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The short answer
When an Australian company charges its Nigerian subsidiary, both countries expect the price to be what unrelated parties would agree, the arm's length principle. The ATO says related-party international dealings that do not meet it can be adjusted and penalised, and Nigeria's Transfer Pricing Regulations require declarations and documentation, with an exemption from contemporaneous documentation for controlled transactions under ₦300 million. Nigeria's treaty list does not include Australia, which makes getting the price right the first time more important.
What transfer pricing means for a small group
Transfer pricing is the price one company in a group charges another. For an Australian parent with a Lagos subsidiary, the common cases are management or head-office fees, software or brand licences, staff seconded from Australia, goods sold to the subsidiary for resale, and loans between the two. Each of these moves profit from one country to the other, which is why both tax authorities look at them.
The standard both use is the arm's length principle: the price should be what two independent businesses would have agreed in the same circumstances. A fee that is too high moves profit to Australia and reduces Nigerian tax; a fee that is too low does the opposite.
The Australian side
The ATO's transfer pricing page, last updated 15 July 2020, says that international dealings with a related party can affect your Australian tax if the amounts do not comply with the arm's length principle under the transfer pricing rules. Businesses with these dealings may have their pricing reviewed or audited, with the possibility of pricing adjustments and penalties. The ATO says review is more likely as the scope of related-party dealings grows, and that businesses with significant dealings and low tax performance compared with their industry face the greatest risk.
The overview page does not set out documentation thresholds or simplified options for small groups. Those are in more detailed ATO guidance, which a tax agent can apply to your figures.
The Nigerian side
Nigeria's Income Tax (Transfer Pricing) Regulations commenced on 12 March 2018, according to KPMG's summary. Key points from that summary:
- Connected persons whose controlled transactions total less than ₦300 million are exempt from preparing contemporaneous documentation, though the arm's length requirement still applies.
- The deduction for payments for the use of intangible rights is capped at 5% of the relevant earnings (EBITDA).
- The earlier safe harbour was removed.
- Penalties include ₦10 million for failing to file the declaration plus ₦10,000 a day, and for documentation failures the higher of ₦10 million or 1% of the controlled transactions plus ₦10,000 a day.
Loans and funding between the two companies
Funding a new Lagos subsidiary with an intercompany loan is common, and the loan is a controlled transaction like any other. The interest rate, the currency, the repayment terms and any security should be written down and look like terms a lender at arm's length could offer. An interest-free loan, or one that is never repaid, invites questions on both sides. If the money is meant to be permanent, an equity injection may describe it better; your adviser can compare the tax and foreign exchange effects of each before the money moves.
No treaty to fall back on
Nigeria's published list of tax treaties, set out in the FIRS circular on claiming treaty benefits, does not include Australia. Without a treaty there is no treaty-based procedure for the two authorities to agree on a price if each adjusts the same transaction in its own favour, so the same profit can end up taxed twice. Our article on whether a treaty exists explains the wider effect.
Documentation that holds up in both countries
- A written intercompany agreement for each type of charge, signed before the charges start.
- A description of what the subsidiary actually receives: who does the work, how many hours, what it is used for.
- The method used to set the price, for example cost plus a mark-up for routine support services, with the reasoning.
- Evidence of comparable prices where available.
- Invoices issued on the agreed terms and paid, so the accounts match the agreement.
Keep the intercompany balance reconciled every month. Mismatched balances between the two sets of books are one of the first things a reviewer notices. See matching intercompany balances.
Worked example
Example with illustrative figures only. The Australian parent spends A$80,000 a year of staff time supporting its Lagos subsidiary's accounting and IT. It decides, with its adviser, to charge cost plus 5%.
| Item | Figure |
|---|---|
| Cost of support | A$80,000 |
| Mark-up (example 5%) | A$4,000 |
| Annual charge to subsidiary | A$84,000 |
| Quarterly invoice | A$21,000 |
Whether 5% is the right mark-up depends on the facts and on each country's guidance; the example only shows how the charge is built and why the agreement and the cost records matter.
This is general information, not tax advice.
Where Pryme fits
Pryme supports groups with more than one entity, so the parent and the subsidiary can each hold their own business account. The Finance agent prepares intercompany invoices and monthly balance checks, and a person approves them. For setting up the subsidiary itself, see opening a Nigerian subsidiary.
Questions people ask
What is arm's length pricing?
Charging a related company the price two independent businesses would agree in the same circumstances.
Does Nigeria require transfer pricing documentation?
Under the 2018 Regulations as summarised by KPMG, yes, unless controlled transactions total under ₦300 million; the arm's length rule applies either way. Check whether the rules changed under the Nigeria Tax Act 2025.
Is there an Australia-Nigeria tax treaty?
Nigeria's published treaty list does not include Australia.
Can the ATO adjust my management fee?
The ATO says related-party dealings that do not meet the arm's length principle may be reviewed, adjusted and penalised.
Sources
- ATO: Transfer pricing (last updated 15 Jul 2020) · accessed Oct 2026
- KPMG Nigeria: Newsletter on Nigeria's revised Transfer Pricing Regulations (2018) · accessed Oct 2026
- KPMG Nigeria: FIRS information circular on claiming tax treaty benefits (revised) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.