Nigeria’s tax authorities are increasing scrutiny of transactions between related companies as part of efforts to boost revenue and reduce tax leakages.The increased focus is backed by the Nigeria Tax Act 2025 (NTA 2025), which gives regulators more power to examine how companies price deals within their group.Under Section 20 (1) of the Act, companies can only deduct expenses that are wholly and exclusively incurred for business purposes, allowing tax authorities to question and, in some cases, reject payments that do not meet this test“In today’s globalised economy, many companies operate across multiple jurisdictions through subsidiaries and affiliated entities,” Olayinka Adedeji, a tax and transfer pricing professional, wrote in a LinkedIn post.
“While this supports business expansion, it also creates opportunities for profits to be shifted from one country to another through related-party transactions.” Adedeji explained that although these transactions are common in business, they are often open to abuse. She noted that companies regularly carry out activities such as management services, intercompany loans, and the use of intellectual property within their group.
However, problems arise when the pricing does not reflect what independent companies would agree under similar conditions, leading to profit being moved away from where it should be taxed. This practice is not limited to multinational firms. Nigerian companies can also structure their operations in ways that shift profits to entities enjoying tax incentives, such as free zones or special reliefs.
According to Adedeji, this is why tax authorities are now paying closer attention to whether such transactions are fairly priced and supported by real business activityThere is also a focus on ensuring that related-party transactions follow what is known as the arm’s length principle, meaning they should be priced as if the parties involved were independent of each other.
Where this is not the case, companies may be seen as understating profits and reducing their tax obligations
Recent actions by tax authorities show that enforcement is becoming stricter. Companies are now required to provide detailed documentation to support their related-party transactions, including how prices are determined and whether the 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.
Authorities are also paying closer attention to intercompany loans, management fees, and royalty payments, areas where profits can easily be shifted if not properly monitored.
This marks a move away from simply checking documents to actually assessing whether the transactions make business sense