Effect of Transfer Pricing Regulations on Profit Shifting Among Multinational Enterprises (MNES) in Nigeria

Essien Isang; Iliya Agbu Aji; Iniabasi Thomas Essien

doi:10.56201/jafm.vol.12.no8.2026.p171.186

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Effect of Transfer Pricing Regulations on Profit Shifting Among Multinational Enterprises (MNES) in Nigeria

Essien Isang, Iliya Agbu Aji, Iniabasi Thomas Essien

Abstract

This study examined the effect of transfer pricing regulations on profit shifting among multinational enterprises in Nigeria. Specifically, the study investigated the effects of arm's-length principle compliance, transfer pricing documentation, and transfer pricing audit effectiveness on profit shifting. An ex post facto research design was adopted, while secondary data were obtained from the annual reports and audited financial statements of purposively selected multinational enterprises operating in Nigeria. Profit shifting was measured using a profitability-based proxy, while arm's-length principle compliance, transfer pricing documentation, and transfer pricing audit effectiveness were measured using relevant compliance, disclosure and enforcement indicators. The data were analysed using descriptive statistics, correlation analysis and panel regression techniques. The findings indicated that arm's-length principle compliance had a significant negative effect on profit shifting (β = -0.331, p < 0.05). Transfer pricing documentation also had a significant negative effect on profit shifting (β = -0.286, p < 0.05), while transfer pricing audit effectiveness exerted a significant negative effect on profit shifting (β = -0.376, p < 0.05). The study therefore concludes that effective transfer pricing regulation can constrain profit- shifting practices among multinational enterprises in Nigeria. The study recommends that Nigerian tax authorities strengthen monitoring of related-party transactions, improve transfer pricing audit capacity, promote comprehensive transfer pricing documentation, and enhance enforcement of the arm's-length principle. These measures would improve tax compliance, reduce opportunities for artificial profit allocation and strengthen the protection of Nigeria's corporate tax base.

Keywords

Transfer pricing regulationsprofit shiftingmultinational enterprisesarm's- length principletransfer pricing documentationtransfer pricing auditNigeria. JAFM JAFM JAFM

References

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Effect of Transfer Pricing Regulations on Profit Shifting Among Multinational Enterprises (MNES) in Nigeria

Abstract

Keywords

References

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