The National Board of Revenue (NBR) has geared up its activities to prevent money laundering and tax evasion by multinational companies (MNCs), with their associated companies abroad, through transfer mispricing.
The NBR has taken up the move to curb tax evasion by MNCs through abusing transfer pricing as it found such practices across the world.
MNCs evade taxes abusing transfer pricing in different ways including capital flight, transfer of dividend and profit to its permanent establishments or parent companies, over-invoicing and under-invoicing during transactions of goods and services within their associated enterprises, according to NBR officials.
Different studies show, the country lost a huge amount of tax and capital each year by way of transfer mispricing.
According to a study by the Washington-based Global Financial Integrity, Bangladesh is losing $1.8 billion every year through capital flight due to misuse of transfer pricing.
The study conducted in 2011 also stated that the country suffered the highest amount of illicit financial flow of $34.8 billion from 1990 to 2008.
Keeping in mind about the issues, the board in February last year established the transfer pricing cell in its headquarter to prevent money laundering and tax evasion by MNC’s. Currently, seven transfer pricing officials are working in the cell.
According to a paper titled ‘Transfer Pricing Concept: Bangladesh Perspective’, prepared by NBR transfer pricing coordinator Md Shabbir Ahmed reads that about 60% of transactions are executed among members of group companies/ affiliated entities globally.
The report states transfer mispricing is happening in the name of pricing arrangement, management expense (headquarter and intra-firm), charge for intellectual property or intangibles (royalty, fees, copyright, trademark, patent, brand name, franchise etc.), sharing or allocation of common cost and interest expense.
It also pointed that conventional tax system fails to deal with transfer mispricing as tax agencies only check the verifiability of vouchers and the accuracy of accounting treatment of a transaction under conventional tax laws.
The Institute of Chartered Accountants of Bangladesh (ICAB) council member Shahadat Hossain FCA pointed that success of combating transfer mispricing is depending on how the government can collect the information properly.
“The main challenge here is unavailability of information. The authorities challenge the companies based on assumed information, but to prove any such challenge with assumption is difficult. So they will have to collect the information properly first and chase the companies later,” he told the Dhaka Tribune.
He also suggested the officials being equipped first and start auditing with one or two companies in initial phases.
The NBR chairman Nojibur Rahman yesterday held a meeting with its newly appointed officials of transfer pricing cell at the NBR headquarters in the capital.
The meeting decided to strengthen the capacity of its transfer pricing cell with the international taxation rules to curb tax evasion by MNCs with their associated companies abroad.
It has also decided to work for enhancing efficiency of its officials through necessary trainings and regularly inform the taxpayers about the comprehensive issues in regard to auditing of the MNCs.
The chairman delivered necessary directions to the officials on conducting audits of the MNCs in line with the international standards.
Along with increasing the revenue through the cell, the board will work towards professional development of the officials through the use of modern technologies, the NBR chairman said.
According to the Income Tax Ordinance 1984, the MNCs will have to submit separate statements containing details and nature of international transactions made within their subsidiaries or parent companies from the upcoming fiscal year of 2015-16.
Currently, there are around 200 foreign companies operating in Bangladesh in different sectors, including consumer goods, telecommunication, energy, beverage, cement, readymade garment and banks.
At present, about 75 countries, including many mid-income countries, have adopted transfer pricing regime.