Govt to dissolve transfer pricing directorate

In its place, Directorate General of International Taxes will be set up

ISLAMABAD: The federal government, in its supplementary finance bill, has recommended the withdrawal of legislation for establishing the Directorate General of Transfer Pricing.

The directorate was being set up to scrutinise master files and other records of multinational companies and enterprises with turnover exceeding Rs100 million and investigate billions of rupees worth of black money stashed abroad.

After the approval of the Second Supplementary Finance Bill 2019 by parliament, the Directorate General of Transfer Pricing would be dissolved.



However, Federal Board of Revenue (FBR) spokesperson and Member Inland Revenue Atiq Sarwar said the Directorate General of International Taxes would be set up in place of the transfer pricing directorate in June 2019.

He pointed out that the Directorate of Transfer Pricing had to be established according to provisions of the Finance Act but could not be practically set up. The directorate could not even appoint its director general and other staff and as a result companies declined to provide country-by-country record of their businesses to the FBR.

They were of the view that since the directorate was not established, it would not be possible for them to provide the important record.

The previous government through the Finance Act had introduced Section 230 in the Income Tax Ordinance 2001 under which the Directorate General of Transfer Pricing had to be set up with several directors, additional directors, deputy directors, assistant directors and other related officers and staff.

According to sources, the FBR has made it mandatory for multinational companies and enterprise groups with turnover crossing Rs100 million to submit their master files and related records.

A fine of Rs2,000 per day will be imposed on the companies which fail to furnish details of their international assets while those who do not submit the record of their transactions will have to pay an additional 1% fine.

According to Section 118 of the Income Tax Ordinance, the companies are supposed to file tax returns while taxpayers are also required to maintain the record of their transactions amounting to Rs5 million or more and submit the same when demanded by Inland Revenue commissioner.

As per FBR notifications, the multinational companies must follow the procedure laid down for transfer pricing as per Income Tax Rules 2002 and keep details of all group members, owners and their share ownerships as well as the nature and geographical location of each enterprise.

Published in The Express Tribune, January 26^th, 2019.

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