The National Board of Revenue will conduct a ‘functional survey’ on foreign companies, their representative offices and other foreign entities operating in the country in any form to check tax evasion by the multinational companies through transfer pricing process.
Income tax wing of the NBR has already identified around 1,000 companies for the survey suspecting that many of the firms are violating tax laws by hiding international transactions.
The list of companies has been prepared based on data collected from foreign chambers including Foreign Investors’ Chamber of Commerce and Industry Bangladesh and from NBR’s field offices.
Tax authority has also prepared a set of questionnaires for the survey, which will be sent soon to the firms.
Tax officials will seek details of functional status of each firm, its tax payment status, type of business the firm does in Bangladesh, whether it is a mainstream company or branch office or liaison officer or other, information related to international transactions with its associated enterprises abroad, status of its parent company, job descriptions of top management and some other financial details of the firm.
The revenue board in June 2012 introduced transfer pricing (TP) law in the country and formed a cell in February, 2014 to audit international transaction statements of MNCs to check tax evasion through misuse of TP.
Transfer pricing occurs when an MNC pays or gets paid for purchase or sales or transfer of any tangible or intangible output to any of its associates or subsidiary companies in which the company has substantial interest in any form.
There are allegations that the MNCs evade tax and transfer fund from the country by abusing the transfer pricing system including over-invoicing and under-invoicing during transactions of goods and services within their associated companies and transfer of dividend and profit to their parent companies.
Under the TP law, the cell has been collecting the statements of international transactions (SIT) of the MNCs submitted to the field-level tax offices since September 2015 for audit.
The TPC was supposed to conduct audit on SITs from the fiscal year 2015-2016 to crosscheck whether the statements are accurate and the firms evade taxes through such transactions but failed to do so due to lack of preparation and data.
Officials of the revenue board said that most of the MNCs operating in the country in form of company, branch office, representative office, liaison office, permanent establishments or any other forms did not submit the SITs.
On an average, the field offices got only 130-140 SITs from the MNCs in last two fiscal years, they said adding that an MNC having international transactions was supposed to submit a separate SITs containing details and nature of such transactions along with the income tax returns.
Initially, the tax authority has data of more or less 175 large- and medium-sized MNCs in the country but the number reached near 1,000 after accumulating the data of all types of foreign entities from the foreign chambers.
‘Based on the compliance reports from the field offices we suspect that many foreign establishments are involved in tax evasion and capital flight,’ a senior NBR official told New Age last week.
So, the TP cell has decided to conduct the survey, he said.
TP officials will visit, if required, the premises of the firms to be selected based on risk factors to verify the information received through the survey.
The cell will establish a database of foreign firms for future use in transfer pricing and other tax-related functions.
The NBR in its latest board meeting held on October 25 also asked the TPC to furnish the board with a report.
The meeting also decided to include two focal-point officers from customs and VAT wing, and research and statistics wing of the board to strengthen the TPC.
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