TRANSFER PRICING AUDIT AND TAX COMPLIANCE LEVEL OF MULTINATIONAL COMPANIES IN NIGERIA

Abstract

This study examined the effect of Transfer Pricing Audit on Tax Compliance Level of Multinational Companies in Nigeria. Specifically, the study sought to determine the effect of probability of transfer pricing audit, corporate tax rate, tax penalty imposition, and shared tax information on tax compliance level of multinational companies in Nigeria. Survey design was adopted and data were sourced through structured questionnaires using 5-point Likert scale. Ordered Logistic Regression technique was employed to analyse the responses. The result showed significant and positive relationship between transfer pricing audit and multinational tax compliance level. The probability of transfer pricing audit, tax penalty and shared tax information jointly has significant and positive effect on tax compliance of multinational companies. The finding also indicates that corporate tax rate has significant but negative effect on the tax compliance of multinational companies. The implication of the findings is that if transfer pricing audit is effectively and efficiently carried out, government revenue for domestic infrastructural development would be improved as most of the multinational companies which accounts for greater portion of Nigeria tax base and revenue will comply thereby increasing their compliance level in Nigeria. The study recommends that government and tax authority (FIRS) in particular should give more emphasis and greater attention on the role of transfer pricing audit as it has the capacity to improve multinational taxpayer’s tax compliance in order to curtail illicit financial outflows, generate more tax revenue and improve tax to GDP ratio in Nigeria.