Transfer Pricing in Bangladesh

Transfer pricing is the setting of prices for goods and services that are sold between controlled legal entities within the same enterprise or group. The concept is accepted globally. It is not intended to discourage inter-company or related-party transactions; rather, its purpose is to ensure that such transactions take place at a fair price. More than 70 countries have adopted transfer pricing rules in recent years. In Bangladesh the framework has been introduced relatively recently and is a growing area of concern for multinational companies operating in the country.

Documentation requirements

To be prepared for any review by the tax authority, an entity should maintain records of the following:

1. Ownership profile
2. Business profile
3. Brief business profiles of each member of the group
4. Information on the business relationships within the group
5. Consolidated financial statements of the group
6. Financial statements of the assessee enterprise
7. Information on economic and market analysis, forecasts and budgets
8. Details of all transactions with associated enterprises
9. Copies of contracts and other relevant documents

Mandatory returns

Under current Bangladeshi law, a report from an accountant must be furnished to the income tax authority. This involves an examination of the relevant papers and activities to confirm that the documentation and procedures are consistent with the Income Tax Ordinance 1984. The obligation to furnish a transfer pricing return applies to anyone who enters into an international transaction of any kind.

In addition, two further reports are required:

• A Statement of International Transactions, covering the expense and revenue details of the assessee
• A Statement of Interest-bearing Loans, Advances and Investments, including the year-end balance figures of local loans and advances

Penalties for non-compliance

The law provides for penalties where records are not maintained or the transfer pricing return is not submitted:

• A penalty of up to 1% of the value of each international transaction for failing to maintain the required accounting records
• The Deputy Commissioner of Taxes (DCT) may impose a penalty of up to BDT 300,000 (three lakh) where an assessee or person fails to furnish the transfer pricing return described above

Given the documentation burden and the penalties involved, entities engaged in cross-border transactions should ensure their transfer pricing records and returns are complete and compliant.