Transfer pricing cell of National Board of Revenue has started functioning, five years after framing the TP act, with NBR receiving additional Tk 10 crore in taxes in the current fiscal year from multinational companies.
Officials of NBR said that seven MNCs including a foreign mobile telephone operator had voluntarily paid the amount conducting self-assessment of their international transactions.
Four foreign companies in the readymade garment sector and one global brand in the electronics sector and a branch office of another MNC have also paid additional amount of tax to NBR.
The outcome came after TPC had taken various steps to encourage MNCs to increase their voluntary compliance, the officials said.
NBR in 2012 framed the TP act to check tax evasion and capital flights by MNCs through misuse of the transfer pricing system.
TPC, formed in 2014, remained almost dysfunctional due mainly to lack of logistic support including database of comparable international transfer pricing, experts and dedicated manpower and proper initiative of the tax authorities.
‘Now TPC has started its activities and NBR has already received Tk 10 crore from some companies which gave the amount after checking their cross-border transactions,’ NBR chairman Md Mosharraf Hossain Bhuiyan told New Age on Thursday.
The important issue is to increase voluntary compliance among the MNCs so that they restrain themselves from misusing the transfer pricing system, he said.
Gradually, transfer pricing officials will go for audit of statements of international transactions (SITs) of MNCs, he said.
TPC, however, in last three years could not conduct audit on any SIT of MNCs operating in the country to find out if the statements were accurate or if the MNCs evaded taxes through such transactions.
According to the TP law, MNCs have to submit SITs with their tax returns.
Only around 120-130 MNCs regularly submit their SITs although NBR found some 1,000 MNCs, including branch, liaison and representation offices, operate in the country, according to NBR data.
Transfer pricing takes place when a MNC pays or gets payment for purchase or sales 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 by misusing the transfer pricing system through over-invoicing and under-invoicing during transactions of goods and services within their associated companies.
They also evade taxes and drain capital from the country through transfer of dividend and profit to their parent companies to take advantage of lower corporate tax rates in the countries where the associated or parent companies are operating.
A senior TP official said that they had arranged many awareness programmes for MNCs so that they carried out self-assessment on the transfer pricing.
‘We have adopted voluntary compliance approach to create awareness among the MNCs to comply with the TP law,’ he said, adding that MNCs so far paid the amount mainly in the current fiscal year.
In the approach, MNCs will assess whether their transactions fall under the international transaction category, if yes, then they will check the arm’s length price using international database of pricing, he said.
He said that MNCs would voluntarily adjust the tax amount if the price remained below arm’s length price.
An arm’s length transaction is one in which the buyers and sellers of a product act independently and do not have any relationship to each other, and it assures that third parties like tax authorities that there is no collusion between the buyer and the seller.
NBR officials said that TPC would initially conduct audit on those MNCs who did not carry out self-assessment.
TP officials will also check whether MNCs conduct self-assessment properly, they added.
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