Transfer pricing rules come into force July 1
Transfer pricing rules for the multinational companies finally came into force on Tuesday as the National Board of Revenue made submission of the records of their international transactions mandatory, officials said. Transfer pricing occurs when a company pays or gets paid for purchase or sell or transfers of any tangible or intangible output to another company which is a subsidiary of the former or in which it has substantial interest in any form.
There are allegations that MNCs evade tax and transfer fund from the country by abusing the transfer pricing system or mispricing in different ways including over-invoicing and under-invoicing during transactions of goods and services within their associated companies and transfer of dividend and profit to its parent companies.
Officials said that the MNCs must have to maintain the accounts of international transactions in details from July 1, the first day of the fiscal year 2014-2015.
The MNCs will have to submit the statements of their international transactions in a prescribed form along with the income tax returns from the next fiscal year of 2015-2016, they said.
The NBR on Tuesday finalised rules describing the method of maintaining the statement of such transaction and the form for the submission of transaction details to the NBR.
According to the rules, the MNCs will have to submit more than 26 types of information related to such transaction to the NBR along with their income tax returns.
NBR officials said that they would be able to conduct audit of international transactions of the MNCs from the next fiscal year as the rules have become effective from the current fiscal year and the MNCs would submit their returns in the next year containing information of the current year.
By this time, NBR officials will be prepared and trained themselves for conducting audit, they said.
The revenue board in the FY 2012-2013 incorporated a provision in the Income Tax Ordinance-1984 through the Finance Act-2012 to bring the MNCs international transactions under scrutiny in a bid to prevent tax evasion and capital flight through the misuse of the transfer pricing system.
The revenue board has already formed a transfer pricing cell which will investigate and undertake audit of international transactions made by MNCs within associated enterprises to check tax evasion and capital flight from the country.
According to the rules, the MNCs will have to maintain the information regarding their expenses and earnings from transactions related to financial, tangible property, intangible property and services.
They will have to submit details information related to transactions of stock, raw materials, payment as rent, royalties for the use of patents, trademark, and franchise licence fees, treasury related services, management and administrative services, sales and marketing services, research and development, software and ICT services, technical and engineering services, commission, logistics and asset management services, payment of interest, sales of financial assets, lease payment, securities lending, insurance and guarantees.
They will have to maintain date related to transactions as interest bearing loans, advances and investment, interest-free loans, advances and investments and any other amounts payable and receivable.
The MNCs will have to mention the internationally accepted transfer pricing method code for each transaction and the per cent of total value of international transactions for each item.
-With New Age input
