Transfer Pricing for Tangible Goods: Guidelines for Arm’s Length Pricing in Nigerian Transactions.

Tangible Asset - Finance Reference


In the era of global trade and interconnected economies, cross-border transactions involving tangible goods are a common occurrence for Nigerian businesses engaged in international trade. However, ensuring that these transactions comply with the arm’s length principle and transfer pricing regulations is crucial to avoid tax controversies and maintain transparent business practices. In this article, we will delve into the guidelines for determining arm’s length prices for tangible goods in Nigerian transactions.

The Arm’s Length Principle:

The arm’s length principle is the cornerstone of transfer pricing regulations, both globally and in Nigeria. It requires that related parties involved in cross-border transactions price their transactions as if they were unrelated parties dealing under similar circumstances. This principle ensures that profits are allocated fairly and that tax authorities receive their rightful share of tax revenue.

Key Considerations for Arm’s Length Pricing of Tangible Goods:

When determining arm’s length prices for tangible goods, Nigerian companies should consider the following guidelines:

  1. Comparability Analysis: Begin by identifying comparable transactions between unrelated parties that are similar to the transaction in question. These comparables help establish a benchmark for arm’s length pricing.
  2. Functional Analysis: Analyze the functions, assets, and risks associated with the transaction. Consider factors like product specifications, quality, volume, and market conditions.
  3. Selection of Transfer Pricing Method: Choose an appropriate transfer pricing method based on the available data and the nature of the transaction. Common methods for tangible goods transactions include the Comparable Uncontrolled Price (CUP) method, Resale Price Method (RPM), and Transactional Net Margin Method (TNMM).
  4. Data Reliability: Ensure that the data used for the comparability analysis is reliable and accurate. Inadequate or flawed data can lead to incorrect pricing decisions.
  5. Adjustments: If there are differences between the controlled transaction and the comparable uncontrolled transaction, adjustments may be necessary to align them. These adjustments account for variations in factors like product quality, market conditions, and functional differences.
  6. Documentation: Maintain comprehensive transfer pricing documentation that outlines the analysis conducted, the chosen transfer pricing method, and the reasoning behind the arm’s length price determination.

Challenges in Determining Arm’s Length Prices for Tangible Goods:

Several challenges arise when determining arm’s length prices for tangible goods:

  1. Comparability: Finding accurate and reliable comparable transactions in the market can be difficult, especially for unique or specialized products.
  2. Quality of Data: Data used for comparability analysis may not always be readily available or might be of questionable quality.
  3. Functional Analysis Complexity: Conducting a thorough functional analysis to assess the contribution of each party can be intricate, especially in cases involving complex supply chains.

Professional Assistance and Expertise:

Given the intricacies involved in determining arm’s length prices for tangible goods, Nigerian businesses are encouraged to seek professional assistance from accounting and tax experts with expertise in transfer pricing. Experienced professionals can help navigate the challenges, select the appropriate transfer pricing method, and ensure compliance with Nigerian regulations.


Maintaining compliance with the arm’s length principle and transfer pricing regulations is of paramount importance for Nigerian businesses involved in cross-border transactions of tangible goods. By adhering to the guidelines outlined above, maintaining accurate documentation, and seeking professional assistance, businesses can ensure fair pricing, mitigate transfer pricing risks, and contribute to transparent and equitable international trade practices.

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.