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ISLAMABAD: The Federal Board of Revenue (FBR) will grant status of "authorized economic operators" (AEOs) only to those entities who have not received any show-cause notice during last three fiscal years involving fraud/forgery, smuggling, illegal claim of duty drawback/sales tax refunds or availing illegal tax exemptions.

The FBR has issued eligibility conditions and criteria for grant of AEO status under the draft Authorized Economic Operator Rules issued here on Thursday.

The director or collector AEO may on filing application by an economic operator, after approval from the AEO Approval Board, issue three types of Authorized Economic Operator Certificates (AEO certificates) to the applicant entities. The holders of AEO certificates can avail a wide range of benefits laid down in the Authorized Economic Operator Rules.

Any economic operator applying for AEO status must fulfill the following criteria in order to qualify for an AEO authorization:

An entity must have a clean tax profile which means that there should be no show-cause notice issued during last three financial years involving serious violations of law including fraud, forgery, outright smuggling, illegal removal of goods, illegal claim of duty drawback or sales tax refunds and illegal availing of tax exemptions.

There should be no case wherein prosecution has been launched or is being contemplated against the applicant or its senior management. If the quantum of disputed duty demanded or drawback demanded or sought to be denied, in all the show-cause notices issued under the Customs Act during the last three financial years, is less than ten percent of the total duty paid and drawback claimed during the same period, a review would be done of the nature of cases, and a decision on eligibility may be taken by the director or collector AEO after taking into account all aspects and circumstances of the disputed cases.

The applicant must have in place appropriate internal controls and measures to ensure safety and security of applicant's business and supply chain, in addition to any specific legal requirements that may be applicable to the business. In order to satisfy the requirements of AEO status, the applicant shall need to ensure security of procedures, cargo, conveyances, premises, 8 personnel and business partners.

The FBR added that the financial solvency shall mean a good financial standing which is sufficient to fulfill the commitments of the applicant, with due regard to the characteristics of the type of business activity.

Generally, consistent profitability of a business (importers or exporters), having annual turnover of US$2.5 million or above, will be considered financially solvent. However, there may be exceptions in certain cases when sister companies operate and consistent profitability of one business provides financial support to the related business which might not be profitable directly, but it contributes to the profitability of other related business.

For instance, a marketing company and a manufacturing company can operate as sister concerns in such a way that the marketing company only incurs expenditure while promoting sales of the manufacturing company and the considerable or consistent profits made by the manufacturing company, then, render both sister companies as financial solvent.

Thus, in case of group of companies, over all model of operations and profitability needs to be observed while deciding the condition of financial solvency.

Copyright Business Recorder, 2020