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The report is based on discussion of adopting transfer pricing regime in Bangladesh and needed initiatives for it. In this regard it is necessary first to develop clear perception about the concepts related with the issue. Keeping in view this need this section consists of review of the literature that is focused on how to adopt transfer pricing regime in Bangladesh, what initiatives to follow to adopting transfer pricing regime.

The section further unfolds the impacts of transfer pricing regime in Bangladesh and then discusses the trends and current scenario transfer pricing regime in Bangladesh so that with the help of the review of related research works, a picture can be portrayed. In today’s globalised world, transfer pricing is assuming growing importance both from the perspective of tax agencies which are interested to combat the abusive use of it, and of many of the multinational corporations (MNCs) with cross?border operations and transactions for which this is becoming a common practice.

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MNCs are increasingly operating in regions with differentiated taxation systems and diverse regulatory situations. Global trade and trade mispricing are two closely bonded issues; growing volume of global trade has been creating increasing opportunities for trade mispricing. Indeed, the rapid rise of global trade and corporate power offers increasing opportunities for abusive use of transfer pricing (Sikka and Willmott 2010). The use of transfer pricing for tax evasion and tax avoidance is difficult to detect by tax agencies as the schemes of mispricing are carefully designed to outsmart conventional tax scrutiny.

Growing incidence of abusive transfer pricing practices and their adverse economy?wide implications have attracted the attention of many academics1 beyond the accounting discipline; many policy advocacy groups including civil society organisations2 have been seeking more information and actions in view of the emergent situation (Rahman, Ahmed & Khan 2011). Transfer pricing has tended to remain an under researched area in Bangladesh. Not many academic works have been carried out on related issues.

The study is an attempt to review the relevant international experience, secondary information and data and current global regulations and literatures, and provide the rationale for design and implementation of the necessary fiscal reforms related to transfer pricing. Based on analysis, the paper has attempted to put forward a comprehensive legal and administrative framework which can be used as a guideline to the policymakers to address the issue of transfer pricing in the context of Bangladesh.

A large number of academic works, policy briefs and legal documents have been reviewed to draw upon the relevant experiences and evidences (Rahman, Ahmed & Khan 2011). Importance of transfer pricing regime in Bangladesh The adoption of transfer pricing regime discourages profit shifting in a number of ways. Firstly, a transfer pricing regime facilitates audit. Transfer pricing audits detect mispricing induced tax evasion, and take back from entities the money they gained by means of mispricing.

Secondly, the incidence of tax evasion, once detected, is rebuked by heavy penalty. Thirdly, it discourages adoption and continuation of the practice by other entities. Objectives of Adopting Transfer Pricing Regime Transfer mispricing is a global phenomenon. In this era of increasing economic openness, it is hardly practicable for countries to control the price at which particular transaction takes place.

What countries could perhaps do is to reduce the adverse effect of transfer mispricing by building an institutional capacity that can serve two basic purposes: enabling countries to minimize the loss of tax and capital, and creating an administrative and regulatory environment that discourages the mispricing of transactions. These purposes are served by meeting the following three strategic objectives: Safeguarding Revenue and Capital Profit transfer, capital flight and tax evasion are three closely bonded issues. When an entity hides or under?reports a profit, concurrently it evades tax on the said amount of profit.

And when the unreported profit is transferred out of a particular jurisdiction, the jurisdiction loses capital equivalent to the aggregate of the tax and the after? tax profit. But when the evasion is detected, the taxpaying entity must bring the capital back to the taxing jurisdiction. The detection of tax evasion thus ensures the retention of capital within the taxing jurisdiction. Minimizing tax loss and safeguarding capital are therefore, the fundamental objectives of combating transfer mispricing (Akram 2002). Tracking and Monitoring Transactions

Creating paper trails with regard to transfer mispricing practices is the key to identifying it. If regulatory agencies can track dubious transactions, the loss of tax relating to such transactions can be identified and recovered. Data mining techniques, such as gathering and analyzing background information on the transacting parties, examining the source and destination of transaction funds and comparing transaction prices with the normal market prices, help to unearth abusive transfer pricing practices. But this is easier said than done (Akram 2002).

Acquiring the Power of Information The cases of transfer mispricing are usually unearthed by means of post?transaction investigation and analysis, popularly known as audit. Success in audit largely depends on the availability of relevant information. Information related to economy, industry, transaction parties and transaction prices is immensely valuable in post?transaction audit and enforcement (Akram 2002). In order to maintain fiscal and financial integrity, and enforce prudential practice, countries endeavor to adopt transfer pricing regime.

Under the transfer pricing regime, a country develops the system that can track and monitor dubious transactions, locate the incidence of mispricing, determine the fair value of transactions, and recover the lost revenue for the country (Akram 2002). To foster gathering and storing information, a transfer pricing regime undertakes the following steps: a. Requires business entities to maintain records and documents relating to entity, industry and price; b.

Encourages the establishment of data support companies by providing necessary policy support and fiscal incentive; c. Develops and maintains a database by storing data provided by taxpayers. Lack of transparency and opacity in transactions and regulations fosters mispricing. Access to the relevant information could address this. The mere fact that the regulatory agencies possess fair scale of transfer pricing information is likely to discourage potential misprices, and thus reduce potential losses to tax authorities.

Reference

Sikka, P and Willmott, H 2010, The Dark Side of Transfer Pricing: Its Role in Tax Avoidance and Wealth Retentiveness ‘, Critical Perspectives on Accounting, vol. 21, no. 1, viewed 21 July 2012, ; http://ipac. kacst. edu. sa/edoc/2011/191864_1. pdf ;. Akram, T 2002, ‘Objectives of Transfer Pricing Regime’, Transfer Pricing Policy for Bangladesh, vol. 50, no. 2, pp. 09-13. Rahman,S, Ahmed,S ; Khan, TI 2011, ‘Introduction, Transfer Pricing Regime in Bangladesh, vol. 13, no. 2, pp. 08-10.

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