Pakistan implements documentation and CbC reporting requirements

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In Pakistan until 2016, no transfer pricing documentation was required under the Income Tax Ordinance (ITO). However, with effect from 1 July 2016, the Government has approved the new legislation to effectively implement the Country-by-Country Reporting (CbCR or CbC reporting) and introduce formal transfer pricing documentation requirements in Pakistan through Finance Act, 2016. The new legislation is generally in line with the three-tiered approach of Action 13 of the Organization for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project.

The Finance Act has made the following documentation compulsory:

  • a master file and a local file containing documents and information as may be prescribed;
  • a prescribed country-by-country report, where applicable; and
  • any other information and documents as may be prescribed in respect of transactions with an associate.

CbC reporting requirements: The CbC reporting should contain all required information: for each country where entities of the Multinational Enterprise (MNE) group operate: gross income, profit/loss before tax, income tax paid, accrued income tax, the nature of the group entities’ core business operations, and other measures of economic activity. In addition, the activities of all entities in each country should be disclosed.

The CbC report should be prepared in English. As currently proposed, the CbC report is applicable for financial years ending on or after 1 July 2017.

Documentation requirements: Every qualifying Pakistani group entity which is a member of a Multinational Enterprise group will be required to prepare a master file and every Pakistani group entity will be required to prepare a local file if it meets the following threshold:

  • Master file: MNE group turnover of more than PKR100 million (approximately US$950,000); and
  • Local file: Related party transactions of more than PKR50 million (approximately US$475,000).

Penalties for non-compliance:

  • For failure to furnish the CbC report by a reporting entity within the due date, a day wise penalty structure would apply (PKR2,000 for each day of default and subject to a minimum penalty of PKR25,000)
  • For failure to keep the records required under Section 108, a penalty of PKR10,000 or 5% of the amount of tax on income whichever is higher.
  • If the reporting entity has provided inaccurate information in connection with the CbC report, a penalty of PKR25,000 for the first default and PKR50,000 for each subsequent default shall apply.
  • For failure to keep and maintain documentation and information, a penalty of 1% of the value of a transaction, the record of which is required to be maintained under Section 108 of the Ordinance and Income Tax Rules, 2002.
  • Additionally, non-compliance with the new transfer pricing documentation obligations is likely to increase the audit risk.

Algeria, Netherlands negotiate to tax treaty

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The Finance Minister of Algeria has announced that representatives of Algeria and the Netherlands met on 31st July 2017 to discuss bilateral relations and strengthening the relationship through the conclusion of an income tax treaty. The treaty must be finalized after negotiation, signed, and ratified before entering into force.

Protocol to treaty between Argentina and Brazil signed

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Argentina and Brazil signed an amending protocol to the, Argentina – Brazil Income Tax Treaty of 1980 on 21st July 2017. The protocol sets out maximum levels of taxation at source in specific categories of income; modifies the method to avoid double taxation in Argentina, and inserts a capital gains article into the treaty.

India: Multilateral Competent Authority Agreement on Exchange of CbC reports enters into force

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The Ministry of Finance on 28 July 2017 has issued a Notification (No. 75/2017), which announces that the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country (CbC) Reports entered into force for India on 12 May 2016 and is effective between India and other jurisdictions.

Zambia: Revenue Authority extends tax amnesty period on interest and penalties

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The amnesty on interest and penalties which was introduced by the Zambia Revenue Authority (ZRA) on 24th April 2017, came to a close on 31st July 2017.

During this period, taxpayers were expected to submit outstanding tax returns and pay all principal tax liabilities for tax periods prior to 1st March 2017, after which all interest and penalties accrued for the said period would be waived in full. Taxpayers were expected to pay all outstanding principal liabilities within the amnesty period. In instances where taxpayers have not been able to settle the principal liabilities before 31st July 2017, the ZRA has offered an opportunity of settling such tax liabilities in installments by entering into Time-to-Pay-Agreements (TPAS) with taxpayers to be settled before 31st December 2017.

Notwithstanding this extension, the deadline for time-to-pay agreements remains 31st December, 2017 and all other rules will remain as announced by the commissioner general during the launch of the amnesty campaign on 24th April, 2017

US: IRS now accepting CbC reports

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On 11 August 2017 the US IRS in its latest bulletin of news and information on country by country (CbC) reporting advised that parent entities of U.S. multinational enterprise (MNE) groups with $850 million or more of revenues in a previous annual reporting period can now file Form 8975, Country-by-Country Report, with their annual income tax return.

Form 8975, and attached Schedules A, will report a U.S. MNE group’s income, taxes paid, and other indicators of economic activity on a country-by-country basis.

U.S. and Estonia sign an agreement on the exchange of CbC reports

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According to an IRS announcement on its website, the competent authorities of the U.S. and Estonia have concluded an arrangement on the exchange of Country-by-Country Reports. The competent authority arrangement (CAA) for exchange of country-by-country reports is on the basis of a double tax convention (DTC). The agreement was signed on 26 July 2017.

Under the arrangement, the first fiscal year for which the U.S. and Estonia intend to exchange CbC reports is the fiscal years of MNE Groups commencing on or after January 1, 2016. The CbC report is intended to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC report relates. CbC reports with respect to fiscal years of MNE Groups commencing on or after January 1, 2017 are intended to be exchanged as soon as possible and no later than 15 months after the last day of the fiscal year of the MNE Group to which the CbC report relates.

The Competent Authorities intend to exchange the CbC Reports automatically through a common schema in Extensible Markup Language (XML).