Transfer Pricing Advisory in Bangladesh (2025): A Deep, Practical Guide by TRW
Transfer pricing (TP) isn’t just a technical tax niche anymore—it’s a board-level risk in Bangladesh. The National Board of Revenue (NBR) expects multinational enterprises (MNEs) and Bangladesh-resident groups with cross-border related-party dealings to demonstrate that their prices, margins, and funding terms are at arm’s length. If they can’t, adjustments, penalties, and prolonged audits follow.
This guide is the playbook TRW uses with clients operating in (or into) Bangladesh. It translates the black-letter law into practical steps your finance, tax, and legal teams can execute—without drowning in jargon.
1) The Legal Backbone—What Actually Applies in 2025
Bangladesh’s transfer pricing regime is embedded in the Income Tax Act 2023, which replaced most prior provisions of the 1984 Ordinance. The Act houses a self-contained TP chapter that defines key terms, prescribes arm’s length pricing, empowers NBR’s Transfer Pricing Officer (TPO), and imposes documentation and filing obligations.
For day-to-day compliance, businesses rely on two pillars in practice:
- The primary law (Income Tax Act 2023), including sections on:
- Definitions and scope of international transactions (with associated enterprises),
- Determination of income at arm’s length price (ALP),
- Computation methods,
- Reference to the Transfer Pricing Officer,
- Documentation/record-keeping,
- The Statement of International Transactions (SIT) filing,
- The independent accountant’s report.
- Administrative interpretation and market guidance summarising thresholds, range concepts, and filing mechanics. (PwC Tax Summaries)
Key compliance thresholds and mechanisms (high level):
- SIT is filed with the annual income tax return for anyone entering into international related-party transactions during the year. (PwC Tax Summaries)
- BDT 30 million aggregate threshold (per income year) triggers documentation and accountant’s report requirements. (PwC Tax Summaries)
- Penalties apply for missing documents, failing to file the SIT, or not furnishing the accountant’s report when required (details in Section 7). (ICMAB)
2) Scope—What Counts as an “International Transaction”?
Under Bangladesh rules, international transactions cover any cross-border dealings between associated enterprises (AEs), including the allocation or apportionment of costs/benefits. This extends beyond obvious “sales/purchases” into services, intangibles, financial arrangements, and cost sharing. (PwC Tax Summaries)
Common Bangladesh-relevant categories:
- Goods: components/raw materials, finished goods flows to or from group companies.
- Services: IT/ITES, back-office, management support, technical services, marketing support.
- Intangibles: royalties for trademarks, software licensing, patents, know-how.
- Financials: intercompany loans, cash pooling, guarantees.
- Cost sharing: shared service centers, regional hubs, group platforms.
- Restructurings: toll-manufacturing shifts, distribution model changes, IP migrations.
If your related-party deal crosses a border and affects your Bangladesh entity’s profits, put it in the TP bucket.
3) The Arm’s Length Principle—How Bangladesh Tests Your Prices
3.1 The accepted methods
Bangladesh follows globally recognized ALP methods. In practice, the “most appropriate method” depends on functions, assets, and risks (FAR), data availability, and transaction nature. (ICMAB)
- Comparable Uncontrolled Price (CUP): direct price-to-price comparison (ideal for commodities/license rates when data exists).
- Resale Price Method (RPM): tests gross margins for distributors who mainly resell.
- Cost Plus Method (CPM): tests gross mark-up for contract/toll manufacturers or captive service providers.
- Transactional Net Margin Method (TNMM): benchmarks operating margins (common for routine distributors/contract services when CUP data is scarce).
- Profit Split Method (PSM): allocates combined profit for highly integrated or unique intangibles.
3.2 Bangladesh “range” and multi-year data
Bangladesh adopts a percentile-based range approach when sufficient comparables exist (generally at least six) and the method is CUP/RPM/CPM/TNMM; otherwise, arithmetic mean applies. Multi-year data is allowed to smooth out anomalies. (PwC Tax Summaries)
Practical tip: Build a comparator set with local/regional peers first, then broaden. Document screening choices (industry codes, filters, loss filters, RPT filters) to defend your selection.
4) Who Must File What—and When
4.1 Statement of International Transactions (SIT)
- Who: Any taxpayer with international related-party transactions during the year.
- When: Along with the annual income tax return.
