The Lagos State Internal Revenue Service has warned taxpayers against engaging in artificial or fictitious transactions designed to reduce tax liabilities.
According to LIRS, such arrangements will be disregarded under the Nigeria Tax Administration Act (NTAA), 2025, and may expose culpable taxpayers to investigation and penalties.
This is contained in a public notice dated January 21, 2026, and sighted by our correspondent on the LIRS website on Sunday.
The notice, signed by Executive Chairman of LIRS, Mr. Ayodele Subair, stated that the directive applies to all taxpayers, including incorporated entities, partnerships, trusts, natural persons, and other stakeholders operating within Lagos State.
It read, “In line with the provisions of the newly gazetted tax laws, the Lagos State Internal Revenue Service (LIRS) hereby issues this Public Notice to inform all taxpayers, including incorporated entities, partnerships, trusts, natural persons, and other stakeholders of the treatment of artificial or fictitious transactions for tax purposes.
“This Notice is issued to ensure compliance with the legal framework and to promote transparency, accuracy, and fairness in tax administration within Lagos State.”
Citing Section 46 of the NTAA 2025, titled ‘Artificial Transactions’, the revenue service said: “The law provides that where the relevant tax authority is satisfied that any disposition or transaction is artificial or fictitious and has the effect of reducing tax liability, it may disregard such transaction or make necessary adjustments to counteract the reduction of tax. The taxpayer shall be assessed accordingly.
“Transactions between connected persons, such as related companies or persons, shall be deemed artificial or fictitious if, in the opinion of the relevant tax authority, they are not conducted at arm’s length—that is, not on terms that would reasonably be expected between independent persons dealing at arm’s length.
“Any person in respect of whom a direction is issued under this section shall be liable for the revised assessment and any additional tax arising therefrom and has a right of appeal against the assessment.”
LIRS further warned that it is empowered to disregard, adjust, or recast any arrangement perceived to be artificial or primarily structured to reduce tax liability.
It added that any additional tax, penalty, or interest arising from such adjustments would be payable by the affected taxpayer.
“Artificial transactions may also expose taxpayers to investigations, audits, and penalties as prescribed under the NTAA, 2025,” the notice added.
On compliance, LIRS directed taxpayers to ensure that all transactions are genuine, commercially driven, and properly documented.
“Ensure that all transactions are genuine, commercially driven, and properly documented. 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.
“Respond promptly to any LIRS request for clarification or documentation during tax reviews or audits,” it stated.
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.
LIRS said it reserves the right to demand transfer pricing documentation for transactions between companies and individual shareholders, including shareholder loans, write-offs, leases, and advances.
It stressed that transparent and accurate disclosures form an essential part of taxpayers’ statutory obligations.
The service stressed that failure to comply with the Act, including providing inaccurate information or engaging in artificial transactions, would attract administrative penalties.
The public notice takes effect from January 1, 2026, in line with the commencement date of the newly gazetted tax laws.
