Shifting of profits: six major anti-abuse provisions to be introduced in tax laws

The Federal Board of Revenue (FBR) has decided to introduce six major anti-abuse provisions in federal tax laws under international obligations to prevent profit shifting from Pakistan. The provisions have been proposed in the Finance Bill 2018 to control profit shifting from Pakistan.
According to the FBR, during the last three to four years Pakistan has become signatory to various international tax agreements. The primary purpose of these agreements is to prevent profit shifting from Pakistan and safeguard our tax base. Through these agreements data would be exchanged between various tax jurisdictions. International tax organizations such as OECD, UN and CATA would facilitate jurisdictions in plugging anti-abuse measures in the domestic tax laws through their recommendations. Obligations on part of the signatories to adopt these measures are commonly known as BEPS Action Points (Base Erosion and Profit Shifting). Out of a total of 15 actions proposed by OECD, five have already been implemented by Pakistan. Four actions are required to be implemented through administrative measures and assistance by international tax auditors in audit.
The six anti-abuse provisions shall now be implemented included splitting of contracts (Avoiding tax by splitting the composite contracts into number of contracts); offshore indirect transfers (Taxation of gain arising on transfer of assets located in Pakistan and transferred to non-residents outside Pakistan through sale of shares indirectly).
The six anti-abuse provisions also included that the taxation of offshore digital services (Availing current loopholes in tax legislation to avoid payment of tax in Pakistan by non-residents whereas residents are taxable).
iv. Abuse of treaty provisions (Designing a tax avoidance scheme by introducing a new entity with no economic substance in jurisdictions with which Pakistan has favourable treaties) and re-characterization of income (The provision of law is already in the Ordinance and is to be streamlined in accordance with international best practices to plug tax avoidance loopholes).
The six anti-abuse provisions shall now be implemented included Controlled Foreign Companies Rules (Taxing passive income parked outside Pakistan by domestic multinational companies for tax deferral), Finance Bill added.
As per section 104, a foreign-source loss of a person shall be carried forward and adjusted only against foreign income of the person. Resident banks having foreign branches adjust their foreign-source loss against their Pakistan-source income. Banks are allowed provisions for advances and off balance sheet items but where such deductions in respect of foreign branches results in loss, such loss can only be adjusted against foreign source income. Necessary amendment in line with section 104 has been introduced in Rule 1(c) of the Seventh Schedule to the Ordinance so that provisions for advances and off balance sheet items of foreign branches of resident banks cannot be claimed as a deduction against their income, FBR added.