NBR reaping benefit

The National Board of Revenue logged in Tk 10 crore in the last fiscal year thanks to 8-10 multinational companies' voluntary compliance with a rule that requires foreign firms to declare transactions with their overseas entities.

“We have seen 8-10 multinational companies have voluntarily paid the tax after examining their transactions with their associated enterprises abroad,” said a senior official of the NBR's transfer pricing cell.

More than 100 multinational companies have submitted their statements of international transactions (SITs) along with their returns, he said.

Now, the revenue authorities will examine the transactions with their associated enterprises abroad and see how many of them voluntarily paid tax after calculating arm's length price, the official said. 

Arm's length pricing is when the buyer and seller of a product or service agree on a price by acting in their self-interest and are not subject to any pressure or duress from the other party.

It assures third parties that there is no collusion between the buyer and the seller. The official said they are doing detailed profiling of multinational firms operating in Bangladesh and plan to begin auditing of the foreign companies' transactions with their associated entities abroad this year.

The NBR framed the law on transfer pricing in 2012 in order to reduce the scope for illicit fund transfer and tax evasion by foreign firms. However, the law is yet to be fully implemented. Transfer pricing refers to the rules and methods for pricing transactions within and between enterprises under common ownership or control.

The accounting method allows multinational companies to shift net profits or losses to offshore or low-tax countries to maximise earnings. For instance, two subsidiaries of a company, one based in a high-tax country and another in a low-tax haven, can engage in trade with one another.

The low-tax subsidiary can quote abnormally high prices for goods or services from the high-tax subsidiary to ensure maximum net profits for the parent company, an unethical practice many multinational firms may resort to.

Some $5.9 billion was siphoned out of Bangladesh in 2015 through trade mis-invoicing, said the Global Financial Integrity (GFI) in a report last week.

The amount of illegal fund outflow from Bangladesh -- at $33.73 billion -- was 17.5 percent of the nation's total trade with advanced countries in 2015, said the Washington-based research and advisory organisation.

In order to enforce the law, the NBR reconstituted its Transfer Pricing Cell to monitor international transactions by foreign companies. The cell will examine transactions valued more than Tk 3 crore in a fiscal year by a multinational or its associated entities from Bangladesh.