Officials have suggested the Federal Board of Revenue (FBR) to amend the income tax laws on transfer pricing to check tax avoidance by multinational through manipulation of profits.
If applied, the change will bind a company to provide a certified accountant report for every international transaction.
According to the tax managers, multinational companies operating in Pakistan use transfer pricing to manoeuvre profits to avoid tax. Such deals take place between related firms, like parent company and its subsidiaries or foreign affiliates.
Though the transactions are considered legal, there are reports that companies use them to avoid taxes, said an official.
Officials suggest the FBR to amend the Income Tax Ordinance, 2001 in next year’s budget. Under the proposal, “every company who has entered into an international transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date.”
The multinational companies in Pakistan deprive an estimated Rs200 billion through abusive transfer pricing mechanism, a revenue body official said.
“The major tax avoidance under this head came to the fore when companies posted exaggerated prices of imports purchased from their affiliates abroad,” the official added.
The current tax laws use ‘arm’s length standard’ to determine the income of a person who makes a transaction with an associate.
The tax managers also proposed amendment regarding arm’s length transaction, saying where more than one price may be determined by the most appropriate method, the arm’s length price would be taken to be the arithmetical mean of such prices.
Officials have suggested FBR to maintain a record of every person entering into an international transaction, including a description of the ownership structure of the taxpayer enterprises with details of shares or other ownership interest held by other enterprises.
The document should have a profile of the multinational group of which the taxpayer enterprise is a part along with the name, address, legal status and the country of tax residence of each of the enterprises comprised in the group with whom international transactions have been entered into by the taxpayer, and ownership linkages among them.
The tax managers proposed that the taxpayers should be made liable to have a record of uncontrolled transactions taken into account for analysing their comparability with the international transactions entered into, including a record of the nature, terms and conditions relating to any uncontrolled transactions with the third parties, which may be of relevance to the pricing of the international transactions.
It was also proposed that the record keeping, however, be made mandatory in a case where the aggregate value of international transactions entered into by the taxpayer should not exceed Rs5 million.
Sources in the FBR said that such proposals were under consideration two years back, but due to influence of multinational companies the bid to amend laws were not materialised.
Source: http://www.thenews.com.pk/
If applied, the change will bind a company to provide a certified accountant report for every international transaction.
According to the tax managers, multinational companies operating in Pakistan use transfer pricing to manoeuvre profits to avoid tax. Such deals take place between related firms, like parent company and its subsidiaries or foreign affiliates.
Though the transactions are considered legal, there are reports that companies use them to avoid taxes, said an official.
Officials suggest the FBR to amend the Income Tax Ordinance, 2001 in next year’s budget. Under the proposal, “every company who has entered into an international transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date.”
The multinational companies in Pakistan deprive an estimated Rs200 billion through abusive transfer pricing mechanism, a revenue body official said.
“The major tax avoidance under this head came to the fore when companies posted exaggerated prices of imports purchased from their affiliates abroad,” the official added.
The current tax laws use ‘arm’s length standard’ to determine the income of a person who makes a transaction with an associate.
The tax managers also proposed amendment regarding arm’s length transaction, saying where more than one price may be determined by the most appropriate method, the arm’s length price would be taken to be the arithmetical mean of such prices.
Officials have suggested FBR to maintain a record of every person entering into an international transaction, including a description of the ownership structure of the taxpayer enterprises with details of shares or other ownership interest held by other enterprises.
The document should have a profile of the multinational group of which the taxpayer enterprise is a part along with the name, address, legal status and the country of tax residence of each of the enterprises comprised in the group with whom international transactions have been entered into by the taxpayer, and ownership linkages among them.
The tax managers proposed that the taxpayers should be made liable to have a record of uncontrolled transactions taken into account for analysing their comparability with the international transactions entered into, including a record of the nature, terms and conditions relating to any uncontrolled transactions with the third parties, which may be of relevance to the pricing of the international transactions.
It was also proposed that the record keeping, however, be made mandatory in a case where the aggregate value of international transactions entered into by the taxpayer should not exceed Rs5 million.
Sources in the FBR said that such proposals were under consideration two years back, but due to influence of multinational companies the bid to amend laws were not materialised.
Source: http://www.thenews.com.pk/
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