Project Report

On

ADOPTING TRANSFER PRICING REGIME IN BANGLADESH
Rationale and the Needed Initiatives










ADOPTING TRANSFER PRICING REGIME IN BANGLADESH
Rationale and the Needed Initiatives


Submitted to:
Nafiz Sarwar Islam
Senior Lecturer
Department of Business Administration
East West University

Submitted by:
Md. Rajib Ahmed
ID: 2008-2-10-155
Department of Business Administration
East West University

Md. Mezbaur Rahaman
ID: 2008-2-10-040
Department of Business Administration
East West University



EAST WEST UNIVERSITY
Letter of Transmittal


August 6, 2012

Nafiz Sarwar Islam
Senior Lecturer
Department of Business Administration
East West University
A/2, Main Road, Aftabnagar, Dhaka-1212

Subject: Submission of Internship Report.

Dear Sir

It is my great pleasure to submit our project report Adopting transfer pricing regime in
Bangladesh: rationale and the needed initiatives. We have tried our level best in order to
analyze this topic based on all the recent updated information as much as possible.
We have gathered a lot of experience about the activities during our project period for analyzing
our topic. It was great to gather some knowledge about transfer pricing regime in Bangladesh.
We have tried our best to make this report an outstanding one. But still there might be
shortcoming regarding this report.
It will be my pleasure to clarify any matter regarding this report. We thank to you for allowing
me the opportunity to undertake the task and for your sincere guidance and cooperation.
Sincerely yours

____________
Md. Rajib Ahmed
ID: 2008-2-10-155

____________
Md. Mezbaur Rahaman
ID: 2008-2-10-040
Acknowledgement

The successful accomplishment of this Project Report is the outcome of the contribution and
involvement of a number of people, especially those who took the time to share their thoughtful
guidance and suggestions to improve the report.

At the beginning, we would like to pay my gratitude to the entire Almighty for the almighty for
giving me the ability to work hard under pressure.

We have the deepest gratitude to our respectable supervisor Nafiz Sarwar Islam, Senior Lecturer,
Department of Business Administration, East West University. We are thankful to him for his
continuous support and supervision, suggestions and providing us with valuable information that
was very much needed for the completion of this presentation.
Finally our sincere gratitude goes to my family, friends and classmates who helped us whenever
we needed.







Executive Summary

The purpose of this report is providing a clear understanding and overall analysis of transfer
pricing. Research for this report included an overview of transfer pricing, general transfer
pricing principles, transfer miswriting, emergence of transfer pricing regulation in Bangladesh,
existing rules and its potential. Besides in-depth knowledge and understanding of current
practice of Transfer Mispricing, Objectives of Transfer Pricing Regime, rationale for adopting
transfer pricing regime in Bangladesh, importance of it both from the perspective of tax
agencies and many of the multinational corporations with crossborder operations are
also included. It covers mainly five chapters: Introduction, Literature review, Methodology,
finding and analysis and conclusion with a number of sub-chapters.
The major findings indicate that Bangladesh is a fast growing economy with increasing
exposure to the risk of mispricing in cross border transactions and having enormous loss of tax
and capital each year due to mispricing in international transactions. Besides The growing size
of countrys informal economy and the need to limit money laundering and discourage
terrorist financing have also added urgency to the task of maintaining countrys financial health
and stability. While it is clear that putting in place a transfer pricing regime, which is
modern, transparent, globally accepted and geared towards good governance is likely to
encourage foreign direct investment (FDI), not discourage it. Perhaps time has come for
Bangladesh to adopt an appropriate and adequate transfer pricing regime without further delay.

Table of Content
Chapter 1: Introduction.....09-14
1.1 Transfer Pricing.09-10
1.2 Transfer Pricing Regime in Bangladesh...11-12
1.3 Origin of the Report...........13
1.4 Objective of the Study............14

Chapter 2: Literature Review...15-19
2.1 Importance of Transfer Pricing Regime in Bangladesh.....16
2.2 Objectives of Adopting Transfer Pricing Regime.........17-18
2.2.1 Safeguarding Revenue and Capital.......17
2.2.2 Tracking and Monitoring Transactions.......................18
2.2.3 Acquiring the Power of Information....18-19

Chapter 3: Methodology......20-22
3.1 Research Methodology.........20
3.2 Research Inquiry...........20
3.3 Research Method.......21
3.4 Sources for Data Collection......21
3.5 Limitations in Research.......21-22

Chapter 4: Findings and Discussion...23-84
4.1 An Overview of Transfer mispricing......23-40
4.1.1 Illegal Capital Flow, Trade Mispricing and Tax Evasion...23-25
4.1.2 Concept of Transfer Pricing....25

4.1.3 Practice of Transfer Mispricing...26-29
4.1.3.1 Loss of Tax Revenue...26
4.1.3.2 Capital Flight.....27-28
4.1.3.3 Money Laundering.....28-29
4.1.4 Conducive Environment for Transfer Mispricing29-37
4.1.4.1 Incentives within the Global System.30-36
4.1.4.2 Weak Institutional and Regulatory Capacity.37
4.1.5 Steps towards Transfer Pricing .38-40
4.1.5.1 Agency to Administer Transfer Pricing .38
4.1.5.2 Transfer Pricing Regulations.... 39-40
4.2 Understanding transfer pricing regime 41-44
4.2.1 Transfer Pricing Administration Framework 41
4.2.2 Subjects of Transfer Pricing Administration.....42
4.2.3 Transfer Pricing Organization... 42-42
4.2.4 Regulatory Framework 43
4.2.5 Transfer Pricing Terminologies ...44
4.3 Documentation Process .45-49
4.3.1 Transfer Pricing Methods .45
4.3.2 Transfer Pricing Documentation .45-47
4.3.3 Transfer Pricing Audit 47-48
4.3.4 Transfer Pricing Database 49
4.4 Global Experience ..50-53
4.4.1 Asian Experience ..51
4.4.2 Toughest Tax Agencies 52-53
4.5 Rationale for adopting transfer pricing regime in Bangladesh .54-65
4.5.1 Evidence of Tax Loss and Capital Flight in Bangladesh ...56-59
4.5.2 Transfer Pricing Risk Factors for Bangladesh 59-63
4.5.3 Presence of Transfer Pricing in Trade Partner Countries 63
4.5.4 Domestic Tax Rate Variations .64-65
4.6 How Transfer Pricing Regime Can Help .66-70
4.6.1 Minimizing Loss of Tax and Capital .66-68
4.6.2 Strengthening Capacity... 68
4.6.3 Contributing to Other Areas of Governance ...69
4.6.4 Issue of Efficiency and Fairness. 70
4.7 Adopting an Appropriate Transfer Pricing Regime in Bangladesh ....7-84
4.7.1 Study and Analysis ..71-72
4.7.2 Setting the Stage ...72
4.7.3 Transfer Pricing Legislation 72-77
4.7.4 Organizational Arrangement ...77-82
4.7.5 Data Support Environment ...82
4.7.6 Taxpayers Education 82-83
4.7.7 Transfer Pricing Delivery ...83-84

Chapter 5: Conclusion85-88
Chapter 6: References.....89-96