LIRS Warns Taxpayers Against Artificial Transactions to Evade Tax
The Lagos State Internal Revenue Service (LIRS) has cautioned taxpayers against engaging in artificial or fictitious transactions aimed at reducing tax liabilities, warning that such arrangements will be nullified under the Nigeria Tax Administration Act (NTAA), 2025.
In a public notice dated January 21, 2026, and published on its official website, the agency stated that taxpayers found culpable risk investigations, additional tax assessments, penalties, and interest charges.
The notice, signed by the Executive Chairman of LIRS, Mr. Ayodele Subair, applies to all categories of taxpayers operating within Lagos State, including incorporated companies, partnerships, trusts, natural persons, and other stakeholders.
According to LIRS, the directive is issued in line with newly gazetted tax laws to strengthen compliance and promote transparency, accuracy, and fairness in tax administration across the state.
Citing Section 46 of the NTAA 2025 on “Artificial Transactions,” the service explained that where a tax authority is satisfied that any transaction or arrangement is artificial or fictitious and results in reduced tax liability, such a transaction may be disregarded or adjusted to counteract the tax benefit. The affected taxpayer would then be reassessed accordingly.
LIRS further noted that transactions between connected persons—including related companies or individuals—may be considered artificial if they are not conducted on an arm’s length basis, meaning they do not reflect terms that would ordinarily apply between independent parties.
It added that taxpayers subject to revised assessments under this provision would be liable for any additional tax arising from the adjustment, although they retain the right to appeal.
The agency also warned that it has the authority to disregard, recast, or adjust any arrangement primarily structured to reduce tax exposure, stressing that any resulting tax liabilities, penalties, or interest would be payable by the taxpayer concerned.
Beyond reassessment, LIRS said artificial transactions could trigger tax audits, investigations, and sanctions as provided under the NTAA, 2025.
On compliance, the revenue service advised taxpayers to ensure that all transactions are genuine, commercially justifiable, and properly documented, with full records maintained to support their legitimacy. Taxpayers were also urged to disclose relationships with connected persons and ensure that all related-party dealings comply with arm’s length principles.
In addition, LIRS directed taxpayers to respond promptly to requests for clarification or documentation during tax reviews or audits.
The notice referenced the Income Tax (Transfer Pricing) Regulations, 2018, which mandate the disclosure of transactions between related parties, particularly where at least one party is a non-corporate entity. LIRS stated that it may demand transfer pricing documentation for transactions involving companies and individual shareholders, including shareholder loans, write-offs, leases, and advances.
The service emphasised that accurate and transparent disclosure is a core statutory obligation and warned that non-compliance, including the provision of false information or participation in artificial transactions, would attract administrative penalties.
The public notice takes effect from January 1, 2026, in line with the commencement of the newly gazetted tax laws.
