra-group/intra-organizational transactions, including transfer of tangible or intangible property, services, and loans Activities and transactions that warrant transfer pricing are also common in Nigeria. This has prompted the Government to put in place strict compliance regulations for enterprises engaged in such, in order to ensure proper monitoring of taxable incomes which are generated from these subject matter transactions.

The Federal Inland Revenue Service (FIRS) was empowered to set up a Transfer Pricing (TP) division to standardize transfer pricing compliance in Nigeria. Specific TP Regulations were first released in October 2012 based on the general anti-avoidance provisions in the various tax laws which require related party transactions to be conducted at arm’s length1 .

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