Transactions across borders: FBR to conduct ‘transfer pricing’ audits

ISLAMABAD: The Federal Board of Revenue (FBR) has drafted an ambitious audit plan to enhance its capacity to conduct “transfer pricing” audits of transactions across borders.

The new audit plan has been elaborated in the Inland Revenue reform action plan to be launched by the FBR.

The transfer pricing capability will be strengthened through developing our staff in the skills needed to mitigate this compliance risk, action plan revealed.

The IR reform action plan highlighted that the transfer pricing audit capacity will be built by establishing a set of officers who will be retained in the audit unit for a pre- established duration. These audit officers will be given training and peer learning to help build specialization in conducting such audits. A transfer pricing manual will be developed and periodically updated, and the services of experts will be accessed to develop capacities and software solutions.

The FBR will also implement a risk-based audit selection framework and institution of data analytics for audits. A risk-based audit capability will be developed using data analytics and Business Intelligence tools. Systems learning will be instituted to ensure that risk parameters remain current and effective in determining selection. Audit monitoring and tracking will be carried out using IT tools. The audit process will be reengineered, and an e-audit system will be developed and installed to facilitate the processing of cases from selection to completion.

The FBR will also improve the quality of audits by expanding the suite of audit options. The FBR will increase the quality of audits and make compliance with the audit process easier with a broader suite of options delivering a more targeted approach. Desk audit will be strengthened and directed primarily at identified risk areas to taxpayers, but in some cases for deterrence and voluntary compliance. Comprehensive audits will be conducted for large taxpayers. Issue-based audits will be conducted in risk areas.

Under the pan, the FBR will implement a risk-based audit selection framework and institution of data analytics for audits.

A broader suite of audit approaches will result in a more targeted compliance approach to increase the quality of our audits and make compliance with the audit process easier for taxpayers. Differentiated audit approaches will be also increase audit coverage and minimize the impact of audits on businesses. Desk audits, Issue based and comprehensive audits, will be strengthened and risk based.

The FBR does very limited monitoring of the quality and effectiveness of tax audits.

Although a large volume of third-party data is automatically generated by the system, its use in cross-checking information and follow up actions have been limited, the FBR reform action plan added.

Copyright Business Recorder, 2022