UNDERSTANDING RELATED-PARTY TRANSACTIONS

Introduction

Related-party transactions are a normal and often necessary part of how businesses operate. Companies within a group share services, lend money, license intellectual property, and buy and sell goods from one another. These transactions support business expansion, create operational efficiencies, and enable multinational groups to function as integrated enterprises.

But related-party transactions also create opportunities for profit shifting. When pricing does not reflect what independent companies would agree under similar conditions, profits can be moved from one jurisdiction to another—reducing the tax base where economic activity actually occurs .

This is why tax authorities globally, and increasingly in Nigeria, scrutinise related-party transactions with heightened intensity. The Nigeria Tax Act 2025 has expanded enforcement powers, giving tax authorities the ability to disregard transactions considered artificial and make adjustments to counteract any reduction in tax liability .

Understanding related-party transactions—what they are, who qualifies as a connected person, how they are priced, and how they must be documented—is now essential for any business operating within a group structure.

At Qeeva Advisory, we understand that related-party transactions require technical expertise, disciplined documentation, and proactive compliance. Our team helps Nigerian businesses identify controlled transactions, apply the arm’s length principle, and prepare documentation that withstands NRS scrutiny.

This comprehensive guide examines related-party transactions, covering the definition of connected persons, the arm’s length principle, documentation requirements, disclosure obligations, and how Qeeva Advisory helps businesses manage TP compliance.

The Pain Points: Why Related-Party Transactions Matter Now More Than Ever

The Expanded Enforcement Powers

The Nigeria Tax Act 2025 has fundamentally changed the enforcement landscape. Tax authorities are now empowered to “disregard any disposition or transaction” considered artificial and make adjustments to counteract any reduction in tax liability . This marks a shift from assessing the legal form of transactions to focusing on their underlying economic reality.

Transactions between connected parties may be treated as artificial where they are not conducted at arm’s length or are structured primarily to obtain a tax advantage .

The Intensified Scrutiny

Transfer pricing remains one of the highest tax-risk areas for companies operating in Nigeria. The NRS has restructured its International Tax Department, reorganised the transfer pricing audit team into specialised sub-groups (including FinTech, telecommunications, and other sectors), and recruited additional staff to improve technical capacity for transfer pricing investigations .

Companies are now required to provide detailed documentation to support their related-party transactions, including how prices are determined and whether services provided offer real value. In many cases, businesses are expected to go beyond basic reporting and clearly explain the purpose and benefit of each transaction .

The Penalty Exposure

The penalties for non-compliance are severe. Failure to disclose controlled transactions or maintain contemporaneous transfer pricing documentation attracts a minimum penalty of ₦10 million for each failure . Where disclosure is incorrect, an administrative penalty of the higher of ₦10 million or 1% of the value of controlled transactions incorrectly disclosed applies .

The Documentation Imperative

Transfer pricing documentation must demonstrate sufficient information and analysis to verify consistency of taxable profits derived from controlled transactions with the arm’s length principle . When the NRS loses confidence in your numbers, they may assess based on turnover—and estimates rarely favor the taxpayer.

What Are Related-Party Transactions?

Definition

A related-party transaction is a commercial or financial transaction between connected persons . The term “controlled transaction” is also used to describe the same concept .

These transactions can take many forms:

• Sale and purchase of goods – Inventory, raw materials, finished products

• Provision of services – Management fees, technical services, administrative support

• Use of intellectual property – Royalties, license fees

• Financing arrangements – Loans, guarantees, cash pooling

• Rental and lease arrangements – Property, equipment

• Cost sharing arrangements – Shared services, joint development

Who Is a Connected Person?

The Income Tax (Transfer Pricing) Regulations 2018 define “connected persons” by reference to the relevant tax laws, including CITA, PITA, and PPTA . In general, connected persons include:

• Companies under common control

• Parent and subsidiary companies

• Companies with common directors or shareholders

• Individuals and their controlled entities

• Entities connected through family relationships

The definition is intentionally broad. As the Regulations apply to all transactions between connected persons—whether cross-border or domestic—the scope of covered transactions is extensive .

The Arm’s Length Principle

The arm’s length principle is the international standard for pricing related-party transactions. It requires that transactions between connected persons be priced as if they were between independent parties dealing at arm’s length in comparable circumstances.

When examining whether taxable profit from controlled transactions is consistent with the arm’s length principle, the NRS bases its review on the transfer pricing method used by the taxpayer—where such method is appropriate—or on a method the NRS considers most appropriate .

