Dhaka partners OECD to combat profit siphoning

Dhaka,  Fri,  22 September 2017
Published : 13 Mar 2017, 00:18:12
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Dhaka partners OECD to combat profit siphoning

MNCs' cross-border transactions under scanner
Doulot Akter Mala


Bangladesh's transfer-pricing cell under the revenue authority has partnered international economic forum OECD to check alleged profit shifting by the multinational companies (MNCs).

The cell of the National Board of Revenue (NBR) recently signed a Memorandum of Understanding with the Organisation for Economic Cooperation and Development (OECD) to work together for next two-three years in the process of spearheading the combat against such siphoning of funds.

"The OECD experts will exchange their knowledge and impart training to our transfer-pricing officials (TPO)," said a senior tax official.

The first training programme for TPO by the OECD experts may be held on March 27, he added.

The initiative has been taken to improve the capacity of Bangladesh to counter cross-border tax avoidance and collect appropriate amounts of taxes from the MNCs conducting cross-border transactions.

Diego Gonzalez, tax and development adviser of the OECD, is the contact point of the joint initiative on OECD part while first secretary Shabbir Ahmed is from Bangladesh side.

Parliament passed the TP law in 2012 that came into force in 2014. But the law has yet to prove its worth.

The tax authority could not start the auditing of tax returns of the MNCs in the last three years due to inadequate capacity and skill on the new concept.

Last year, the NBR reconstituted the transfer-pricing cell by forming a resource pool comprising tax officials from different tax offices.

The revenue board trained them to work for detection of cross-border financial transactions, Base Erosion and Profit Shifting (BEPS) by the MNCs in their respective tax zones.

Although the transfer-pricing cell, resource pool and TPO for implementation of the TP law are there, the audit of tax returns of MNCs has yet to gain momentum.

The NBR has collected Statement of International Transaction (SIT) of the multinational companies operating in Bangladesh from tax offices across the country as an initial data to scrutinize transfer pricing.

Tax officials said initially the auditing by the TPC will proceed under a go-slow policy as both taxmen and the MNCs need some time to acclimatise with implications of the law.

Talking to the FE, taxation subcommittee member of the Metropolitan Chamber of Commerce and Industry (MCCI) Adeeb H Khan termed the TP law implementation smooth as MNCs didn't yet face any "harassment" after enforcement of the law.

"The government kept its commitment by framing the TP law and following the related process," he said.

The government introduced the TP law in 2014 although it was passed by parliament in 2012.

The law empowers the tax authority to scrutinise international financial transactions by the taxpayers and oblige them to keep record in a prescribed form to check profit shifting through the conduit of transfer-mispricing mechanism.

Allegations are rife that high rate of corporate tax in the country discourages many MNCs from showing the right amounts of profit they make annually. They shift their profits to their companies or sister concerns located in the countries where tax rates are comparatively low.

Reports based on findings by international watchdogs say that huge amounts of funds flow out of Bangladesh annually for a number of reasons that include lax execution of the law and high accumulation of resources with certain individuals or businesses.

Earlier, the secretary-general of the OECD, in a letter to Finance Minister AMA Muhith, had formally invited Bangladesh to be enlisted as a BEPS (base erosion and profit shifting) associate.

Getting associated with the OECD oversight mechanism would enable Bangladesh to effectively check the tax evasion by way of interlinking and sharing information with its 35 member-countries, officials said.

BEPS refers to tax-planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low-or no-tax locations where there is little or no economic activity.

To be an associate of the arrangement, Bangladesh will have to agree on at least four standards of comprehensive BEPS package.

It will have to commit to implementing those for being enlisted as associate member of the BEPS project of OECD, they said.

The country will have to provide full cooperation on exchange of information and on policymaking decision under the BEPS project, the officials said.

The annual associate-membership fee is 20,000 Euros.

In the letter, the OECD secretary-general requested the Bangladesh government to respond as to whether the country was interested to be a BEPS-project associate.

However, officials concerned said the government is yet to respond positively to the offer.

BEPS tactics is allegedly used by MNCs to gain competitive advantage over enterprises that operate at a domestic level.

Experts said when taxpayers see multinational corporations legally avoiding income tax, it undermines voluntary compliance by all taxpayers.

doulot_akter@yahoo.com
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