TP Reply

Date: To The Deputy Director (R&I-Foreign Industry) Bangladesh Investment and Development Authority (BIDA) Prime Minister’s Office Government of the People’s Republic of Bangladesh E-6/B Agargoan, Sher-E-Bangla Nagar Dhaka 1207, Bangladesh Re: Explanation regarding reference to Arm’s Length in the proposed outward Remittance (BIDA Registration No: F-74211804006-H Dear Sir, This refers to your letter dated October 9, 2019, memo no. 03.08.2680.224.162.2025.2018.412 from your esteemed organization. We like to inform you that, Murata Machinery Bangladesh Ltd. (MBD) is a subsidiary of world leading Japanese Textile Machinery and Spare parts manufacturer Murata Machinery, Ltd. by trade name “MURATEC”. In Bangladesh Murata Machinery, Ltd. sold mostly Spinning mills machinery as well-known as VORTEX Spinning Machine. Murata Machinery Bangladesh Ltd. rendering following services to clients in Bangladesh: Installation and commissioning of Spinning Machine After warranty service of Spinning Machine Marketing and Consultancy for seller of Spinning Machine Spinning Machine Parts Sales Repairing Service for Spinning Machine. In providing service to clients, Murata (Thailand) Co. Ltd. (MTC), (a subsidiary company of Murata Machinery, Ltd. form the Thailand) provide the Technical Support to Murata Machinery Bangladesh Ltd. Under this agreement, MTC provide technical support to MBD by sending experts, training to MBD staffs and support through electronic mode. For other managerial issue, all decision provide by common management (Managing Director, Finance Controller) of MTC & MBD under the specific agreement. There are no published information of competitors of local market providing similar service. So, we can’t analyze it based on private information available to us by following our business manner. We believe that the agreement is in compliance with World Bank and OECD guidelines of Arm Length Transaction Principles. Compliance of Income Tax Ordinance: As per the Bangladesh Income Tax Ordinance, Chapter XIA Transfer Pricing, Sec 107C (f), we have calculated the arm’s length price using the Other method with international and local benchmarks. We attach below the benchmarks for comparable, based on international and local competitors. Benchmarks for Royalty/ Technical Know-how Fee/ Technical Assistance Fee: Currently Bangladesh has no database for Benchmarks for Royalty/ Technical Know-how Fee/ Technical Assistance Fees. Moreover there are no Transfer Pricing Country Profiles for Bangladesh on OECD. So we analyze our transaction by following UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT (UNCTAD) guideline for set benchmark. As per our analysis, summary benchmarks for Royalty/ Technical Know-how Fee/ Technical Assistance Fee are below: Benchmarks Rate/Year Rate from analysis as per UNCTAD guideline 5%-10% of annual sales Local Listed Companies paying such fees 4%-10% of annual sales BB Guideline for Foreign Exchange Transaction, 2009 (Vol-1, Chapter-10, Para-25) No prior permission of BIDA required for sending Royalty/ Technical Know-how Fee/ Technical Assistance Fee upto 6% of annual sales. Proposed Murata Machinery Bangladesh Ltd.’s Transaction (Based on BB Guidline) 6% of annual sales We do here by attached one case reference for compares to Murata Machinery Bangladesh Ltd.’s proposed transaction rate. We also address some related analysis for setting our transaction rate. Full version of the documents can be found online following link: https://assets.kpmg/content/dam/kpmg/pdf/2015/09/gvi-profitability.pdf http://www.willamette.com/pubs/presentations2/reilly_aicpa_ipanalysis_nov13.pdf We would like to refer to the enclosed document, which is an extract different report published by the researcher. This Document give information of market status for textile sector spinning machinery and technical services, full version of the document can be found online following link: https://textilecourse.blogspot.com/2018/05/spinning-machine-manufacturers.html Given the above comparison we believe this should satisfy your concern regarding Murata Machinery Bangladesh Ltd. following the Arms-Length Principle regarding Transfer pricing. Please feel free to contact us for any other queries regarding Transfer Pricing. Thanking You Yours Sincerely, ---------------------- Futoshi Miyamoto Managing Director Murata Machinery Bangladesh Limited.