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CBN to execute uniform standards on transfer pricing arrangements

The guidelines for Shared Service Arrangements for banks and Other Financial Institutions are effective from June 2021

The Central Bank of Nigeria (CBN) has planned to implement a uniform standard on transfer pricing arrangements in the country, according to the media. From June 2021, the Nigerian banking industry will be adhering to the guidelines for Shared Service Arrangements for banks and Other Financial Institutions (OFIs) released by the CBN.

Kevin Amigo, the director of the Financial Policy and Regulation Department at the CBN, signed a circular that stated, the uneven management of shared services with the attendant concerts on governance, financial and tax management practices are due to the absence of standards on shared services and transfers pricing arrangements in the Nigerian banking industry.

The circular further said that the CBN had issued an Exposure Draft in November 2019 to streamline the activities of firms involved in shared services and transfer pricing. The Exposure Draft sought to harvest opinions of the stakeholders on the abuses, including the usage of shared services arrangements as a tax shield.

According to CBN, the aim of the guidelines are set for shared services arrangements between a parent company and its subsidiary. This will also help to ensure that the fees received or paid to reflect the services rendered by taking into account the assets used and the risks assumed. Furthermore, to make sure that financial institutions comply with the extant transfer pricing regulation in Nigeria and reduce the operational cost of benefitting institutions.

The guidelines’ provisions were limited to merchant banks, financial holding companies, OFIs, payment service banks and other payment services licensed by the CBN. It is also to note that these firms are either a parent company operating in Nigeria or licensed by the CBN or a subsidiary firm licensed by the CBN and carries out operations in the country.

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