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ISLAMABAD: The requirements of ultimate beneficial ownership as laid down in the Income Tax law are more stringent in comparison to the corporate law.

This has been stated by a leading chartered accountant and former FBR Chairman Shabbar Zaidi in his Technical Release (11/2023) on the “Ultimate Beneficial Ownership” requirements under Companies Act, 2017 and Income Tax Ordinance, 2001.

The former FBR chairman stated that analysis of the requirements of ultimate beneficial ownership as laid down in the Income Tax law is more stringent in comparison to the corporate law. The concept of joint control arrangement and associates, which has given a completely different dimension to this law, has been introduced in the Income Tax law.

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Nevertheless, if the concept of control, as laid down in the corporate law, is taken in a wider context, then the ultimate answer may be the same. These have been clearly spelt out in the recently introduced provisions of the Income Tax Ordinance and the Income Tax rules.

He further stated that the ownership of the asset, being the Pakistan company, must comply with the Pakistan’s tax requirement in all circumstances.

Shabbar Zaidi stated that in many cases, in Pakistan shares of the Pakistani companies are held by trusts formed in various offshore jurisdictions.

The persons exercising control are either settlers or beneficiaries of those trusts. In many cases such contributions to the trust by way of settlements or beneficial interests were not declared as Pakistan assets. However, a substantial number of such interests have been declared in Asset Declaration laws of 2018 and 2019.

In that law it was provided that the asset can be declared by the settler or the beneficiary as the case may be. The information now has to be in line with that declaration.

The law relating to beneficial ownership is a stringent law. The beneficial interest if held in a company may lead to tax incidence for the natural person if such asset is not declared in Pakistan.

There will be many natural persons who will not be able to identify the declaration for the reason that such persons may not be filing the Pakistan wealth statement as that document is required only for a person being a citizen of Pakistan.

The purpose of this discussion is to identify that in all circumstances the ownership of the asset being the Pakistan company must comply with the Pakistan’s tax requirement, former FBR Chairman said.

Since the substantive provisions are the same therefore it is considered that declarations in corporate and tax law are similar. Such declarations are to be made after due consultation with the advisors, Shabbar Zaidi said.

Former FBR Chairman said that reporting of ultimate beneficial ownership is only if there is an ownership of twenty five percent of shares. However there is a concept of joint ownership arrangement.

For these purposes two persons will be treated to be joint owners if they are associates as defined under Section 85 of the Income Tax Ordinance, 2001. However within the perspective of family business which is prevalent in Pakistan.

Shabbar Zaidi stated that the Anti-Money Laundering provisions which are being introduced at international level require more and more disclosure of beneficial interests in businesses, especially corporate bodies. Pakistan introduced this concept in the corporate law in the new Companies Act, 2017 which was substantially modified in 2020 (SRO 926(1)/2020).

In 2022 this concept was also introduced in the Income Tax Law by way of Section 181E read with Section 2(7A) of the Ordinance.

In the Income tax law, SRO 1117(I)/2023 dated August 28, 2023, was issued which inter alia requires every company to file information relating to ultimate beneficial ownership. The first information on this matter is required to be filed by December 31, 2023, irrespective of the tax year of a company.

He advised that the required returns be filed after appropriate professional consultation.

In the Companies Act, 2017 in Section 2(7) the definition of ‘beneficial ownership’ was first time introduced.

Section 452 of the Companies Act, 2017, unlike earlier statutes, requires companies to maintain Global Register of Beneficial Ownership. The term ‘beneficial ownership’ or ‘ultimate beneficial ownership’ was not defined in that section. Securities & Exchange Commission of Pakistan (SECP) through its circular No. 16 of 2018 dated August 29, 2018, stated: The concept of natural persons as ultimate beneficial was first introduced in the aforesaid circular. Later on, this was made part of the statute by way of Section 123A of the Companies Act, 2017.

Copyright Business Recorder, 2023

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