- What: Summarized, transaction-level info (counterparty, value, nature, method, etc.). (PwC Tax Summaries)
4.2 Transfer pricing documentation (Local File-style)
- Trigger: BDT 30 million aggregate value of international transactions in the income year.
- Timing: Maintain documentation by the return filing due date and be able to produce it upon request. (PwC Tax Summaries)
What good documentation looks like in Bangladesh (TRW checklist):
- Group and local business overview (value chain, Bangladesh role).
- FAR analysis for each tested Bangladesh entity.
- Characterization (e.g., limited-risk distributor, contract manufacturer, routine service provider).
- Transaction mapping (each intercompany flow).
- Method selection (why this method; why not alternatives).
- Benchmarking (comparator set build, screening steps, final range, financials).
- Policy articulation (margins, royalties, interest rates, guarantees).
- Financial reconciliation (tested party P\&L to audited financials).
- Intercompany agreements (signed, current, consistent with conduct).
4.3 Accountant’s Report
If the BDT 30 million threshold is crossed, obtain an independent accountant’s report for the year’s international transactions and furnish it as required. (PwC Tax Summaries)
TRW tip: Align your accountant’s report evidence pack to your Local File—same comparables, identical tested party, and reconciled figures.
5) How NBR Audits Transfer Pricing—and How to Prepare
5.1 Role of the Transfer Pricing Officer (TPO)
A TPO can call for information, review your method and comparables, and propose adjustments if the pricing is not arm’s length. The law provides a formal reference mechanism to the TPO and empowers the authorities to determine ALP. Keep a ready-to-share pack that mirrors your Local File. (ICMAB)
What the TPO typically scrutinizes:
- Substance vs contracts: are “limited risk” statements backed by reality (inventory risk, market risk, warranties)?
- Royalty/fee nexus: is there evidence of services rendered/benefits received? Management fees without decks/timesheets are high-risk.
- Benchmark integrity: are comparables functionally comparable? Were loss-makers excluded without rationale? Is RPT filtering robust?
- Financing terms: are interest rates, maturities, collateral, and covenants market-standard?
- DEMPE for intangibles: who develops, enhances, maintains, protects, exploits the IP—and where?
5.2 TRW’s audit-readiness drill (quarterly)
- Quarterly walk-throughs with finance and business leads to confirm how deals are executed vs what’s in the agreements.
- Variance testing: actual margins vs target arm’s length range. If drifting, consider in-year true-ups (with documentation).
- Service evidence: collect timesheets, deliverables, meeting notes, project trackers for all head-office/SSC charges.
- Benchmark refresh: at least annually for material flows; tri-annual full rebuilds.
- Board minutes & approvals: keep them consistent with your TP narratives.
6) Transaction-by-Transaction Playbooks
6.1 Distributors (importers/resellers)
Risk: Overstated purchase prices depress Bangladesh margins.
Controls:
- Characterize as limited-risk distributor (no strategic market risk, no brand ownership).
- Use RPM or TNMM, target arm’s length gross/operating margins.
- Monitor quarterly and true-up in Q4 if needed; ensure marketing cost levels align with tested role.
6.2 Manufacturers (contract/toll)
Risk: Understated mark-ups on conversion costs.
Controls:
- CPM or TNMM using manufacturing comparables with similar capacity utilization.
- Separate pass-throughs (raw materials at cost, if applicable) from the value-added base.
- Adjust for idle capacity and abnormal costs transparently.
6.3 Intra-group services & management fees
Risk: Disallowance if benefits aren’t evidenced or duplicative.
Controls:
- Maintain benefit tests (who needed the service, what deliverables, efficiency or revenue impact).
- Choose a cost-plus mark-up supported by regional SSC benchmarks.
- Avoid charging for shareholder/duplicative activities; carve them out explicitly.
6.4 Intangibles (royalties, tech fees)
Risk: High scrutiny on rate, nexus, and DEMPE control.
Controls:
- Map DEMPE functions and ensure royalty reflects Bangladesh’s actual value contribution.
- Use CUP if reliable license data exists; otherwise consider PSM for integrated intangibles.
- Put KPIs and usage metrics in the license agreement; record technical assistance.
6.5 Intercompany financing & guarantees
Risk: Thin spreads or non-arm’s-length terms.
Controls:
- Build a credit profile for the borrower (standalone rating).
- Benchmark interest margins and guarantee fees; document selection of indices/tenors.
