The Directorate General of International Taxes of the Federal Board of Revenue (FBR) has started analysing a few potential multinational companies' cases of transfer pricing where companies are directly involved in shifting their profits outside the country without payment of any taxes. In this regard, Directorate General of International Taxes has started its working on the issue of transfer pricings.
After the creation of the Directorate General of International Taxes, under section 230E of Income Tax Ordinance 2001 which has been vested with subject of Transfer Pricing exclusively, the FBR has aggressively taken up on the issue. Transfer pricing is the favourite most tool of multinationals through which they shift profits outside the source country tax-free, sources said. In the developed world as well as even some developing countries, tax administrations fall tough on Transfer Pricing ploys adopted by multinationals as these not only erode the tax base of developing countries but also liquidate their hard-earned foreign exchange.
In this backdrop, the FBR in collaboration with Organisation for Economic Co-operation and Development (OECD), Department for International Development (DFID) and HM Revenue and Customs (HMRC) hosted a 4-day capacity building workshop with Foreigner Transfer Pricing Experts to assist IRS officers dealing with the multinationals suspected of indulging in transfer pricing. Although there exists an enormous scope, in the first only a few potential multinationals cases which are directly involved in shifting and striping income out of Pakistan have been subjected and are being analysed.
An independent estimate suggests that Pakistan could be losing up to Rs 1,450 billion tax each year due to domestic tax base erosion and profit shifting (BEPS) activity by multinational groups, wherein TP could be contributing a major share. However, apart from other challenges the Directorate General of International Taxes needs properly trained and Transfer Pricing skilled officers with utmost commitment and dedication in order to combat the menace of tax malpractices by multinationals in the coming days.