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Bangladesh Transfer
Pricing Regulations –
An Overview

Mehedi Hasan
Partner
Rahman Rahman huq
KPMG in Bangladesh

Monday, May 22, 2017

Transfer Pricing – An
Introduction
Why Transfer Pricing? (1)

What TP
for?

To ensure fair share To prevent shifting

of tax revenue to of profits outside
respective Bangladesh by
jurisdictions manipulating prices

3
Why Transfer Pricing? (2)

Example 1:

Cost – $ 100
Germany Mark-up
tax rate say Parent Co. Germany 200%
20% Sales – $ 300

Cost – $ 300
Bangladesh Mark-up
tax rate say Subsidiary Co.
10%
40% Bangladesh
Sales – $ 330

4
Why Transfer Pricing? (3)

Example 2:

Cost – $ 100
Japan Mark-up
tax rate say Parent Co. Japan 50%
50% Sales – $ 150

Cost – $ 150
Bangladesh Mark-up
tax rate say Subsidiary Co.
100%
40% Bangladesh
Sales – $ 300

5
TP Scenario
Top Ten Toughest • 80+ countries with full fledged transfer pricing rules.
Tax Authorities for
Transfer Pricing • Tax authorities in the ASPAC region are extremely active on
1 Japan Transfer Pricing.

2 India • Tax authorities are developing more knowledge both of

transfer pricing and of tax payer’s information.
3 China
• India, Australia, China, Korea and Japan have all seen an
4 Canada
increase in audit activity; Singapore and other tax authorities
5 US have signaled intent to step up transfer pricing compliance
6 France and field audit work.

7 Germany • Hong Kong, India, China, Korea and Japan significantly

expanding and adding key new requirements to their
8 Australia
transfer pricing regimes.
9 Korea
10 UK Asian Countries top aggressive tax authority poll – India ranks
second following Japan and preceding China (source – TP Week)

6
Highlights of Bangladesh
Transfer pricing regulations
TP basic information and references

• Tax authority: National Board of Revenue (NBR) • OECD Transfer

Pricing Guidelines.
• Law references:
• UN Practical
 Chapter XIA, and sections 94 and 173 of Manual on Transfer
Income Tax Ordinance (ITO), 1984 Pricing for
 Statutory Regulatory Order (SRO) Developing
161/Act/Income Tax/2014 Countries.

 Rules 70 to 75A of Income Tax Rules, 1984

 Income Tax Paripatra 2014 (i.e. interpretation
issued by NBR)
• Effective from 1 July 2014 (Corresponding
assessment year 2015- 2016)

8
Concept and Key Definitions

Associated International
Enterprise Transactions

Arm’s Length
Price

Transfer Pricing

9
Concept and Key Definitions

Associated International
Enterprise Transactions

Arm’s Length
Price

Transfer Pricing

10
 Associated Enterprises

Direct or indirect participation in management, control or capital

A A D

B B E
Outside Bangladesh Outside Bangladesh

In Bangladesh In Bangladesh
C
C

Both A and B are associated

D and E are also associated enterprises of C
enterprises of C
since they have a common ultimate parent (A)

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Other criteria for becoming Associated Enterprises

Practical ability Power to

to control the appoint more
Relationships decision than half of
of mutual directors
interest

Direct/indirect
Existence of shareholding
Associated
common giving more than
control Enterprises
25% of voting
power

Appointment Guarantees in
of directors excess of 10%
by an ED Loans in of total
excess of borrowings
50% of total
assets

12
Concept and Key Definitions

Associated International
Enterprise Transactions

Arm’s Length
Price

Transfer Pricing

13
 International Transaction (1)

Two aspects of International

Transactions

Parties involved Nature/subject matter

• Two or more associated • Purchase

enterprises.
• Sale or lease of tangible or intangible
• Either or both of whom are non- property
residents
• Provision of services
• Lending or borrowing money
• Any other transaction having a bearing
on the profits, income, losses, assets,
financial position or economic value

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International Transaction (2)

Parent
Parent
Company
Company
(Non
Non resident
resident)
Goods/services
Supply of
100%

100%
Singapore
Singapore

Bangladesh Bangladesh

Subsidiary Subsidiary
company company Third party
(Resident) Resident Supply of
Goods/services

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International Transaction (2)

Parent Enter into

Parent contract
Company
Company
(Non
Non resident
resident)
Third party
Goods/services
Supply of
100%

100%
Singapore
Singapore

Bangladesh Bangladesh

Subsidiary Subsidiary
company company
(Resident) Resident

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Concept and Key Definitions

Associated International
Enterprise Transactions

Arm’s
Length
Price

Transfer Pricing

17
Arm’s Length Price (ALP) (1)

Comparable
uncontrolled
price method

Resale price
Other Method
method

ALP
Methods

Transactional
Cost plus
net margin
method
method

Profit split
method

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Arm’s Length Price (ALP) (2)

Any preferred
method in TP law?

No
Most Appropriate Method depends on the facts and
circumstances of each particular international transaction
which provides the most reliable measure of ALP.

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Most Appropriate Method

Nature and
class of the
Reliable and international
accurate transaction Comparability
adjustments factors(i.e.
industry,
contractual terms)
Factors to be
considered

Sensitivity of
results in the
deficiency in data Quality of
and assumptions Reliability of relevant data
assumptions

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Judging comparability

Characteristics
of property or
Any other services Contractual
factors terms

Factors to be
considered

Functions
Economic performed, the
circumstances Data relating risks assumed
to the relevant and the assets
financial year employed

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Documentation..Sec 107E r.w. Rule 73

Entity related Price related Transaction related

 Ownership Profile of the  Transaction terms  Nature of transactions

group
 FAR analysis  Agreements
 Business Profile of the
group  Economic analysis  Invoices
 Profile of assessee, (method selection,
 Pricing related
associated enterprises & comparable
correspondence
its industry benchmarking,
(letters, emails etc.)
 Consolidated Financial adjustments)
Statement of the group  Segment financial
 Forecasts, budgets,
 Information on Tax and
information for
estimates, assumption,
VAT registration number, transaction
negotiation
IRC & ERC numbers etc.

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 Reporting to Tax Authority

Value of International Transactions

Up to BDT 30 Million Exceeds BDT 30 Million

 
Statement of International
Transaction (TP return)

Report from an Chartered

Accountant
 
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Prescribed fixed penalties

Not exceeding 1% of the value of each international transaction

• Failure to keep, maintain or furnish information, documents or records.
• Failure to comply with the notice issued by DCT

Not exceeding BDT 300,000

• Failure to furnish a report from Chartered Accountants

Not exceeding 2% of value of each international transaction

• Failure to furnish Statement of International Transactions to tax authority.

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Subjective penalties

Absence of appropriate,
DCT can determine
reliable and correct
arm’s length price
documentation and records

TP adjustments following tax audit

Added to the Penalty not Interest at

tax demand exceeding 10% 10% p.a

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TP Adjustment

TP Adjustment

Upward Downward

 
26
Assessment

Three (3) years from

Limitation on TP the end of
adjustment assessment year

For example:

Accounting year ends First assessment year

31 December 2016 2017-2018

No adjustment after
30 June 2021

As per section 93 of Income Tax Ordinance 1984

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Thank you