Transfer Pricing Manipulation and Economy: Evidence from Nigeria

This research uses Auto-Regressive Distributed Lag models (ARDL) to investigate the effect of transfer pricing manipulation on Nigerian economy. Time series data from 1970 to 2016 obtained from World Bank data base on transfer pricing manipulation (TPM), trade openness (TO), exchange rate (EXH) and real gross domestic product (RGDP). The results of the regression showed that real GDP reacted negatively and significantly to rise in transfer pricing in Nigeria. If transfer pricing increases by one standard deviation, the average value of real GDP goes down by 0.24 standard deviation units in the long-run. In the short run, the sign of the error correction term is correct and it shows that about 13.9% of disequilibrium in real GDP due to onetime temporary shock is corrected within a year. The correctness and significance of the error correction term proves the convergence of the estimated ARDL model. This result affirms Organization for Economic Cooperation and Development (OECD) and United Nations (UN) that Transfer pricing manipulation deplete tax revenue in developing countries. The study recommended that Nigeria government should come up with enabling tax laws to enforce Nigeria income tax transfer pricing Regulations, 2018 in other to curb transfer pricing manipulations among Multinational Enterprises (MNEs) in Nigeria.