NBR to narrow scope of tax evasion

Tax authorities plan to audit foreign companies' transactions with their associated entities abroad from next year in order to reduce the scope for illicit fund transfer and tax evasion, said an official yesterday.

"We will start auditing cases that will be deemed high risk in terms of revenue losses," said the official of the National Board of Revenue.

The NBR has reconstituted its Transfer Pricing Cell to bolster its operations to monitor international transactions by foreign companies in line with a law framed in 2012.

The tax authorities formed an eight-member cell, headed by Md Shabbir Ahmed, first secretary for tax policy, to examine any international transaction valued more than Tk 3 crore in a fiscal year by a multinational or its associated entities from Bangladesh to enforce the law, which has not been implemented fully yet.

Transfer pricing is an accounting method that 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.

The NBR has included the transfer pricing provision in the income tax law in the face of growing concerns of illegal outflow of funds from Bangladesh.

According to Washington-based research organisation Global Financial Integrity, $61.6 billion were siphoned out of Bangladesh between 2005 and 2014, equivalent to 25 percent of the country's gross domestic product in 2016-17.

An NBR survey has found that 921 foreign companies, including multinationals, carry out transactions with their associated entities overseas to buy goods and services, said the official. Of them, 100-120 companies have been reporting international transactions for the last several years.

"We are examining the documents and we hope to complete the risk assessment by December to select cases for auditing," he said.

The Netherlands is providing technical support to the revenue board to develop the capacity of tax officials on transfer pricing.