NBR’s transfer pricing cell remains ineffective for 5yrs

Transfer pricing cell of National Board of Revenue has remained nearly dysfunctional since its formation five years back due mainly to lack of logistic support, expert and dedicated manpower and propelling initiative of the tax authorities.

The cell even could not conduct audit on any statement of international transactions of multinational companies operating in the country to find out if the statements were accurate or if the MNCs evaded taxes through such transactions.

NBR in 2014 formed the transfer pricing cell after framing law in the fiscal year 2013 to bring the MNCs’ international transactions under scrutiny in a bid to prevent tax evasion and capital flight by MNCs through misuse of transfer pricing system.

Although NBR appointed some transfer pricing officers with additional responsibility, they are not dedicated to the cell as they remain busy with their regular activities as income tax officials.

NBR also did not provide required logistic support, mainly database of comparable international transfer pricing, to scrutinising the SITs to find out any possible misuse of the system.

Officials concerned allege that the revenue board maintained a go-slow policy on the issue with a misconception that execution of the transfer pricing system may put negative impact on foreign investors.

According to NBR data, around 85 per cent of MNCs operating in the country don’t obey the TP law as they do not submit SITs to the tax offices.
Around 150 MNCs regularly submit their SITs although some 1,000 MNCs, including branch, liaison and representation offices, operate in Bangladesh, the data show.

NBR has also yet to give green signal to TP cell to conduct the planned survey on the MNCs to check their transfer pricing process in fear that it may negatively impact foreign investors.

Transfer pricing occurs when a multinational company pays or gets payment for purchase or sale or transfers of any tangible or intangible output to any of its associated or subsidiary company in which the MNCs have substantial interest in any form.

There are allegations that many MNCs evade tax and transfer fund from the country by misusing the system including over-invoicing and under-invoicing during transactions of goods and services within their associated companies and transfer of dividend and profit to its parent companies as the corporate tax rate is lower in the country where the associated or parent companies are operating.

Without appointing any dedicated and full time TPOs, NBR again on August 20 reconstituted the cell and gave 8 income tax officials the charge of TPOs as additional responsibility.

Earlier on August 13, NBR also formed a transfer pricing resource group comprising 17 field-level income tax officials who would strengthen their knowledge and gain expertise in TP issues to work as TPOs in future.

A senior NBR official on Tuesday told New Age that these steps would come to no use to make the cell effective until specific post of dedicated TPOs was created in the organogram, a set of skilled manpower was generated and the cell was equipped with database.

The cell was yet to start auditing even after collecting SITs since 2015 for lack of database and lack of required expertise among tax officials, he said.

Some foreign countries and international organisations were ready to provide the database but NBR was yet to receive it, he informed.

NBR was now thinking to collect the database and provide trainings for TPOs to make the cell functional and bring momentum to the audit process, he added.

NBR will also develop skills and build capacity of the members of the resource group so that they could cope with the international best practices in taxation in this area.

‘TPOs are taking preparations to start auditing of SITs from January after getting database to formally enforce the law,’ said a member of the TP cell.

The TPOs would mainly examine and audit the SITs of MNCs to find out whether or not the statements were accurate and the MNCs evaded taxes through such transactions, he said.

But, creation of permanent post in the organogram of NBR was a must for establishing a dedicated and skilled manpower which would be able to cope with the highly professional and trained tax officers of MNCs, he noted.