The Financial Express

Taxmen to access international databases to detect transfer pricing by MNCs

| Updated: January 17, 2021 15:37:41

Illustrative photo — Collected Illustrative photo — Collected

The tax authority has moved to access international databases to detect transfer of royalties, interest and other sources of income by the multinational companies (MNCs) officials said.

They said the access to the database would facilitate the taxmen to audit the transfer mispricing allegedly by the MNCs operating in Bangladesh.

The National Board of Revenue (NBR) is set to get access to the databases under an EU-funded programme on 'Supporting the implementation of PFM (public financial management) reform strategies plan' in Bangladesh.

The Planning Commission has approved the programme worth 10 million euro recently.

Officials said the NBR would receive 3.0 million euro from the fund for performing revenue risk management, audit, expansion, internal audit, etc.

Framed in 2012, the transfer pricing (TP) law is yet to be implemented fully due to lack of access to the international databases, said a senior official of the TP Cell (TPC).

He said the NBR would impart training to the TP officials to develop skills so that they could use those data for auditing the tax files of the MNCs.

"The TPC could not work properly due to lack of access to international data relating to MNCs' transfer of profit, royalties, interest and other income," he said.

Due to lack of fund, the NBR has not been able to provide necessary allocations for subscribing the international databases, he added.

The TP officials need to verify the information given in the Statement of International Transaction (SIT) of the MNCs operating in Bangladesh.

International transaction databases such as ORBIS of Bureau vanDijk, OneSource by Thomson Reuters, S&P Global and regional database Captitaline of India are the major sources that could facilitate proper implementation of the TP law, the official said.

Some royalty databases like Royality Stat and Roylity Range could be the major sources for the TP officials to assess the transfers of royalties by the MNCs, he added.

The TP official said that they need to get access to at least one each of the international databases, regional transaction databases, royalty databases and interest databases to audit the MNCs' tax files under the TP law.

The NBR has already completed profiling of some 921 companies, collected their local data from the field-level tax offices and sought SIT from all the MNCs including branch, liaison offices.

Distinguished Fellow of the Center for policy Dialogue (CPD) Professor Md Mustafizur Rahman, in a recent programme, said that the government has framed the TP law, but is yet to prepare the necessary ground for proper implementation of the law.

He said that the enforcement of the law would require forensic laboratory and some other supporting mechanisms.

The NBR is yet to start auditing the MNCs' tax files under the law due to lack of supporting data from the international sources.

Earlier, the NBR had sought SITs from the MNCs to scrutinise their tax compliance and cross-border transactions. However, only 16 per cent of the foreign companies have responded to the NBR's call, NBR sources said.

According to the TP law, the submission of an SIT is mandatory for a foreign firm having international transactions. In case of non-compliance, the law has a provision for penal tax, which is 2.0 per cent of the international transactions.

The NBR officials suspected that many foreign companies do not even submit their annual tax returns.

The TPC has compiled a basic profile of the MNCs with information like ownership, the period of operation, activities, the status of employees, names of top employees, bank accounts and expenses of Bangladesh operation.

The NBR officials said the functional relationship of the MNCs in Bangladesh with their parent companies and other associated enterprises could be reviewed if the TPC gets access to adequate information of the international databases.

TP takes place when an MNC pays or gets payment for purchase/sale/transfer of any tangible or intangible output to any of its associate or subsidiary company in which it has a substantial interest in any form.

The NBR has framed the TP law in 2012 aiming to check tax evasion by MNCs through cross-border transactions. The TPC was established in 2014.

Officials said although the NBR is yet to start TP audit, the law has already started paying off.

In FY 2018-19, the NBR received Tk 100 million additional taxes from MNCs through voluntary compliance.

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