Tax authorities to scrutinise offshore investments, fund transfers, CRS compliance and financial reporting by identified taxpayers and institutions.
ISLAMABAD: The Federal Board of Revenue (FBR) has launched a large-scale probe into foreign transactions involving fund managers and trusts established in Pakistan amid concerns over potential money laundering, tax evasion and non-compliance with financial reporting requirements.
According to an FBR office order, tax authorities have identified a list of fund managers and trusts for detailed scrutiny of offshore investments and cross-border fund transfers under the Income Tax Ordinance, 2001.
The list includes several fund managers already listed with the Pakistan Stock Exchange (PSX). Relevant tax officials have been directed to conduct a comprehensive examination of the accounts, transactions and tax compliance of the identified taxpayers.
Probe to Examine Offshore Transactions
The investigation will focus on compliance with various provisions of the Income Tax Ordinance, 2001, including Section 108, which deals with transactions between associates.
Officials have also been instructed to examine compliance with Section 165B, relating to the furnishing of information by financial institutions, including banks.
The tax authorities will scrutinise the nature of foreign transactions, offshore investments and fund transfers to determine whether the identified taxpayers have properly disclosed their income and assets and complied with applicable tax requirements.
Withholding and Record-Keeping Compliance Under Review
The FBR has also directed officials to investigate possible violations relating to withholding statements and record-keeping requirements under Section 182 of the Income Tax Ordinance.
The relevant provisions provide for penalties in cases involving failure to furnish withholding statements containing details of persons undertaking transactions, failure to maintain prescribed records and other reporting violations.
Tax officials will therefore examine whether the identified entities have maintained the required documentation and submitted complete and accurate information within the prescribed deadlines.
CRS Compliance to Face Scrutiny
The probe will also cover compliance by reporting financial institutions and other relevant entities with requirements governing the exchange of financial information.
The FBR has specifically directed tax offices to examine compliance with Section 165B and the Common Reporting Standard (CRS) Rules contained in Chapter XIIA of the Income Tax Rules, 2002.
Under the CRS framework, reporting financial institutions are required to collect and report specified information concerning financial accounts linked to reportable jurisdictions.
The FBR will examine cases involving failure to submit required information or country-by-country reports within the prescribed period, as well as incomplete or inaccurate reporting.
Self-Certification Requirements Examined
The tax authority will also investigate whether reporting financial institutions obtained valid self-certifications for new accounts as required under the CRS framework.
Officials have been directed to examine cases involving false self-certifications and instances where reportable jurisdiction persons failed to provide valid self-certifications.
Such checks are intended to determine whether financial institutions and taxpayers have complied with international tax transparency and information-sharing requirements.
Country-by-Country Reporting Under Review
In addition, tax offices have been instructed to investigate taxpayers under Chapter VIA of the Income Tax Rules, 2002, which covers documentation and country-by-country reporting requirements.
The review is expected to assess whether taxpayers subject to the relevant reporting framework have maintained adequate documentation and submitted the required information regarding their international business activities.
FBR Intensifies Cross-Border Tax Scrutiny
The latest initiative reflects the FBR’s increasing focus on cross-border financial transactions, offshore investments and international tax reporting.
By examining fund managers, trusts and financial institutions under multiple provisions of the tax law and CRS framework, the revenue authority aims to identify potential tax evasion, undisclosed offshore transactions, reporting deficiencies and other financial irregularities.
The investigation will also test the compliance of reporting institutions with their obligations to provide financial information to tax authorities and participate in Pakistan’s international exchange-of-information framework.