Transfer Priciny he Sleeping Giant of Bangladesh's Economy ‘By Ziag Rahman and Afsana Tazreen_ ‘August 2014 Current Events Analysis Series Intreduetion The decine inthe global economy ha ed to dedine Inthe tax bases of econcmies around the weld. ‘As ares, the tax authortes are focusing their attention on Transfer Pricing (TP) a8 one posible way to ‘address the decine in tax collections. Being no diferent, the National Board of Revenue (NBR) of ‘Bangladesh has established a specials transfer pricing team, refered to asthe TP Cell. The function of the cell would be to review the transfer pricing arrangements of entities in Bangladesh. In his budget speech, rance Miniter AMA Mubith hs stated, thatthe TP Cell il start looking into the TP arrangements of multinationals from uly 2014. Given ths announcement, entities in Bangladesh wil hhaveto be prepared to explain thei transfer pricing arrangements to the TP Cl What s Transfer Pricing? ‘Tranfer pricing i concerned with the price (Transfer Price) that assocated enterprises charge each other for tre services and/or goods that they recelve and/or provide each other. Transfer pricing rules require thatan arms length price be applied on international transactions. This paper provides an overview of the new transfer pricing legislation that has been introduced in ‘Bangladesh under Chapter XI of The income-Tax Ordnance, 1984 (Chapter Xi). It also touches upon what multinationals In Bangladesh should consider wile defending thelr transfer pricing arrangements ‘Bangladesh Transter Pricing Legislation (Chapter XA, Section 107A, provides definitions of 2 numberof transfer pring specific terminologies. ‘Twolmportant definitions are explained below ‘Arms length price ‘The arm's length price concept expects that international transactions. with associated ‘enterprises shouldbe priced in a smlar manner to how the transactions would have been priced ‘Tit had taken place with or between independent parties" However, the concer for tax Authorities is whether an arm's length price is being applied or not because by changing the ‘ranafr pricing t's posse to minimise the tax paid ina patclaruridictlon.Quis ‘The ams longth price concept is explained inthe folowing diagram: aa ge _—-— ——— Ea er ee ena eee ee ee Coenen eee ‘transaction witha 3rd party. Te ineraional vansacton, transfer price should be reduce from $120, 19 $100 te arm's length pice. “Transfer Pring methods “To establish it an arm's length price has been charted, the most appropiate transfer pricing method should be apoted based onthe functions performed asus employed aks aimed in dndertaking the International wansacton Irtermationaly accepted want pecng methods at Comporable uncontrolled pce method Resale price method ost plas method Profit spit method Transactional net margn method anyather method where ican be demonstrated tht ‘2 none of the methods mentioned in dause (a) toe) can be reasonably applied to determine the a's lenath peice for the international ansacton ard ' tuenother method ilies rest content wth team's nat price ‘The sppropiteness and selection of tronsfer pring methods and. detats of the ieterational lwansction,esccated enterprise and a's length rice ate tadtonally presented inthe frm of @ report commonly referred to as Wanser pcg documentation “Transfer Peng Documentation ‘As of writing ths poper, It 1 not clear as to what Is requred to maintain Information ‘documentaton/eport and records for Intemational transactions. Ths net uncommon when a tat ‘authority fest introduces transfer pring Following the introduction of transfer pring rules, ta autores tend to release guidelines, tx rings, or cculas that provide rection/guidance to meet the vansferprcngnformtion, documentation ad record requtements. Ismet Mel than not that the wansfrpreng documentation requtements of Sangladesh willbe Based on and consstent wth the ‘OFCD (rzanaton of Sonomic Cooperation and Development) Tranter Ping Guidelines.GULAB With this ind, the following decison tee provides» summary ofthe aspects cused above and lahat 0 conser eetabiching an entity nee te price trance pricing documntation. ve Yes Do you have an Is itwith an po ‘nemmaton” |—e| scenes | —o| raion)? enor? ean ™ No Notsmer Noumer ection. ‘ection. a] Rosana Resonader it Reser vovnae ora vounere entra lamest eoeetcet trmecionn | | varsocton we ‘rarcaton ‘Pete. “aeoouied Een tere “coo Toa sine are What tocapetnest ‘athe T Cll begins ts review of international ansctons, tis il that that the even process may {otow a proces a presented inthe dgram bow ree cr) ce ‘As mentioned above it ily that the NBR may provide addtional dartfication on thei expectations with espet to entities wth ntrmationalvansactons. We dicus below afew daricatons that i itely tobe ofintrestt Bangladeshi makinaionals: 1 Transfer pring documentation requirements for entitles with international ansations. This ‘most ely to be consistent withthe Transferring Guidance as established by the OECD. 2 Incase theres a requirement for adtionalfrme/scheles tobe subrted with ax returns for _ntties with international ansatons, these forma/schedules may be used by the TP Call selec entities to perform TP reviews. 3. Thetime paved tht the Tarlo Pricing legislation apocable oe: ‘Bosedon the T legion would, NER be entitled to resiew ond choose to evew International transaction that occured fom2014 or als before 2018? 44 The possty that transfer pricing documentation wil be required for domestic transactions sth associated entities in Bangladesh in the future“once of transfer prengis aot anew one and the TP Cll has Been obtaining Waring to séminster the TPlegilation ‘ive the onset of transfer pricing requirements and the announcement thatthe TP Cel wil begin its ‘wafer pring reviews, entities in Bangladesh shoul take step to prepare all applicable transfer pricing ‘documentation, shoul they have international ransactions with associated enterprises. Not tang steps to prepare transfer pricing documentation ad making sure al your records ar inorder ‘ay lea to pena for not preparing transer pring documentation, while nt having starting pint to ‘defend your international transactions may lea to 2 prolonged review to establish the appropriateness ofthe wanstr pie applied. Sel Pare, 2014 “NOR vet to rack whip on foreign rs tx dc The Oly Stor: une 3S "Thence Tat Orne, 198, Cuper 0A, 107A Rete or: (hszdfeioes mina gov balecions deta he?d-672Qsecon A060 *otco, oL€D Tarte Pring Guldelnes or Mukiatiorl Enters and Tax Admit aton OCD, iy 2010, The Center fr Enterprise Society (CES sees to advance understanding ofthe opportunities and «challenge to business and societal evelopment in Bangladesh through objective academic sty. For ‘more information orto acess or publications and big please vst: Lf lab edb omed