Despite existence of ADTT, LTO orders deduction of tax against offshore co

LAHORE: The Large Tax Office (LTO) has gotten egg on face by deducting tax against an offshore company in presence of Avoiding Double Taxation Treaty (ADTT) between Pakistan and Singapore, said sources.

The higher appellate forum not only set aside the controversial order but also remitted the matter to Commissioner Inland Revenue to decide the same afresh by providing proper hearing to all the concerned parties, they added.

According to details, an offshore company was duly registered in Singapore and engaged in import, export, commission agency, sale of wind power equipment and relevant products.

The company has no permanent establishment in Pakistan in terms of the relevant provisions of the Income Tax Ordinance. Therefore, the equipment and goods acquired offshore were required to directly reach in Pakistan to an energy sector based company in its own name by opening valid letters of credit. The local company was responsible for payment of duties to customs as well as related taxes.

The offshore company further played safe and moved an application to the concerned Large Tax Office of the FBR demanding advance ruling that payment will be made without deduction of tax under the relevant provisions of the law. However, the concerned tax authority directed the local company to deduct tax from the offshore company before remitting the payments on the rates specified in relevant provisions of the law. The local company informed the same to the offshore company, which led to long stretch of litigation between the company and the FBR.

The relevant competent forum declared that the FBR being the regulator did not meet its statutory obligations and had passed order in question against the provisions and all norms of law. It also maintained that the matter in issue was not timely decided in absolute form as well as defeated common purpose of applications made under different statutory provisions of law.

The relevant forum further lamented that such practice of authorities not only frustrate cause of justice but also add agonies of parties as well as put additional burden and workload for the appellate forums by taking away precious time, energy and sources of machinery of law because the order in question was passed without properly hearing the offshore company or its representative.

Copyright Business Recorder, 2024