- Align with Bangladesh foreign loan approvals and any BIDA debt-equity expectations mentioned in market summaries. (PwC Tax Summaries)
6.6 Cost sharing / platform contributions
Risk: Misaligned allocation keys and omission of IP valuation.
Controls:
- Choose allocation keys tied to expected benefits (e.g., usage, revenue, headcount).
- Value unique intangibles contributed to the pool; document valuation method.
7) Penalties, Adjustments, and How to Avoid Them
Bangladesh law prescribes specific penalties linked to TP non-compliance. In practice:
- Failure to maintain/keep TP information and documents: penalty up to 1% of the value of each international transaction.
- Failure to file the SIT (TP return): penalty 2% of the value of the international transaction.
- Failure to furnish the independent accountant’s report, when required: fine up to BDT 300,000. (ICMAB)
Adjustment mechanics: If NBR/TPO substitutes an arm’s length price, tax and interest follow. Use contemporaneous documentation to establish a reasonable basis—this is your best defense.
8) End-to-End Compliance Calendar (Bangladesh focus)
At year-start
- Refresh intercompany agreements (effective dates, parties, services/rights, pricing, invoicing cadence).
- Confirm tested party and methods for material flows.
During the year
- Quarterly margin and evidence checks (see Section 5.2).
- Keep invoices consistent with agreements (descriptions and cost bases matter).
Pre-year-end
- Forecast full-year margins; plan true-ups if drifting from target range.
- Validate royalty base and financing calculations.
At return time
- Prepare/lock Local File equivalent and supporting evidence.
- File SIT with the return; arrange the accountant’s report if over BDT 30 million. (PwC Tax Summaries)
Post-filing
- Maintain a “TP audit pack”: the exact bundle you’d hand to a TPO on short notice.
9) Documentation Craftsmanship—What Great Looks Like
Narrative precision
Tell a consistent story. If you call the Bangladesh entity a limited-risk distributor, show evidence: who sets price, who funds marketing, who bears inventory, who signs with key customers.
Comparable integrity
- Use industry, function, and geographic screens that you can defend.
- Explain exclusions (persistent losses, high related-party sales, different functional profiles).
- Range method: if you have ≥6 comparables under CUP/RPM/CPM/TNMM, Bangladesh uses a percentile band (e.g., 30th–70th); otherwise, arithmetic mean applies. (PwC Tax Summaries)
Financial reconciliation
Bridge tested margins to your audited numbers; label non-operating items; show any working-capital/capacity adjustments transparently.
Evidence of services and DEMPE
For services/royalties, keep deliverables, timesheets, project trackers, meeting minutes, and IP governance docs (who approves budgets, who controls roadmaps, who owns risks).
10) Bangladesh-Specific Friction Points We See Most
- “Management fee” without proof of benefit
- Fix: Benefit tests, SLAs, quarterly activity logs, outcome-oriented narratives.
- Royalty rates imported from other countries without Bangladesh DEMPE analysis
- Fix: Describe Bangladesh’s roles; if Bangladesh builds local marketing intangibles, consider a lower royalty or a profit-split element.
- Distributors funding heavy marketing but called “limited-risk”
- Fix: Either re-characterize to full-risk distributor (with an arm’s length return) or rebalance obligations and compensation.
- Thin intercompany loan pricing
- Fix: Build a borrower rating and a market-based margin; align tenor, covenants, and collateral with reality.
- Missing accountant’s report over BDT 30 million
- Fix: Calendarize the requirement and integrate it into year-end close. (PwC Tax Summaries)
- Late or incomplete SIT
- Fix: Treat the SIT like a statutory information return, not an afterthought; link it to your Local File data model. (PwC Tax Summaries)
11) Dispute Lifecycle—From Query to Resolution
Stage 1: Information request
- TPO asks for docs (Local File, agreements, workings, comparables).
- Respond within timelines; request reasonable extensions if needed; keep tone cooperative.
Stage 2: Technical debate
- Focus on method selection, tested party, comparable set, and adjustments.
- Use alternative calculations to show you remain within the Bangladesh range.
Stage 3: Proposed adjustment
- Analyze tax, interest, and collateral impacts (withholding tax, VAT interaction if any, customs valuation echoes).
- Explore partial concessions where defensible; propose prospective fixes to mitigate repeat issues.
Stage 4: Administrative appeal
- If unresolved, pursue the domestic appeal route (Commissioner (Appeals), Appellate Tribunal, etc.). Keep your file “trial-ready” from day one.
