National Board of Revenue (NBR) in its initial investigation has found that a majority of the foreign companies operating in Bangladesh are not paying taxes and the ones who are paying taxes are also evading them by hiding their actual transaction.
The national revenue authority therefore is planning to conduct drives against the fraudulent companies from the January next, a highly placed source in the NBR told Bangladesh Post.
NBR has made a list of 921 companies including Multi-national Corporations (MNCs) and companies involved in international transactions in a bid to look into their tax compliance as well as the price transfer records sent to their core country, a NBR official concerned said.
It has been found that some 100-120 companies out of 921 submit their tax returns regularly, informed the same source. According to this count, almost 85 percent of such companies are non-compliant.
Though some foreign companies do not pay taxes under the avoidance of double taxation agreement of their core countries with Bangladesh, most of the companies are intentionally non-compliant, he said. There are strong allegations against many non-local companies that they are involved in remitting their profits and other capitals without paying taxes.
Besides, many of them are involved in miss-declaration (under-invoicing and over-invoicing) while conducting their export-import activities.
NBR, earlier in 2014 formed a unique unit ‘transfer pricing cell’ under tax wing to bring the MNCs’ international transactions under scrutiny in a bid to prevent tax evasion and capital flight through misuse of transfer pricing system.
The transfer pricing cell, however, could not take any effective action against such business entity since its inauguration.
The exchequer on August 20 this year reformed the cell to expedite the move against the capital flight by the MNCs’ and other business entities having international transactions.
A member of this cell told this correspondent that they have primarily found that 814 companies out of the 921 in the list do not submit their tax returns with a view to keeping their financial statements hide.
“We have made a list of non-compliant companies and we will begin audit on these companies from January next,” he said.
“Most of the non-compliant foreign companies are from the garment sector and some other from the service sector,” he added.
The source said they would initially try to bring the non-compliant firms under the tax net. And then the transfer pricing cell would oversee whether any irregularity is there with their international transactions.
The cell will scrutinize the most suspicious companies’ compliance record and gradually carry it on at all other foreign companies, he said.
The cell will also look into the transparency records of tax compliant MNCs like Grameenphone, Uniliver, Standard Chartered and so on, he added.
The foreign companies generally send money to their mother company in the forms of profit, interest, capital, and price cost.
NBR officials said the MNCs are mostly involved in over-invoicing to dodge revenue while conducting import proceedings from the core company. Hence, they also show lower profit to avoid higher taxes.
The member of transfer pricing cell said they would also prepare individual tax-profile for each of such companies to bring them under monitoring, adding that “it will exponentially intercept the fraudulence.”
Another source said NBR earlier in January this year took a move to conduct audit on such business entities though the initiative was later deferred keeping it in mind that it might hamper the flow of Foreign Direct Investment (FDI) into the country.
However, it now could realize the urgency to intercept such fraudulence and that is why it has reformed the transfer pricing cell to mobilize the action, he said.