NBR issues rule on \\\'Transfer Pricing\\\'

FE Report | Published: July 03, 2014 00:00:00 | Updated: November 30, 2026 06:01:00

The National Board of Revenue NBR) issued last Tuesday the much-talked-about Transfer Pricing (TP) rules to help check tax avoidance by multinational companies (MNCs).
The TP rule was issued by the NBR under a provision incorporated in the Finance Act 2012. The board took two years' time for framing the rule for, what it claimed, successful enforcement of the provision to help plug the conduits of unauthorized outflow of money.
The NBR issued the rule along with a prescribed form for the multinationals to furnish details of their international transactions with the tax returns.
According to the rules, the prescribed form should be signed and verified by the person authorized to sign the return on income. Their accounts and records will be maintained separately as prescribed.
Particulars of the assessee, including TIN, circle, tax zone and assessment year, will be available in the form.
Also, particulars of international transactions, tangible property of revenue and capital nature of transaction should be furnished in the documents.
Details of stock in trade and raw material, its expenses and revenue, rent, royalties and intangible property-related transactions, licences and franchise fees, intangible property or rights (acquired or disposed of) should also be available in the form.
Service-related transactions such as treasury-related services, management and administrative services, sales and marketing services, research and development, software and ICT services, technical and engineering services, commissions' logistics, asset management should also be furnished in the document.
The submission would also require details of financial transactions such as interest, sale of financial assets (including factoring, securitization and securities), lease payments, securities lending (fees and compensation payment), insurance and reinsurance, guarantees and purchase of items.
Interest-bearing loans, advances and investments (figures in thousand taka) have to be furnished in amounts by the assessee.
The MNCs also have to give details of interest-free loans, advances and investments (in thousand taka figures) and current accounts information.
Officials said a TP cell would handle tax files of the taxpayers involved in international transactions.
TP cell officials will determine the price and send a report to the circle office to complete assessment on the basis of decision by the TP official concerned.
According to the TP rule, the MNCs' international transactions will be "monitored and assessed carefully" by an expert group of taxmen.
"For every person who is involved in international transaction or transactions, if the aggregate value of which, as recorded in the books of accounts, exceeds taka 30 million during an income year, shall furnish, on or before the specified date in the form and manner as may be prescribed, a report from a chartered accountant," says the TP rule.
The Deputy Commissioner of Taxes (DCT) may impose a penalty equivalent to a maximum 1.0 per cent of the value of each international transaction in case of failure to keep, maintain or furnish information, documents or records to him or comply with the notice.
The DCT can impose a penalty up to Tk 0.3 million for failure in furnishing report by chartered accountants (CA).
Tax officials said although MNCs are paying higher amounts of taxes regularly, still there remained substantial scope for collecting more taxes.
According to Wikipedia, Transfer pricing is a profit allocation method used to attribute a multinational corporation's net profit (or loss) before tax to countries where it does business. Transfer pricing results in the setting of prices among divisions within an enterprise. Transfer prices are charges for goods and services between controlled (or related) legal entities within an enterprise. Legal entities considered under the control of a single corporation include branches and companies that are wholly or majority owned ultimately by the parent corporation. Certain jurisdictions consider entities to be under common control if they share family members on their boards of directors.
In principle a transfer price should match either what the seller would charge an independent, arm's length customer, or what the buyer would pay an independent, arm's length supplier. While unrealistic transfer prices do not affect the overall enterprise directly, they become a concern when they are misused to lower profits in a division of an enterprise that is located in a country that levies high taxes and raise profits in a country that is a tax haven that levies no or low taxes. Transfer pricing is the major tool for corporate tax avoidance, it said.