Enforcement likely to be delayed

Enforcement of the Transfer Pricing (TP) provision from July 1 this year is likely to be delayed due to the non-formation of a relevant cell.

The provision, incorporated in the Finance Act 2012, is scheduled to be enforced on a pilot basis from fiscal year (FY) 2014-15 to check alleged tax evasion by multinational companies (MNCs).

Formation of a TP cell is necessary, as it requires some groundwork to create the platform for enforcement of the legal provision.

The proposal on formation of the cell got approval in a board meeting of the National Board of Revenue (NBR) in October 2012. Finance Minister A M A Muhith gave his consent in December 2012.

"During the last one year, the initiative remained shelved for some reasons, hitherto unknown to us," said a senior NBR official.

Due to delay in executing the TP provision, the country is losing revenue worth billions of taka through capital flight, he added.

Tax evasion by transfer 'mis-pricing' has been a major concern of the taxmen over the last two decades.

They alleged that they had found many examples of profit shifting through inflated pricing by some MNCs, but could not bring them to book due to absence of necessary legal provisions.

After the parliament adopted the provision through the Finance Act of 2012, the NBR could only arrange a training programme for some 50 taxmen to make them aware of the TP.

Other plans for its implementation, including initiatives for preparedness of both taxpayers and taxmen for accepting the provision, remained shelved.  

According to a three-year programme for execution of the TP provision, the first step is to form a cell. The TP cell can be formed just after issuance of an order or gazette from the NBR.

The NBR has prepared the programme with technical assistance of the International Monetary Fund (IMF) and the International Finance Corporation (IFC)

Authorities concerned will impart adequate training and build capacity for detecting 'mispricing' through international transactions by MNCs, the plan highlighted.

"The NBR decided to start implementing the TP provision in phases and on incremental basis. But, delay in formation of the TP cell might take at least six more months," the official said.  

The board planned to start TP audit to some MNCs from 2014-15. Gradually, the TP provision will be enforced for local companies also.

According to a study by the Centre for Policy Dialogue (CPD), Bangladesh is the fourth among 29 countries that lost US$ 359 million in taxes in 2005-2007 period due to transfer mispricing. With the enforcement of the provision relating to TP, taxpayers will continue to submit tax returns to circle offices. But those, who have international transaction or 'arms-length price', will be referred to the TP unit.

A TP cell official will determine price, and send a report to the circle office concerned to complete assessment on the basis of his decision.

According to the TP provision, the MNCs' international transactions will be monitored and assessed carefully by an expert group of taxmen. Their accounts and records will be maintained separately as per the prescribed forms of the taxmen.