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13.4. Transfer Pricing

The transfer pricing regulations were issued in 2012 and made effective as from 1 July 2014.

Under the Regulations, income and expenditure arising from international transactions between related parties must be determined at arm’s length. For these purposes, the regulations define an international transaction to mean a transaction between associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses, assets, financial position or economic value of such enterprises, and includes:

(a) a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises (CCA/CSA); or

(b) a transaction entered into by an enterprise with a person other than an associated enterprise, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise (deemed associated enterprise).

Definition of Related Parties

Parties are deemed to be related if:

a. one enterprise participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or

b. the same person or persons participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital, of both enterprises; or

c. one enterprise holds, directly or indirectly, shares carrying more than twenty five percent of the voting power in the other enterprise; or

d. the same person or persons controls shares carrying more than twenty five percent of the voting power in both enterprises; or

e. the cumulative amount of borrowings of one enterprise from the other enterprise constitutes more than fifty percent of the book value of the total assets of that other enterprise; or

f. the cumulative amount of guarantees provided by one enterprise in favour of the other enterprise constitutes more than ten percent of the book value of the total borrowings of the other enterprise; or

g. more than half of the board of directors or members of the governing board of one enterprise are appointed by the other enterprise; or

h. any executive director or executive member of the governing board of one enterprise is appointed by, or is in common with the other enterprise; or

i. the same person or persons appoint more than half of the board of directors or members in both enterprises; or

j. the same person or persons appoint any executive director or executive member in both enterprises; or

k. one enterprise has the practical ability to control the decision of the other enterprise; or

l. the two enterprises are bonded by such relationship of mutual interest as may be prescribed.

See also the provisions regarding deemed associated enterprises under (b) above.

Transfer Pricing Methods

The Regulations prescribe the use of the most appropriate method amongst the OECD-sanctioned traditional or transactional methods (CUP, resale plus method, cost plus method, profit split, TNMM). The selection shall be based on the nature of transaction, the availability of reliable information, functions performed, assets employed, risks assumed or such other factors as may be prescribed. The assesse may use any other method on condition that it can demonstrate that:

  • none of the 5 OECD prescribed methods can be reasonably applied to determine the arm's length price for the relevant international transaction; and
  • such other method yields a result consistent with the arm's length price.

Documentation Requirements

Disclosure Statement

The Regulations require any person engaged in international transactions to file a so-called “Statement of International Transactions” with its annual tax return. The Statement must be prepared on a prescribed Form (Rule 75A Form) and describes the particulars of the international transactions, including their nature and the transfer pricing methods adopted. Failure to file the Statement may result in a fine equal to up of 1% of the amount of reportable transactions.

Chartered Accountant Report

The Regulations require every person who engages in international transactions exceeding in the aggregate BDT 30 million in a year to file a report prepared by either a chartered accountant or a cost and management accountant. The report must be prepared on a prescribed Form and is filed with the annual tax return. Failure to file the report may result in a fine of up to BDT 0.3 million.

Standard Documentation

The Regulations require taxpayers engaged in international transactions to keep and maintain adequate information and documents in order to substantiate the arm’s length nature of the transactions. This standard documentation must be presented in the case of a tax audit. It includes, inter alia, the following:

  • ownership profile of the group;
  • business profile of the group;
  • business relationships in the group;
  • consolidated financial statements;
  • business profile of the enterprise and of each associated enterprise engaged in controlled transaction with the enterprise, as well as brief description of functions performed, assets used and risk assumed by the enterprise and each of the associated enterprises in relation to the transactions;
  • information on market analysis, forecasts and budgets;
  • contracts and agreements;
  • benchmarking;
  • justification of the TP method selected.

Failure to keep and maintain documentation may be sanctioned by a fine of up to 1% of the value of international transactions conducted by the taxpayer.

Country-by-Country (CbC) Reporting

Bangladesh has so far not introduced CbC reporting requirements. Bangladesh was originally (as of June 2016) listed as a member of the Inclusive Framework on BEPS, which presupposes a commitment by the country to implement the BEPS minimum requirements including CbC reporting. However, Bangladesh as of January 2018 is no longer listed by OECD as a member of the Inclusive Framework.