The Nigerian Transfer Pricing Framework

Income Tax (Transfer Pricing) Regulations 2018

The TP Regulations govern transfer pricing in Nigeria. Key requirements include :

• Contemporaneous documentation must exist by the income tax return due date

• Master File providing group-level context

• Local File providing entity-specific transaction analysis

• Country-by-Country Report (CbCR) for MNE groups meeting the threshold

• Declaration and Disclosure Forms filed with the NRS

The TP Regulations were neither repealed nor amended by the NTA 2025. Section 198(b) of the NTA provides that subsidiary legislation made under repealed or amended enactments continues in force unless inconsistent with the NTA .

Country-by-Country Reporting

Each Ultimate Parent Entity (UPE) of an MNE Group with Consolidated Group Revenue (CGR) of ₦160 billion or above is required to file a CbCR with the FIRS on an annual basis, provided the UPE is resident in Nigeria for tax purposes . The CbCR must be filed not later than 12 months after the last day of the Reporting Accounting Year .

For Nigerian entities of foreign MNE groups, the threshold is based on the parent company’s jurisdiction (OECD threshold: €750 million). Failure to submit the CbCR attracts a penalty of ₦10 million in the first instance and ₦1 million for every month in which the default continues .

The NTA 2025 Changes

The Nigeria Tax Act 2025 has strengthened transfer pricing rules and introduced tighter disclosure requirements . Key changes include:

• Substance-over-form approach – Tax authorities can disregard artificial transactions

• Minimum effective tax rate – 15% for constituent entities of large MNEs

• Interest deduction limits – Now extended to financing arrangements between connected persons, limited to 30% of EBITDA

• Statute of limitation modifications – Tax authorities can continue disputes where audits began before the six-year limitation period

Nigeria has also introduced an Advance Pricing Agreement framework, allowing taxpayers to agree in advance with the tax authority on acceptable pricing methods for related-party transactions .

Key Areas of Related-Party Scrutiny

1. Management Fees and Intra-Group Services

Management fees have become one of the most scrutinised related-party transactions. For a service charge to be consistent with the arm’s length principle, it must be :

• Charged for a service that is actually rendered

• Provide the recipient with economic or commercial value

• Be something an independent person in comparable circumstances would have been willing to pay for

Common red flags include generic descriptions like “management support” without service agreements, detailed descriptions, or evidence of actual performance. The benefit test must be satisfied before pricing is even considered .

2. Royalties and Intangibles

For the transfer of rights in an intangible among connected parties, any amount that exceeds 5% of EBITDA derived from the commercial activity conducted using the intangible is not tax-deductible .

There is also a distinction between the NTA and TP Regulations regarding royalty deductions. Section 17 of the NTA 2025 provides that where a Permanent Establishment in Nigeria incurs royalty expenses in return for the use of patents or other rights, such expenses shall not be deductible . This interacts with the 5% EBITDA restriction under Regulation 7 of the TP Regulations, creating uncertainty that taxpayers await clarification on .

3. Intra-Group Financing

Intra-group financing arrangements—loans, cash pooling, and guarantees—are increasingly scrutinised. The NRS is interrogating not just withholding tax compliance, but the arm’s length nature of interest rates and the accurate characterisation of transactions .

Regulation 8(1) addresses “capital-rich, low-function companies” that do not control financial risks associated with their funding activities. Such companies “shall not be allocated the profits associated with those risks and will be entitled to no more than a risk-free return” .

4. Commodity Transactions

Special rules apply to commodity transactions. For exports, if the related-party price is lower than the quoted price, the quoted price becomes the sale price for tax purposes. For imports, if the related-party price is higher than the quoted price, the quoted price becomes the sale price .

Documentation and Disclosure Requirements

Contemporaneous Documentation

Transfer pricing documentation must be contemporaneous—compiled and maintained as the transaction occurs, not reconstructed after the fact . It must exist before the income tax return filing deadline.

The documentation must demonstrate sufficient information and analysis to verify consistency of taxable profits with the arm’s length principle . The burden of proof rests with the taxpayer.

The Three-Tiered Structure

Nigerian TP Regulations require :

Declaration and Disclosure Forms

Taxpayers must file TP Declaration and Disclosure Forms alongside their corporate tax returns. These forms require :

• TP Declaration Form – Particulars of the reporting company, ownership structure, and related persons

• TP Disclosure Form – Details of income and cost from controlled transactions, TP methods used, and documentation status

The Declaration and Disclosure Forms must be filed no later than 6 months after year-end (or 18 months after incorporation, whichever is earlier) .

