The National Board of Revenue (NBR) has formed a separate transfer pricing cell (TPC) for its customs and VAT wing to check trade-based money laundering through under- or overinvoicing.
The cell will verify authenticity of cross-border transaction values between associated enterprises.
The seven-member TPC will also frame relevant laws and rules, maintain liaison with customs agencies, organisations, departments and authorities of other countries and build a database.
The NBR issued an office order to this end last week.
According to the order, the cell will also launch an investigation into the trade-based money laundering through transfer mispricing.
Currently, there is no provision in the Customs Act-1969 or Value-Added Tax (VAT) and Supplementary Duty Act-2012 to thwart transfer mispricing.
A senior customs official said the cell will frame required provisions in the customs and VAT laws to check such mispricing.
Presently, the Income Tax Ordinance-1984 has a provision to check transfer mispricing through cross-border transactions.
The NBR framed a TP law for income tax wing in 2012 and implemented it in 2014.
According to the official, the TP cell under the income tax wing has a provision to check income tax evasion, not for customs duty or VAT.
Duty evasion through export and import, value addition of companies at local stage might be scrutinised by the customs and VAT TP cell, he said.
This February, the NBR during a board meeting decided to set up the TPC for dealing with customs duty and VAT evasion.
Officials said some multinational companies (MNCs) evade payment of duties and taxes through trade-based money laundering through over- or underinvoicing on import and export of goods.
They suspect that MNCs can move money to their associated companies in other countries by showing higher purchase prices of imported products.
Through transfer mispricing, the officials said, foreign firms can cut payable rates of taxes and duty.
In case of showing higher value of raw materials that are duty-free, VAT on finished products may go down, causing a loss of revenue, they added.
The revenue board will have to frame legal provisions to check transfer mispricing with changes in the global business process.
Currently, customs officials check transfer mispricing under a legal provision in the customs act for misdeclaration of goods or valuation.
The TP cell will review laws of the neighbouring countries, including India and Sri Lanka, and recommend the ways to proceed in this area.
Officials said the cell will work in coordination with the income tax TP cell.
However, the activities of TP cell under the income tax wing are going on at a slow pace.
The NBR has not audited MNCs' tax files in the past six years due to poor progress in implementing the TP law.
A senior official of the board said they are working on capacity building of the existing tax officials to audit the files.
Multinationals hire specialist firms to prepare their audit reports and evaluate tax payments, he added.
"We're currently focusing on such evaluation reports to collect taxes from the MNCs," the official cited.
He said taxmen need to take more training prior to starting audit under the TP law.
The TPC under customs wing will also recommend imparting training to customs and VAT officials.
Besides, it will arrange training for stakeholders in compliance of the law.