12) Pillar Two, Public CbCR, and the Bangladesh TP Interface (What to Watch)
Even when Bangladesh’s local TP regime is your primary anchor, global reporting and transparency (e.g., Pillar Two, public CbCR in the EU, group-level CbCR elsewhere) can surface Bangladesh margins to tax authorities worldwide. That increases the importance of coherent narratives: what Bangladesh does, why it earns what it earns, and how that aligns with group value creation. Use your Local File as the source of truth.
13) TRW’s Bangladesh Transfer Pricing Toolkit (What We Deliver)
- Diagnostic & heat-map: Rapid assessment of your intercompany flows, documentation gaps, and penalty exposure.
- Policy design: Method selection, target ranges, in-year monitoring framework, and agreement suite.
- Benchmarking: Bangladesh-weighted comparables with Asia backups; robust screens and rationale.
- Documentation: Bangladesh Local File aligned to the Act; SIT support; accountant’s report pack.
- Quarterly monitoring: Margin dashboards, variance notes, and proposed true-ups.
- Audit defense: Response strategies, meeting scripts, technical notes, and negotiation pathways.
- Training: Workshops for finance, tax, and commercial teams on “what to evidence and when”.
14) Quick Reference—Executive Checklist
Before the year starts
- [ ] Update intercompany contracts to reflect real conduct.
- [ ] Confirm tested party, TP method(s), and target range(s).
- [ ] Calendar SIT and accountant’s report tasks.
During the year
- [ ] Quarterly margin tracking, with true-up strategy.
- [ ] Collect service deliverables and DEMPE evidence.
- [ ] Monitor financing terms and covenant compliance.
At year-end
- [ ] Lock the Local File and evidence pack by the return due date.
- [ ] File the SIT with the return.
- [ ] If BDT 30m+, obtain and furnish the accountant’s report. (PwC Tax Summaries)
On audit
- [ ] Respond on time; keep a cooperative tone.
- [ ] Defend method and comparables; offer alternatives where helpful.
- [ ] Document every meeting and submission.
15) Frequently Asked Questions (Bangladesh Focus)
Q1. Does TP apply to domestic related-party transactions?
Bangladesh’s operative framework focuses on international transactions with AEs. Your SIT and Local File-style documentation center on cross-border related-party dealings. (PwC Tax Summaries)
Q2. What exactly triggers the accountant’s report?
If the aggregate value of international transactions exceeds BDT 30 million in an income year, obtain and furnish the independent accountant’s report in line with the law and administrative practice. (PwC Tax Summaries)
Q3. How strict are the penalties?
They are formulaic and can be material: 1% (no documentation), 2% (no SIT), and up to BDT 300,000 (no accountant’s report when required). Good contemporaneous documentation sharply reduces risk. (ICMAB)
Q4. What if I don’t have six comparables?
Bangladesh uses percentile ranges (e.g., 30th–70th) if there are enough comparables under the accepted methods; otherwise, arithmetic mean applies. Explain the data constraints and why your method remains most appropriate. (PwC Tax Summaries)
Q5. Do I need to re-benchmark every year?
Best practice: refresh annually for material flows, and do a full rebuild at least every three years—or sooner if business models or markets shift.
16) The TRW Way—Make Compliance a Business Asset
Well-designed transfer pricing isn’t just about avoiding adjustments; it’s operating discipline:
- Clarity on who does what (governance and accountability),
- Predictable margins and budgets,
- Faster close and smoother statutory audits,
- Cleaner arguments if you’re challenged.
TRW’s blended tax-legal-economics team in Dhaka and abroad can co-own the process with you—from transaction mapping to audit defense—so leadership can focus on growth.
References
- Income Tax Act 2023 (official, NBR)—primary legal basis for Bangladesh’s TP chapter (including ALP determination, TPO, documentation and filing provisions).
- PwC Worldwide Tax Summaries – Bangladesh (Group taxation)—practical summary of Bangladesh TP compliance: SIT with return, BDT 30m thresholds for documentation and accountant’s report, range concept. Last reviewed 14 July 2025. (PwC Tax Summaries)
- ICMAB TP Handout (Apr 2024)—Bangladesh-specific notes citing Income Tax Act 2023 sections on ALP/methods and penalty illustrations (1%/2%/BDT 300k). (ICMAB)
This material is for information only and does not constitute legal or tax advice. For tailored guidance, TRW can review your intercompany profile, draft or refresh documentation, and stand with you throughout any NBR engagement.