Pakistan Eyes Int’l Tax Reform

Pakistan’s Federal Board of Revenue has created a task force to review how multinationals’ international transactions are taxed.

Pakistan’s Federal Board of Revenue has created a task force to review how multinationals’ international transactions are taxed. The task force will look specifically at banking sector, non-resident companies, petroleum/gas exploration companies, pharmaceutical, telecommunication, satellite TV channels and mobile phone companies.

FBR chairman Abdullah Yusuf said the task force will pay particular attention to transfer pricing in the pharmaceutical sector and issues pertaining to foreign tax credits.

The group is composed of representatives from government departments including Mukhtar Ahmad Gondal, director general, Large Taxpayers’ Unit (LTU) in Karachi; Salman Ali Sheikh, commissioner, Securities and Exchange Commission of Pakistan (SECP); Muhammad Ashraf Tiwana, joint director, law, SECP; Tariq Masood, additional commissioner, LTU, Karachi; Shafqat Hussain Kehar, additional commissioner, LTU, Karachi; and Muhammad Riaz, secretary (international taxes) policy, FBR.

Members from the private sector are: chartered accountant Shabbar Zaidi of A F Ferguson; Saleem Raza, of PBC; Naveed Khan, president of ABN Amro; Salman Burni, chief executive officer, GSK Co (Pak); and Tariq Khamisani, chief executive officer, British Petroleum (Pakistan) Ltd.

The group will analyse international business transactions carried out by non-resident companies and multinational companies’ revenue spinners. It will make key recommendations for improving revenue collection from non-resident companies. The group is using the UK’s HM Revenue & Customs as its primary model for transfer pricing legislation and royalty income.

The task force will examine international transactions of permanent establishments with particular reference to e-commerce, e-communication, electronics/computer software, splitting of contracts and determination of beneficial ownership and attribution concepts of investment income.

It has been given the mandate to revise the definition of royalty and fees for technical services, whether service or business profit, and the need to retain separate article 14 in the OECD model treaty. It will also determine the residence status of natural and legal persons and formulate rules pertaining to transfer pricing issues in Pakistan.

The task force will also review allocation of administration, financial and general expenses between country of residence and country of source, providing a basis of calculation. The FBR chairman has given it a deadline of February 2008 to submit its recommendations.

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