The Lagos State Internal Revenue Service has issued a warning to taxpayers against engaging in artificial or fictitious transactions designed to reduce tax liabilities. According to the LIRS, such arrangements will be disregarded under the Nigeria Tax Administration Act, 2025, and may expose culpable taxpayers to investigation and penalties.
In a public notice dated January 21, 2026, the LIRS stated that the directive applies to all taxpayers, including incorporated entities, partnerships, trusts, natural persons, and other stakeholders operating within Lagos State. The notice, signed by Executive Chairman of LIRS, Mr. Ayodele Subair, aims to promote transparency, accuracy, and fairness in tax administration within the state.
Citing Section 46 of the NTAA 2025, the revenue service emphasized that the law provides for the disregard of artificial or fictitious transactions that have the effect of reducing tax liability. Transactions between connected persons, such as related companies or persons, shall be deemed artificial or fictitious if they are not conducted at arm’s length.
The LIRS warned that it is empowered to disregard, adjust, or recast any arrangement perceived to be artificial or primarily structured to reduce tax liability. Any additional tax, penalty, or interest arising from such adjustments would be payable by the affected taxpayer. Furthermore, artificial transactions may also expose taxpayers to investigations, audits, and penalties as prescribed under the NTAA, 2025.
To ensure compliance, taxpayers are directed to ensure that all transactions are genuine, commercially driven, and properly documented. They must maintain full records supporting the legitimacy and commercial basis of each transaction, disclose relationships with connected persons, and ensure that dealings with such persons comply with arm’s length principles.
The notice also referenced the Income Tax (Transfer Pricing) Regulations, 2018, which require taxpayers to disclose transactions between related entities where at least one party is a non-corporate entity. The LIRS reserves the right to demand transfer pricing documentation for transactions between companies and individual shareholders, including shareholder loans, write-offs, leases, and advances.
The public notice takes effect from January 1, 2026, in line with the commencement date of the newly gazetted tax laws. The LIRS stressed that transparent and accurate disclosures form an essential part of taxpayers’ statutory obligations, and failure to comply with the Act, including providing inaccurate information or engaging in artificial transactions, would attract administrative penalties.
