Tax advisory firm, Kreston Pedabo, has warned that companies relying on inter-company loans and other related-party financing arrangements will face tighter scrutiny under the Nigeria Tax Act 2025.

According to the advisory firm, this is as the new regime expands transfer pricing obligations, restricts interest deductions and removes longstanding withholding tax exemptions on certain foreign loans.

The company disclosed this In its September 2026 Monthly Newsletter, where it argued that the tax reforms marked one of the most significant shifts in the country’s corporate tax framework.

The firm stated that this has brought the country closer to global Organisation for Economic Co-operation and Development (OECD) standards aimed at curbing profit shifting and ensuring taxes are paid where economic value is created.

Titled: “Impact of the Nigeria Tax Act 2025 on Related Party Financing,” the report was authored by Adewale Kayode, Manager, Tax Services; Ayodeji Adenugba, Senior Associate, Tax Services; and Esther Nofiu, Senior Associate, Tax Services.

According to the firm, the law signed on 26 June 2025 and effective from January 1, 2026, significantly broadens the powers of the Nigeria Revenue Service (NRS) to examine transactions between connected companies, including shareholder loans, parent-subsidiary financing, affiliate lending, guarantees and other intra-group funding arrangements.

Kreston Pedabo said one of the most consequential changes is the expansion of the interest deductibility limitation.

Under the previous Companies Income Tax Act (CITA), as amended by the Finance Act 2019, the 30 per cent EBITDA cap applied mainly to loans from foreign connected parties. However, the new law extends the restriction to both foreign and domestic transactions involving connected persons, except for banking and insurance companies.

The advisory firm noted that the definition of debt has also been widened to include loans, financial instruments, finance leases and derivatives, reducing opportunities for companies to lower taxable profits through excessive debt funding.

It added: “Related party financing is frequently deployed as a tax planning mechanism, creating opportunities for base erosion and profit shifting,” adding that the broader rules are intended to close gaps previously exploited by corporate groups.

The firm also highlighted tougher transfer pricing requirements, saying taxpayers must now demonstrate that interest rates, loan tenures, repayment schedules and collateral arrangements reflect market conditions under the arm’s length principle.

To support compliance, companies are expected to maintain contemporaneous documentation, including executed loan agreements, creditworthiness assessments, benchmarking studies and evidence of the commercial rationale behind financing arrangements.

Kreston Pedabo added that businesses must submit prescribed transfer pricing declarations and annual disclosure forms covering all related-party financing transactions undertaken during each accounting period to avoid penalties and transfer pricing adjustments. The report further pointed to a major shift in withholding tax treatment.

It said the Nigeria Tax Act (NTA) has removed previous exemptions on interest payable on certain foreign loans, making interest on all foreign loans, including those from related parties generally subject to a 10 per cent withholding tax, with a reduced 7.5 per cent rate available where an applicable double taxation agreement exists.

Kreston Pedabo warned that the change could increase the cost of foreign borrowing for Nigerian businesses and reduce net yields for overseas lenders, potentially influencing foreign investment decisions.

Besides, the firm advised multinational and domestic corporate groups to review their intercompany loan terms, debt-to-equity ratios and transfer pricing policies.

The advisory firm warned that financing arrangements lacking commercial substance or adequate documentation could attract heightened tax audits under the new regime. ( Arise News)