Production Deadlines

For companies with controlled transactions of ₦300 million or more, TP documentation must be furnished within 21 days of receipt of an NRS notice requesting submission. For companies below that threshold, the window extends to 90 days .

Record Retention

Records must be maintained for at least six years. However, where an audit was commenced within the six-year window, or where deliberate misstatement is suspected, records may be required for much longer .

Common Related-Party Transaction Mistakes

1. Assuming Foreign Documentation Is Sufficient. A TP position that satisfies US or OECD requirements may still leave a Nigerian subsidiary exposed. Nigeria has its own compliance architecture .

2. Reconstructing Documentation After Audit Begins. Contemporaneous documentation must exist as transactions occur. Retrospective reconstruction is not compliance .

3. Generic Management Fee Descriptions. Relying on descriptions like “management support” without service agreements, detailed descriptions, or evidence of actual performance is a common red flag .

4. Missing Benefit Test Evidence. Charging for services that duplicate local functions or constitute shareholder activities will be challenged .

5. Ignoring the 21-Day Response Window. For transactions ≥₦300m, documentation must be produced within 21 days of NRS request. This requires pre-existing, organized records .

6. Overlooking Commodity Price Rules. Export and import transactions have special pricing rules that can override the agreed price .

7. Royalty Deduction Limits. For intangibles, any amount exceeding 5% of EBITDA from the commercial activity using the intangible is not tax-deductible .

8. No CbCR Filing. If your group meets the ₦160 billion threshold, CbCR filing is mandatory—not optional .

How Qeeva Advisory Helps with Related-Party Transactions

At Qeeva Advisory, we understand that related-party transactions require technical expertise, disciplined documentation, and proactive compliance. Our team helps Nigerian businesses identify controlled transactions, apply the arm’s length principle, and prepare documentation that withstands NRS scrutiny.

Our Core Services

Transfer Pricing Advisory – We help you prepare Master File, Local File, and CbCR documentation, conduct comparability analyses, and develop TP policies.

Transfer Pricing Documentation Burndown – We help you systematically close documentation gaps, from current readiness to complete, contemporaneous, audit-ready documentation.

Tax Advisory Services – We help you navigate Nigeria’s tax system, including TP compliance and dispute resolution.

Tax Audit Defense Service – We provide comprehensive support for businesses facing TP audits, including documentation compilation and response coordination.

Internal Control Advisory Service – We help you design controls that ensure related-party transactions are properly identified, priced, and documented.

Risk Management Services – We help you identify, assess, and mitigate TP compliance risks.

Advisory Services Nigeria – Our advisory professionals provide strategic guidance on TP documentation, regulatory engagement, and dispute resolution.

Our Related-Party Transaction Methodology

Phase 1: Related-Party Transaction Diagnostic – We identify all connected persons and controlled transactions. We assess your current TP documentation against Nigerian regulatory requirements. We identify gaps, prioritize by risk, and establish your readiness baseline.

Phase 2: Evidence Remediation – We help compile missing records, draft or update intercompany agreements, collect performance evidence for services, and build comparability analyses.

Phase 3: Documentation Preparation – We draft or update the Master File, Local File, and CbCR, ensuring alignment across documents and contemporaneous status.

Phase 4: Filing and Submission Readiness – We prepare Declaration and Disclosure Forms, confirm filing deadlines, and ensure documentation is organized for rapid production.

Phase 5: Ongoing Monitoring and Sustainment – We track documentation currency, conduct periodic self-audits, and support NRS inquiries.

Frequently Asked Questions

Q: What is a related-party transaction?

A: A related-party transaction is a commercial or financial transaction between connected persons. It is also called a “controlled transaction” .

Q: Who qualifies as a connected person?

A: Connected persons include companies under common control, parent and subsidiary companies, companies with common directors or shareholders, and entities connected through family relationships. The definition is broad and applies to both cross-border and domestic transactions .

Q: What is the arm’s length principle?

A: The arm’s length principle requires that transactions between connected persons be priced as if they were between independent parties dealing at arm’s length in comparable circumstances.

Q: What documentation must I maintain for related-party transactions?

A: You must maintain a Master File, Local File, and CbCR (if applicable), plus TP Declaration and Disclosure Forms filed alongside corporate tax returns. Documentation must be contemporaneous .

Q: When must TP documentation be produced?

