• Service: Tax, Global Transfer Pricing Services, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 8/26/2013

Nigeria - Treatment of “recharges” paid to Nigerian subsidiaries 

August 26: Nigeria’s Tax Appeal Tribunal issued two decisions holding against two non-resident taxpayers with respect to whether their taxable turnover in Nigeria could be determined by excluding amounts that they paid to Nigerian subsidiaries engaged to support local execution of their contracts (i.e., payments known as “recharges”).

As explained below, these cases differ from a situation in which the non-resident company and the Nigerian affiliate both were parties to the contracts with customers in Nigeria.


In each case before the Tax Appeal Tribunal, a non-resident company signed and executed contracts in Nigeria. Each company:

  • Retained the services of a Nigerian affiliate to provide logistic support services in Nigeria with respect to the contracts
  • Filed its tax returns on a deemed profit basis, and deducted the amount of recharges paid or accruing to the Nigerian affiliate (i.e., the payment amount was cost reimbursement plus a mark-up, representing the Nigerian affiliate’s profit under the arm’s length principles)

Nigeria’s Federal Inland Revenue Service disallowed the deductions for recharges and issued assessment notices to each company.

Tax Appeal Tribunal’s decisions

In both cases, the Tax Appeal Tribunal held for the tax authorities, finding that the non-resident companies could not deduct the recharge payments in computing their corporate tax on a deemed profit basis.

KPMG observation

The facts in these cases are different from the facts in a case decided by the Federal High Court on recharges. In that case, both the non-resident company and its Nigerian affiliate were parties to the contracts with customers. Thus, two separate revenues could be identified and required separation before determination of the amount of tax that was payable by each party.

In the recent cases before the Tax Appeal Tribunal, the non-resident companies were the sole signatories to the contracts executed with customers in Nigeria. Thus, turnover in these cases refers to to the total receipts of the non-resident companies from the contracts, which include amounts paid to the Nigerian affiliate.

In light of these cases, companies need to consider their situations on a contract-by-contract basis (both past and future) because they may need to quantify the potential tax exposure from the claim of recharges in past tax years. Still, there may be an opportunity for companies to challenge such treatment if they have a tripartite contracting structure like that in the case decided by the Federal High Court.

Read an August 2013 report [PDF 250 KB] prepared by the KPMG member firm in Nigeria: Tax Appeal Tribunal Rulings on Recharges

Contact a tax professional with KPMG's Global Transfer Pricing Services.

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