Tax and Transfer Pricing

RESIDENCY: Controversy over which State Government is the relevant Tax Authority in Nigeria

Over the years governments have consistently used tax as a means of raising revenues. As life evolved and the need to transact between different locales began to increase and technologies to aid the mobility of persons was continually created. Humans began to trade in different parts or states from the world. As business men needed a level of accommodation at their place of transaction to facilitate ease of trading activities, various state institutions began to question: Who owns the tax from the trade? Is it the place that hosts him during the trade or the place he literally takes the money to utilize? These arguments and more have led to the need for precision in law as to who gets the tax.

These were the background for the introduction of the term residence. The term Reside has been defined: to have one’s permanent home in a particular place.  A person can have two places of residence, such as one in the city and one in the country, but only one domicile. Residence means living in a particular locality, but domicile means living in that locality with the intent to make it a fixed and permanent home.[1]

The criteria for residence for tax purposes vary considerably from jurisdiction to jurisdiction, and “residence” can be different for other, non-tax purposes. For individuals, physical presence in a jurisdiction is the main test.[2] This implies that the concept of residence applies to persons, companies and multinationals in different ways. There are also different ways of determining who gets the tax.  In the Nigeria domestic taxationresidence is an important concept as in bilateral tax treaties[3] The concept of residence determines the extent to which the income of a taxpayer is liable to tax under a tax jurisdiction. The controversy over which State Government is the relevant tax authority authorized to collect Personal Income Tax. This pertains to where the tax payer resides in one State but works in another State, or where the tax payer works in more than two State, during each year of tax assessment, which has not abated with the passing into Law of the Personal Income Tax (Amendment) Act, 2011, Act No. 20 (“PITA Amendment”).[4]

Section 2 (1) (A) and (2) of the ”PITA”[5] provides: Personal Income Tax shall be paid for each year of assessment on the total income of every individual based on the State where the tax payer resides, in the relevant year of personal income tax assessment, and not based on where the individual tax payer works or carries on business.

In Nigeria, an individual tax payer’s residence is determined by where he lives excluding temporarily lodgings: hotels, office place. It is also important to note that the amendment of s31 of PITA which amended an itinerant worker has introduced other exemptions.






[4] Oserogho & Associates. Business Solicitors, Tax Advisers & Notary Public

[5] Personal Income Tax Act, CAP P8, Laws of the Federation of Nigeria, 2004 (”PITA”)

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