A: For transactions ≥₦300 million, within 21 days of an NRS request. For transactions below that threshold, within 90 days .

Q: What is the CbCR filing threshold?

A: ₦160 billion consolidated group revenue for MNE groups headquartered in Nigeria. For Nigerian entities of foreign groups, the OECD threshold of €750 million applies .

Q: What are the penalties for non-compliance?

A: Failure to disclose controlled transactions or maintain contemporaneous TP documentation attracts a minimum penalty of ₦10 million for each failure . CbCR non-compliance attracts ₦10 million in the first instance and ₦1 million monthly .

Q: How can Qeeva Advisory help with related-party transactions?

A: We provide diagnostic assessment, evidence remediation, documentation preparation, filing readiness, and ongoing monitoring. Our services help you identify controlled transactions, apply the arm’s length principle, and maintain audit-ready compliance.

The Bottom Line

Related-party transactions are a normal part of group operations—but they are also a high-risk area for tax authorities. In Nigeria’s hardening enforcement environment, businesses that systematically identify controlled transactions, apply the arm’s length principle, and maintain contemporaneous documentation will defend their TP positions, avoid penalties, and demonstrate compliance discipline.

Key Takeaways:

Identify All Controlled Transactions – Map every transaction with connected persons, whether cross-border or domestic.

Apply the Arm’s Length Principle – Price transactions as if between independent parties. Document your analysis.

Maintain Contemporaneous Documentation – Master File, Local File, and CbCR must exist as transactions occur, not reconstructed after the fact .

Meet the Production Deadline – For transactions ≥₦300m, documentation must be produced within 21 days of NRS request .

File Declaration and Disclosure Forms – Within 6 months after year-end (or 18 months after incorporation, whichever is earlier) .

Monitor NTA 2025 Changes – Substance-over-form approach, interest deduction limits, and APA framework are reshaping the landscape .

Your job is to be prepared. Identify your related-party transactions. Apply arm’s length pricing. Maintain documentation. Meet your deadlines. Seek professional guidance.

With the right approach and the right partner, you can turn related-party transactions from a compliance risk into a demonstration of disciplined tax governance.

Suggested Reading from Our Blog

Transfer Pricing Documentation Burndown – Complete guide to closing documentation gaps and maintaining audit-ready TP files.

Master File vs. Local File: Key Differences – Understanding the distinct purposes of the two-tier documentation structure.

Transfer Pricing Advisory – We help you prepare Master File, Local File, and CbCR documentation.

Tax Advisory Services – We help you navigate Nigeria’s tax system, including TP compliance.

Tax Audit Defense Service – We provide comprehensive support for businesses facing TP audits.

Tax Risk & Governance Advisory – We help you build tax control frameworks that integrate with TP documentation.

Internal Control Advisory Service – We help you design controls for related-party transaction compliance.

Advisory Services Nigeria – Strategic guidance on TP documentation and regulatory engagement.

Reference Links / Sources

Qeeva Advisory – Transfer Pricing Documentation Burndown – Master File, Local File, CbCR, and contemporaneous documentation.

Qeeva Advisory – Master File vs. Local File – Understanding the two-tier documentation structure.

Qeeva Advisory – Transfer Pricing Advisory – TP documentation preparation and comparability analysis.

Qeeva Advisory – Tax Advisory Services – Tax compliance and planning.

Qeeva Advisory – Tax Audit Defense Service – Pre-audit preparation and documentation compilation.

Qeeva Advisory – Tax Risk & Governance Advisory – Tax control frameworks and governance.

Qeeva Advisory – Internal Control Advisory Service – Controls for related-party transaction compliance.

Qeeva Advisory – Advisory Services Nigeria – TP documentation and regulatory engagement.

Let’s Talk About Your Related-Party Transaction Needs

Understanding and managing related-party transactions is essential for protecting your tax position, avoiding penalties, and demonstrating compliance discipline. At Qeeva Advisory, we understand the TP challenges faced by Nigerian businesses.

Whether you need help with transaction identification, documentation preparation, comparability analysis, or audit defense, we are here to support you.

📞 Call us: (+234) 802 320 0801, (+234) 807 576 5799

📧 Email: info@qeeva.com

📍 Visit us: 5, Ishola Bello Close, Off Iyalla Street, Alausa, Ikeja, Lagos, Nigeria

Contact us today to schedule a related-party transaction consultation. Let us help you manage your TP compliance with confidence.

Your journey to TP compliance starts with a conversation. Let’s talk.