An empirical investigation of transfer pricing regulations for Nigeria with a particular emphasis on the petroleum sector.

Abstract

This research critically investigates the adoption and implementation of transfer pricing regulations in Nigeria with a particular emphasis on the petroleum sector. It opportunely chose Nigeria as a case study of transfer pricing issues in developing countries as Nigeria was devising and implementing its own transfer pricing regulation. In early 2012, Nigeria issued draft transfer pricing regulations for consultation with a view to publishing them at the end of the same year. In order to gauge the reaction of the stakeholders in Nigeria to the adoption and implementation of transfer pricing regulations and other related issues, a questionnaire was designed and administered to 140 respondents from eight different stakeholders groups including Nigerian tax authority, multinational companies in the petroleum sector and other organisations involved in tax matters. The questionnaire elicited their views on the (i) form of adoption of transfer pricing regulations; (ii) motive behind the adoption of the regulations; (iii) administrative resource capacity of the Nigerian tax authority; (iv) barriers that might hinder successful implementation of the regulations; and (v) needs for guidance and support. Institutional theory and resource-based view were employed as a theoretical lens through which to guide the study and to provide a platform against which to analyse the responses to the questionnaire and the interviews. The analysis of the responses to the questionnaire was thus undertaken subsequent to the adoption of the transfer pricing system which enabled informed reflection and critical analysis to be carried out on the results of the analysis. In addition, interviews with 16 experts were conducted subsequent to the issue and preliminary analysis of the responses to the questionnaire in order to gauge their reaction to the views being expressed by the respondents. This enabled a reflective analysis to be undertaken when assessing the information content emerging from the responses. The findings of the study indicate that the OECD transfer pricing framework, which is the transfer pricing system of choice amongst the developed countries, is not the most preferred framework for the regulation of transfer pricing in Nigeria. It also reveals that whilst the Nigerian tax authority has the administrative capacity to develop a transfer pricing team and other necessary platforms for the adoption and implementation of transfer pricing regulations, the lack of sufficient transfer pricing experts, political will and inadequate comparable information are the major potential barriers that might hinder the successful implementation of transfer pricing regulations in Nigeria. These findings should enable policy makers and other stakeholders in Nigeria to review their transfer pricing policies and find a way to overcome the identified potential barriers. This thesis is the first of its kind to empirically investigate the transfer pricing regulations in Nigeria with a particular emphasis on the petroleum sector. It also further establishes the use of institutional theory and resource-based view framework in transfer pricing studies and especially, by extending its application to the adoption and implementation of transfer pricing regulations with a particular emphasis on the petroleum sector.