NBR moves to check tax evasion by MNCs, money laundering

FE Team | Published: January 09, 2012 00:00:00 | Updated: February 01, 2018 00:00:00

Doulot Akter Mala
The National Board of Revenue (NBR) has formed a 'transfer pricing unit' in a bid to check money laundering and tax evasion by multinational companies as well as flight of capital.
The unit, formed on Thursday last, will monitor investment of local fund abroad and repatriation of locally earned profit.
The five-member unit, headed by the member of the international desk, will find out the technique applied by global multinationals for hiding actual earning.
Income tax officials said the country is losing billons of taka in tax due to lack of expertise of taxmen on detecting transfer pricing technique adopted frequently by the multinational companies (MNCs) to repatriate money.
They said MNCs evade tax through the technique of transfer pricing in four ways, that include capital flight, under-invoicing, transfer of dividend and profit shifting to permanent establishments.
The revenue board is weak both in legal and technical sides to check tax evasion through transfer pricing, the officials said.
Existing income tax ordinance of 1984 does not have any clear direction to check tax evasion through transfer pricing.
The tax officials say the NBR will incorporate the provision in the direct tax law-2012 for checking tax evasion through transfer pricing.
"We are going to incorporate a clear provision in the new tax law -- 'direct tax code-2012' -- under which taxmen will be empowered to check tax evasion by using the technique," said Md Alauddin, income tax member for international desk.
He said usually MNCs, some group of companies and some foreign individuals are involved in transfer pricing and capital flight.
"We suspect some MNCs are involved in transfer pricing and evading billions of taka in taxes every year," he added,
Officials said MNCs send the profit, earned in Bangladesh, to its Permanent Establishments (PE) or parent company. It is one of the major sources of tax evasion.
There is no statistics on how much profits those MNCs are earning and sending to their PEs. Google, Yahoo, MSN and many more profitable entities are doing business here and earning huge profits, but revenue board is not getting any tax directly from their profits, they said.
"We do not know how much money is going to their PE as royalty, wages or interest payment," the official said.
Taxmen just deduct 10 to 15 per cent tax on the royalty, where they are supposed to pay tax at 25 per cent on their earning under the existing tax structure, he added.
The NBR doesn't know how much money is being repatriated by way of dividends.
The TP unit will also review the double taxation agreements with other countries.
Most of the funds are being transferred through Bangladesh Bank (BB) after deduction of 10 to 15 per cent tax where tax should be 25 per cent on their earning, tax officials said.
Taxmen also found some of the MNCs transfer their PE to the countries where tax structure is still low.
Lack of any study regarding this is a major reason of assessing the amount of revenue loss through transfer pricing.
Another tax official said the MNCs usually apply the latest technique for evading taxes through concealment of actual income.
"It is difficult for taxmen to identify the loopholes without having advance training on transfer-pricing," the official said.
According to the study of Centre for Policy Dialogue (CPD), Bangladesh is the fourth among the 29 countries that lost US$ 359 million in tax in 2005-2007 period due to transfer pricing.
It has also found capital flight worth $1190 million from Bangladesh in that period.