Proposed changes in taxation laws to bring foreign brands operating through franchise/liaison office in Pakistan
Government is mulling a change in the taxation laws to bring foreign brands, operating through franchise/liaison office in the country, into the tax net, officials said on Friday.
The officials said at present a number of famous foreign brands are available in the country through a marketing and distribution network of local dealer or agent.
Officials added that liaison or auxiliary offices of foreign entities are excluded from the present definition of permanent establishment (PE) and not bound to get registered with the tax authorities. Income Tax Ordinance, 2001 defines PE as branch, office, factory or workshop through which the business is wholly or partly carried out.
An official at Regional Tax Office, Karachi said it has recently detected several cases where agents or outlets argued that they were working on behalf of foreign companies and thus were exempted from taxes under the international tax treaties. The official said these local companies have no registration and no sales and income records available with the FBR, despite generating untaxed profits.
Officials said the FBR will make changes into the PE definition, which would authorise the tax authorities to tax the income generated from local sources. “All incomes generated through sales of such brands will be taxed after redefining the law,” said a FBR official.
Officials said the FBR is incurring huge revenue losses under this head as several distribution companies or individuals are working as agents of foreign companies for marketing and promotion of their products.
The official further said PE’s redefinition would require such companies to get registered with the tax authorities as well as file wealth statements and returns as per the law.
The changes, which are likely to be introduced in the Finance Bill 2017, will require the local distributors to get registered by providing details, including name of company, business address, accounting period, contact details, principal business activity, registration number of the Securities and Exchange Commission of Pakistan.
Source: https://www.thenews.com.pk/print/198595-Govt-to-amend-tax-laws-to-net-foreign-franchises (April 17, 2017)