Nigeria vs Prime Plastichem Nigeria Limited, February 2020, Tax Appeal Tribunal, Case No TAT/LZ/CIT/015/2017

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Prime Plastichem Nigeria Limited is a private limited company which engages in the business of trading in imported plastics and petrochemicals. Prime Plastichem Nigeria Limited had applied an internal CUP in determining the arm’s length price of its purchase of petrochemical products from its offshore related party, Vinmar Overseas Limited by comparing the controlled prices of products with the prices whereby the products were sold to third party customers. However, in 2014, Vinmar Overseas Limited did not sell to third party customers in Nigeria and there was no basis for applying the internal CUP. Prime Plastichem Nigeria Limited instead applied the TNMM.

In 2016, the Nigerian Tax Authorities reviewed the transfer pricing and disregarded the CUP analysis applied in the 2013 TP documentation, applied TNMM to both 2013 and 2014 transactions, and issued an assessment of ₦1.74 billion.

Both parties disagreed on the applicable profit level indicator (PLI) to be adopted in applying the TNMM and the comparables selected in the TNMM analysis. Prime Plastichem Nigeria Limited appealed to the Tax Appeal Tribunal and on 19 February 2020, the Tribunal upheld the assessment.

The Nigerian Tax Appeal Tribunal held that the ₦1.74 billion assessment issued by the Nigerian Tax Authorities to Prime Plastichem Nigeria Limited with respect to the company’s TP audit was lawful.

Prime Plastichem Nigeria Limited had not been able to provide satisfactory explanation for its use of CUP for 2013 where there was insufficient information available to reliably apply the CUP. Furthermore, Prime Plastichem Nigeria Limited had not applied the TNMM method consistently in 2014 across years.

The Tribunal agreed with the Tax authorities that Gross Profit Margin was the applicable PLI especially because the Tax authorities was able to establish that the Gross Profit Margin is in line with best practices and the fact that it also took into account the various factors enumerated by the OECD.