DT e-Paper 29 March 2017

14
WEDNESDAY, MARCH 29, 2017
DT
Opinion
Demystifying transfer pricing
We need to understand transfer pricing to create a welcome environment for investors
In order to be a competitive economy, one needs to accept global tax regulations
BIGSTOCK
The future
In order to be a competitive
economy which attracts large
investments, one needs to accept
the global tax regulations, and the
environment which is prevailing
in the tax world to bring in more
transparency and accountability.
Bangladesh tax authorities
should aim to strike a balance
between being aggressive and
subjecting every tax-payer to a
TP adjustment with an intent
of collecting taxes, as opposed
to following a well thought out
approach based on the merits of
the case.
This would send out the correct
signal to the foreign investor
community, as Bangladesh is
currently a fast growing economy
with GDP growth rate at more than
7%.
Any arbitrary step with just
the intent to collect additional
revenue may tarnish the image
of Bangladesh as an attractive
investment destination.
With the advent of BEPS and
adoption of the country-bycountry
reporting structure (as
• Mamun Rashid
Taxation has become a
dynamic and crucial issue
in the global world. As
countries become more
connected through the advent of
technology, tax authorities have to
create more complex regulations
in order to keep pace.
One such regulation is transfer
pricing (TP), which aims to reduce
tax avoidance through crossborder
transactions. Transfer
pricing refers to the pricing of
cross-border transactions between
two related entities.
When two related entities
enter into any cross-border
transaction, the price at which
they undertake the transaction
is the “transfer price.” Due to
the special relationship between
related entities, the transfer price
may be different than the price
that would have been agreed
between unrelated parties. Price
between unrelated parties in an
uncontrolled conditions is known
as the “arm’s length” price (ALP).
Globalisation and the rapid
growth of international trade has
made inter-company pricing an
everyday necessity for the vast
majority of businesses. However,
the growth of national treasury
deficits and the frequent use of the
phrase “transfer pricing” in the
same sentence as “tax shelters”
and “tax evasion” on the business
pages of newspapers around the
world have left multinational
enterprises in a storm of
controversy.
Tax authorities have made
the regulation and enforcement
of the arm’s length standard
a top priority. A key incentive
for challenging tax-payers on
their transfer prices is that the
authorities see transfer pricing as
a soft target, with the potential to
collect significant tax revenue.
Since there is no absolute
rule of thumb for determining
the arm’s length price for an
international transaction, there
exists huge disagreement as to
whether the correct amount of
tax has been paid in a particular
jurisdiction.
Global regulations and
Organisation for Economic
Co-operation and Development
(OECD)
Most of the world’s major nations
have implemented transfer pricing
regulation in their respective tax
codes, and those who have not are
contemplating to do so.
The dispute of transfer pricing
has been so enormous over the
years, that OECD, with the help
of G20 countries, have developed
the principle of Base Erosion and
Profit Shifting (BEPS) with specific
action points on transfer pricing
issues. This is primarily because
of the new norm of transparency
and accountability of all the
multinationals operating globally.
Bangladesh is also a part of the
over 80 countries who have joined
the BEPS inclusive framework and
committed to the implementation
of the minimum standards of the
BEPS package.
Bangladesh TP regulations
Bangladesh TP regulations are
relatively new, inserted in the
Finance Act, 2012 with effect from
July 1, 2014.
TP principle will have
enormous significance for
both inbound and outbound
multinationals operating in
Bangladesh.
These multinationals will
now have to comply with TP
provisions, formulate proper TP
policies, and defend aggressive
positions taken up by tax
authorities of Bangladesh.
The TP guidelines is a part of
Chapter XIA of the Income-tax
Ordinance 1984 as amended by the
Finance Act, 2012.
The legislation provides that
“the amount of any income, or
expenditure, arising from an
international transaction shall be
determined having regard to the
arm’s length price.”
The Bangladesh TP regulations
are in line with the best practices
followed by various countries
across the globe with very few
minor changes based on local
requirement.
Multinationals operating in
Bangladesh are required to file
Given that transfer pricing is a new subject
for the Bangladesh tax authorities, our tax
department may consider investing time in the
skills development of the officers
a Statement of International
Transactions when one has
entered into cross-border
international transaction.
Further, if the transaction
exceeds a certain threshold
criteria (which now stands at Tk3
crore) one is required to file an
accountant’s report as and when
asked by the revenue authorities,
and also to maintain and produce
the TP documentation to the
revenue authorities when called
for.
Multinationals in Bangladesh
may feel that TP regulations are a
tool to curb capital outflow from
the country, which may not be the
correct perspective.
TP regulations should be
seen in the light that it has been
brought for more transparency,
accountability, and best practices.
Since Bangladesh is one of the
fastest growing economies in the
world, it is a welcome move to
address profit/revenue shifting.
recommended by the OECD), most
countries are considering transfer
pricing regulations as one of the
tools to counter shifting of profits
outside the country.
Given that transfer pricing is a
new subject for the Bangladesh tax
authorities, our tax department
may consider investing time and
energy in the skills development/
competency building of the tax
officers.
This will go a long way to
ensure the readiness of the tax
officers to face the complexity
involved in transfer pricing
audits, and ensuring a welcome
environment for existing
multinationals as well as new
investors. •
Mamun Rashid is the Managing Partner
at PricewaterhouseCoopers(PwC)
Bangladesh. This article has been put
up with extensive help from Prasun
Kumar Maiti from PwC India and Fahmin
Rahman from PwC Bangladesh.