report in Dhaka Tribune, Jan 25, 2023
Findings from a report said that Bangladesh was ripe for exploitation from transfer-pricing opportunities amid increased volumes of international trade, presence of multinational companies (MNCs) and absence of proper monitoring of the transactions.
Transfer pricing is the price paid by a firm for goods or services while purchasing it from a related entity.
When a firm is buying or selling from its relative entity, there are chances that prices may not be fixed as per market principles.
Rather, the price may be decided artificially by the parent company for getting maximum benefits, as well as avoiding tax payments.
Such artificial price setting in intra-firm transactions to avoid taxes and to get other benefits is defined as transfer mispricing.
Titled “Combating Transfer Mispricing: New Avenue for Bangladesh Customs,” the report has been prepared by Customs Audit, Modernization and International Tax Wing and jointly articulated by Mohammad Fyzur Rahman, commissioner of Chattogram Customs House (CCH), and Nipun Chakma, assistant commissioner.
The customs wing recommended for the National Board of Revenue (NBR) to utilize both of its wings, like in many advanced and modern revenue administrations, as it is a high time steps are taken for proper capacity building.
Both the wings would be able to detect, track and deter transfer mispricing with a view to collecting proper revenue from the MNCs as well as combating trade-based money laundering which is closely associated with transfer pricing, the report says.
“Customs administration, in general, assumes that transfer pricing is not their domain. However, in advanced countries, tax and customs administrations are involved in combating transfer mispricing due to its linkage not only with tax avoidance but also illicit capital flow, money laundering and other financial wrongdoings,” the report reads.
Citing different study findings, the report says Bangladesh as a Least Developed Country (LDC) is considered a vulnerable state in the fight against transfer pricing.
Study findings show high rates of corporate tax and poor governance make Bangladesh more susceptible to capital flight, money laundering and other financial wrongdoings.
The country enacted Transfer Pricing (TP) law in 2014 but had yet to get any tangible outcome from the TP cell for a lack of capacity and capability of the relevant regulatory authority and reluctance to tie up with international networks.
However, customs was not involved in any action regarding the formation of TP cell and other activity whereas advanced customs administrations became a part of the fight against transfer mispricing in their own countries.
In the report, the customs wing recommended focus on capacity building of human resources by providing sector-specific training and education on cross-border trade and transaction as well as transfer-pricing methods.
They also recommended making necessary changes to customs and VAT acts to combat transfer mispricing. https://www.dhakatribune.com/economy/2023/01/24/bangladesh-losing-crores-because-of-transfer-pricing-manipulation
