ISLAMABAD: In a bid to streamline tax treatment for holding companies and subsidiary companies within a 100% owned group, Section 59AA of the Income Tax Ordinance, 2001 has been explained by the Federal Board of Revenue (FBR).
The Income Tax Ordinance has been updated up to June 30, 2021, incorporating amendments introduced through the Finance Act, 2021.
Section 59AA introduces the concept of group taxation, allowing holding companies and subsidiary companies within a 100% owned group to opt for consolidated tax treatment as one fiscal unit. The provision aims to simplify tax compliance and computation of income for entities falling under this category.
Under this section, companies within the group must provide an irrevocable option to be taxed collectively as one fiscal unit. This consolidation is applicable exclusively to companies locally incorporated under the Companies Act, 2017 (XIX of 2017), ensuring that the tax benefits are restricted to entities operating within the legal framework of Pakistan.
Importantly, the relief provided under group taxation will not extend to losses incurred prior to the formation of the group. This clause prevents the group from retroactively claiming tax benefits for losses that occurred before the decision to be taxed collectively.
Moreover, to be eligible for group taxation, companies within the group must comply with corporate governance requirements and adhere to group designation rules or regulations specified by the Securities and Exchange Commission of Pakistan (SECP). These requirements serve as a benchmark to ensure that companies seeking group taxation are in compliance with established standards and regulations.
The FBR has also granted authority to regulate group taxation through rules, providing a framework for the implementation and administration of this tax treatment. These rules, which may be introduced by the Board, will further define the procedures and conditions under which group taxation can be availed.
It is crucial to note that the relief and benefits provided under group taxation are contingent upon adherence to the specified regulations and requirements. Companies considering this option must carefully evaluate their eligibility and ensure compliance with the corporate governance standards set forth by the SECP.
As a disclaimer, it is highlighted that the text provided for Section 59AA is for informational purposes. While efforts have been made to present the correct version of the text, any errors or omissions are not the responsibility of the team at PkRevenue.com. The clarification on group taxation aims to enhance transparency and understanding of the tax treatment for holding and subsidiary companies operating within a 100% owned group.
