LIRS WARNS TAXPAYERS AGAINST ARTIFICIAL TRANSACTIONS TO EVADE TAX

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By Aishat Momoh. O.

The Lagos State Internal Revenue Service (LIRS) has warned taxpayers in the state against engaging in artificial or fictitious transactions aimed at reducing tax liabilities, saying such arrangements will be disregarded under the Nigeria Tax Administration Act (NTAA), 2025.

The warning was contained in a public notice dated January 21, 2026, and published on the official website of the revenue agency.

In the notice signed by the Executive Chairman of LIRS, Mr Ayodele Subair, the Service said the directive applies to all categories of taxpayers, including incorporated entities, partnerships, trusts, individuals and other stakeholders operating within Lagos State.

According to LIRS, the measure is in line with newly gazetted tax laws and is intended to promote transparency, accuracy and fairness in tax administration.

Citing Section 46 of the NTAA 2025, which deals with artificial transactions, the agency explained that where a tax authority is satisfied that any disposition or transaction is artificial or fictitious and results in the reduction of tax liability, such transaction may be disregarded or adjusted to counteract the tax benefit.

The Service noted that transactions between connected persons, including related companies or individuals, may be deemed artificial if they are not conducted at arm’s length that is, on terms that would reasonably apply between independent parties.

LIRS added that taxpayers affected by such adjustments would be liable for revised assessments and any additional tax arising from them, although they retain the right to appeal as provided by law.

The agency further warned that it is empowered to disregard, recast or adjust any arrangement perceived to be artificial or primarily structured to reduce tax obligations. Any additional tax, penalties or interest arising from such adjustments, it said, would be payable by the taxpayer concerned.

“Artificial transactions may also expose taxpayers to investigations, audits and penalties as prescribed under the NTAA, 2025,” the notice stated.

On compliance, LIRS advised taxpayers to ensure that all transactions are genuine, commercially driven and properly documented. It also urged taxpayers to maintain full records supporting the commercial basis of their transactions, disclose relationships with connected persons and ensure that such dealings comply with arm’s length principles.

The Service further directed taxpayers to respond promptly to any request for clarification or documentation during tax reviews or audits.

LIRS also referenced the Income Tax (Transfer Pricing) Regulations, 2018, which require disclosure of transactions between related entities, particularly where one of the parties is a non-corporate entity. It noted that it reserves the right to demand transfer pricing documentation for transactions involving companies and individual shareholders, including shareholder loans, leases, advances and write-offs.

The agency stressed that transparent and accurate disclosures are a key part of taxpayers’ statutory obligations, warning that failure to comply with the law or providing inaccurate information would attract administrative penalties.

The public notice takes effect from January 1, 2026, in line with the commencement of the newly gazetted tax laws.