Review on Transparency and Disclosure: From the perspective of Bangladesh and other developing countries

Transcription

1 Review on Transparency and Disclosure: From the perspective of Bangladesh and other developing countries (BEPS Action Item-13) * Read with Transparency and Disclosure by Diane Ring SYED MOHAMMAD ABU DAUD Additional Commissioner of Taxes National Board of Revenue Ministry of Finance People s Republic of Bangladesh

2 BEPS pose a big threat to developing countries, but due to lack of proper knowledge and skill they are yet to capable handle this threat

3 Effects of BEPS on Developing Countries Serious threat to fair competition Causes an uneven tax regressiveness Escalates poverty, inequality and unemployment Loosing significant revenue by transfer mispricing and false invoicing Resulting higher cost of collection of domestic resources

4 Issues of Developing Countries (Most Common Practices of BEPS) Tax challenges of digital economy Base erosion through interest deduction Abuse of tax treaty Profit shifting through supply chain restructuring Transfer Pricing Transparency and Disclosure Contd

5 Base erosion through payment on service charges Management and technical fees and royalties Taxation on capital gains Watchful tax incentives Difficulties in obtaining information needed to assess and address BEPS. Absence of strong risk analysis tools to detect abusive tax practices. Contd

6 Fictitious pricing in import and export Corporate arrangements Artificial indebtedness between companies of the same group Fictitious transactions in tax heavens Artificial transfer of tax residence

7 Action Item-13: Transparency & Disclosure To address asymmetrical information between tax authorities and tax payers Action Item-13 is working on- Establishing rules requiring MNEs to provide country by country report to relevant governments Call for re-examination of transfer pricing documentation Contd

8 Common reporting templates to concerned tax authorities for MNEs Creating globally equivalent mandatory rules with a view to creating an international reporting regime

9 Proposed Reporting Package Master File Country by country report Local File

10 Implement Issues for Developing Countries Documentation and burden Timing Materiality Document Retention Documentation Updates Language Penalties

11 Another Issue Besides BEPS Action Item-13, OECD has proposed Automatic Exchange of Information (AEI) This is a process and commitment among various countries (jurisdictions) for communicating specific information about tax payers automatically

12 Challenges to AEI Common standard regarding information reporting Due diligence by financial institutions An exchange process Legal frame work through which the automatic exchange will be executed Compatible technical system

13 How BEPS Action Item-13 can help? Improve risk assessment and to facilitate transfer pricing audit Unified reporting package of MNEs will create credibility in developing countries Can be benefitted through master file, template and local file Easy access to information will be helpful

14 Enact required legislation Ensure Confidentiality Skill gap removal program

15

16 Domestic Law Barriers Financial accounts Cross border related parley transactions Foreign financial assets Foreign business activities

17 Domestic Enforcement Barriers Limited audit staff Limited international tax expertise Limited technological resources

18 International Barriers Capacity constraint to obtain information Lack of widespread network Less engagement with large tax community Skill gap in negotiating tax treaty Skill gap in administering tax treaty

19

20 Setting up a high level international tax desk at National Board of Revenue Widening treaty network (Presently 33 treaties exist) A transfer pricing cell is expected to be functioningbytheendof2015 Necessary laws of transparency and disclosure as well as transfer pricing have been enacted in the domestic tax law Contd

21 Thin capitalization rule is on the table Establish law to limit deduction royalties Establish withholding taxes on payments related to royalties and services to avoid double non-taxation Researches are going on about the new avenues Contd

22 Training programs for tax auditors in collaboration with international community Consultation with the tax payers regarding transfer pricing documentation Bilateral advance pricing arrangements with treaty partners

23

24 Domestic law is to be made smarter and efficient enough to face the challenges Knowledge, Technical know how should be shared between developed and developing countries Training of the tax auditors for efficient use of master file, CbC templates and local file Real time technical assistance and capacity building help is also necessary from technically sound countries Skill gap removal program should be taken with the help of resourceful countries in this context

25 THANKS FROM BANGLADESH