Transfer Pricing and Permanent Establishment (PE): Addressing PE Risk and Profit Attribution in Nigeria.


As multinational enterprises (MNEs) expand their operations across borders, the concept of Permanent Establishment (PE) has gained prominence in international tax and transfer pricing discussions. PE refers to a fixed place of business that creates a tax presence for a foreign enterprise in a host country. This presence can have significant implications for transfer pricing and profit attribution. For Nigerian businesses engaged in cross-border transactions, understanding and managing PE risks are critical to ensure compliance and avoid potential disputes. In this article, we will explore the intersection of transfer pricing and PE and provide insights for Nigerian companies.

Permanent Establishment and its Impact on Transfer Pricing:

PE has the potential to impact transfer pricing in several ways:

  1. Profit Attribution: When a foreign entity has a PE in Nigeria, the profits attributable to that PE must be determined. This can lead to adjustments in transfer prices to align with the arm’s length principle.
  2. Risk Allocation: If a PE bears certain risks in Nigeria, these risks should be considered in the allocation of profits between the PE and the foreign enterprise.
  3. Documentation Compliance: Proper documentation is essential to substantiate the allocation of profits between the PE and the foreign enterprise.

Key Considerations for Addressing PE and Transfer Pricing:

Nigerian companies facing PE risks should consider the following strategies:

  1. PE Risk Assessment: Conduct a thorough assessment to determine if your business activities in Nigeria could lead to the creation of a PE. This involves evaluating the nature and extent of business activities conducted in the country.
  2. Profit Attribution: If a PE is identified, ensure that the profits attributable to the PE are determined in accordance with the OECD’s guidelines on profit attribution to PEs.
  3. Functional Analysis: Perform a detailed functional analysis to determine the functions, assets, and risks associated with the PE’s activities in Nigeria.
  4. Transfer Pricing Methods: Select the appropriate transfer pricing methods to allocate profits between the PE and the foreign enterprise, taking into account the specific circumstances.
  5. Documentation Requirements: Maintain comprehensive documentation that substantiates the allocation of profits and the methodologies used.

Challenges and Mitigation Strategies:

Navigating PE risks in transfer pricing comes with challenges:

  1. Complexity of Regulations: PE rules can be complex and vary across jurisdictions. Understanding Nigerian PE regulations is essential for accurate compliance.
  2. Attribution of Profits: Determining the appropriate allocation of profits between a PE and the foreign enterprise can be challenging, especially if the functions and risks are intertwined.

Seeking professional guidance from accounting and tax experts with expertise in transfer pricing and PE is highly recommended to effectively address these challenges.


For Nigerian businesses engaged in cross-border transactions, understanding the implications of Permanent Establishment on transfer pricing is vital. By conducting PE risk assessments, performing accurate profit attribution, maintaining proper documentation, and seeking expert advice, companies can ensure compliance, mitigate risks, and contribute to a transparent and equitable international tax framework.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, . You can also reach us via WhatsApp at +2348038460036.