TRANSFER PRICING AND BUSINESS PROFIT TAXATION OF MULTINATIONAL COMPANIES IN NIGERIA
1.0 INTRODUCTION
1.1 Background of the study
1.2 Statement of problem
1.3 Objective of the study
1.4 Research Hypotheses
1.5 Significance of the study
1.6 Scope and limitation of the study
1.7 Definition of terms
1.8 Organization of the study
CHAPTER TWO
2.0 LITERATURE REVIEW
CHAPTER THREE
3.0 Research methodology
3.1 sources of data collection
3.3 Population of the study
3.4 Sampling and sampling distribution
3.5 Validation of research instrument
3.6 Method of data analysis
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS AND INTERPRETATION
4.1 Introductions
4.2 Data analysis
CHAPTER FIVE
5.1 Introduction
5.2 Summary
5.3 Conclusion
5.4 Recommendation
Appendix
ABSTRACT
This study is on transfer pricing and business profit taxation of multinational companies in Nigeria. The total population for the study is 200 staff of NNPC, Lagos state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made administrative staff, human resource managers, senior staff and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
CHAPTER ONE
INTRODUCTION
- Background of the study
Transfer pricing constitute the price determined for the sale of goods and services between a related and controlled organization. An illustration is when a subsidiary firm sells goods to a parent organization. When the parent organization pays for the goods the cost paid by the parent firm constitutes the transfer price. Legal entities which operate under the control of a single corporation consist of those firms and their branches which are wholly or majorly owned ultimately by the parent corporation. Also firms are considered to be under common control if they share family members on their boards of directors. Transfer pricing can be used as a profit allocation method to allocate a multinational firms net profit (or loss) before tax to the countries where it does business. Consequently transfer pricing results in the setting of prices among firms of divisions within an enterprise. The use of transfer pricing multinationally has a Tax advantage, but this is against the regulatory requirement of Tax collectors as they are against the use of transfer pricing for tax avoidance. This implies that if a company uses transfer pricing they can book profits of goods and services in another country that may have a lower tax rate. But in some cases they can avoid tariff on goods and services exchanged internationally in the transfer of goods and services from one country to another within an interrelated company transaction. The Organization for Economic Cooperation and Development (OECD), and auditing firms within each international location are responsible for international tax laws and audit financial statements according to the Arm’s length principle. Article 9 of the OECD Model Tax Convention is dedicated to the Arm’s Length Principle (ALP). The principle stipulates that the transfer prices set between the corporate entities should be in manner as If they were two independent entities. OCED has provided a framework in the Transfer Pricing Guidelines which stipulate the details regarding the arm’s length price. The benefit of transfer price show that the ALP is based on real markets and gives the governments and MNE a single international standard for the contracts that provide an allowance for various different government entities to collect their share of tax at the same time creating enough room for the MNE’s to avoid the double taxation. Transfer pricing helps in reducing the duty costs by shipping goods into high tariff countries at minimal transfer prices so that duty base associated with these transactions are low. Reducing income taxes in high tax countries by overpricing goods that are transferred to units in those countries where the tax rate is comparatively lower thereby giving them a higher profit margin.
- STATEMENT OF THE PROBLEM
Transfer pricing also possess some challenges. Disagreement among the organizational division managers often does ensue as to what should be the nature of transfer policies. Also additional costs are encountered regarding the with the required time and manpower required to execute transfer pricing and designing the accounting system. Difficulties also arise as to estimating the right amount of pricing policy for intangibles such as services, since these departments do not provide measurable benefits. Dysfunctional behavior could also arise among managers of organizational units. Another matter of concern is the process of transfer pricing is highly complicated and time-consuming in large multi-nationals. Buyer and seller perform different functions from each other that undertakes different types of risks. For instance, the seller may or may not provide the warranty for the product. But the price a buyer would pay would be affected by the difference. The risks that impact prices are as follows. Financial & currency risk, Collection risk, Market and entrepreneurial risk, Product obsolescence risk, Credit risk
- OBJECTIVE OF THE STUDY
The objectives of the study are;
- To determine transfer pricing and business profit taxation of multinational companies in Nigeria.
- To ascertain the relationship between transfer pricing and business profit taxation of multinational companies in Nigeria
- To find the challenges of transfer pricing in multinational companies in Nigeria
- RESEARCH HYPOTHESES
H1: there is no the relationship between transfer pricing and business profit taxation of multinational companies in Nigeria
HO: there is the relationship between transfer pricing and business profit taxation of multinational companies in Nigeria
H02: there are no challenges of transfer pricing in multinational companies in Nigeria
H0: there are challenges of transfer pricing in multinational companies in Nigeria
- SIGNIFICANCE OF THE STUDY
The study will be very significant to students and companies. The study shall elucidate on the nature and impact of Transfer pricing and business profit taxation of multinational companies in Nigeria. It will also serve as a reference to other researcher that will embark on this topic.
1.6 SCOPE AND LIMITATION OF THE STUDY
The scope of the study covers transfers pricing and business profit taxation of multinational companies in Nigeria. The researcher encounters some constraints which limit the scope of the study namely:
AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
1.9 DEFINITION OF TERMS
Competent authority; is a person identified as such in a Double Taxation Convention and who by that Convention is given the authority to carry out certain functions under that Convention
(i) ―controlled transaction means a commercial or financial transaction between connected taxable persons
(j) ―connected taxable persons in the context of these Regulations is as defined in regulation 10 of these Regulations
(t) ―OECD means the Organization For Economic Cooperation and Development;
1.8 ORGANIZATION OF THE STUDY
This research work is organized in five chapters, for easy understanding, as follows
Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding. Chapter five gives summary, conclusion, and recommendations made of the study.
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