National Board of Revenue is developing its capacity and building up profiles of the multinational companies operating in the country for the purpose of conducting audits on the MNCs’ accounts to prevent tax evasion through misuse of transfer pricing system.
The revenue authority would also soon start training to its officials to build in-house capacity for proper enforcement of the transfer pricing law. The training will be on risk assessment and company profiling to help audit the tax returns of the multinational corporations (MNCs) and check transfer mispricing.
Transfer Pricing Cell (TPC) of NBR is conducting risk assessment of the companies’ accounts as preparation for the start of auditing tax files of MNCs within this year under the TP law. TPC has already carried out many programmes to aware and motivate the MNCs to ensure voluntary compliance with the law.
Although the authorities put into effect the law in 2014, they could not audit tax files due to the lack of capacity of the taxmen and insufficient logistics. There are allegations that many MNCs evade tax by misusing the transfer pricing system through over-invoicing and under-invoicing during transactions of goods and services within their associate companies.
Under risk assessment, TP cell is also analyzing the statements of international transactions of the MNCs to find out risk factors like total cross-border transactions, percentage of transactions under TP law, types of intra-group services, rates of payment for the services and payment of various fees like royalties and licence fees. Based on the risk factors, TP officials will select MNCs for audit, the official said.
In addition to that, NBR has moved to improve capacity of tax officials so that they could properly enforce the transfer pricing law and check tax evasion by the MNCs through TP methods or cross-border transactions.
NBR with technical support of the Netherlands government will arrange a training programme for 25 tax officials on TP issues. Currently, eight dedicated transfer pricing officers (TPOs) are working with the TP cell. It will be a three-four months online training to be started next week.
Tax officials will be taught advance technique, international tax planning, comparative analysis in TP and other emerging issues to make them equipped with how to detect tax evasion by the MNCs misusing transfer pricing system.
International Bureau of Fiscal Documentation (IBFD) of the Netherlands will provide the training in cooperation with the Netherlands Tax and Customs Administration (NTCA) and the Dutch ministry of foreign affairs.
Seven MNCs including a mobile operator, four readymade garment companies and a branch office of global brand in the electronic sector, in the current fiscal year 2018-2019 voluntarily paid additional Tk 10 crore in taxes to NBR after checking their cross-border transactions following the transfer pricing guidelines of the cell.
According to NBR, nearly 1,000 MNCs including branch, liaison and representation offices operate in the country. Of them, only 120-130 companies regularly submit their statements of international transactions (SIT) to NBR.
Transfer pricing takes place when a MNC pays or gets payment for purchase or sales or transfer of any tangible or intangible output to any of its associate or subsidiary company in which the MNC has substantial interest in any form.