logo

Bringing transfer pricing under scanner  

Thursday, 26 January 2023


Among the many modes of money laundering, a less talked-about method that seemingly has the potential to cause massive money flight from a host country is transfer pricing. In Bangladesh, the oft-repeated malpractices relating to money laundering are believed to be trade mis-invoicing, and hundi. Although transfer pricing does figure occasionally, there has not been any move to dig into the alleged tricks to expose any wrongdoing. A news story published in this newspaper, quoting a study report, says Bangladesh could tap huge revenues lost to transfer mis-pricing by developing the capacity of the tax authorities to prevent such intra-company trade malpractices, deemed to be linked to capital flight. The study titled 'Combating Transfer Mispricing: New Avenue for Bangladesh Customs', prepared by the Customs Audit, Modernisation and International Tax Wing has mentioned that economic environment of Bangladesh is susceptible to transfer-pricing manipulation amid increased volumes of international trade, presence of multinational companies (MNCs), and absence of proper monitoring of such transactions.

 Transfer pricing is the price paid by a firm for goods or services while procuring them from a related entity. When a firm is buying or selling from its parent or subsidiary entity, there are chances that prices may not be set as per market principles. Rather, price may be decided artificially by the parent company for getting maximum benefits, as well as avoiding tax payments in the host country. Such artificial price setting in intra-firm transactions to avoid taxes and to get other benefits is believed to be common in respect of many MNCs. In conventional accounting literature, transfer-pricing is viewed as a technique for optimal allocation of costs and revenues among divisions, subsidiaries and joint ventures within a group of related entities. Such representations of transfer pricing are deeply implicated in the processes of wealth retention that enables companies to evade taxes and facilitates the flight of capital.

 The aforementioned study report has recommended utilisation of both the wings of the NBR-customs and income tax-- like in many advanced and modern revenue administrations in order to detect, track and deter transfer mis-pricing. The task is not easy in that it involves trained manpower and a systematic procedure including tie-ups with international networks. The government enacted the Transfer Pricing (TP) law in 2014 but is yet to get any tangible outcome for a lack of capacity of the relevant regulatory authorities. Recognising the dearth of competent human resource, the study report stressed upon capacity building as well as the need for sector-specific training on cross-border trade as well as transfer-pricing practices.

Given the reportedly unabated money flight from the country through various illegal means, the government is expending most of its efforts in detecting trade mis-invoicing and hundi-both recognised as the key methods of money flight. Transfer pricing and the malpractices allegedly associated with it are obviously not under any form of scanner. Is it not time the authorities sat up to put in place required measures for the sake of garnering government revenue.