Procedure for conducting audit of transfer pricing cases unveiled

Procedure for conducting audit of transfer pricing cases unveiled

KARACHI: The Director General of International Tax Operations has been empowered to select and conduct transfer pricing audit of cases under section 230E of Income Tax Ordinance 2001.

Federal Board of Revenue (FBR) in explanation to Tax Laws (Second Amendment) Ordinance, 2019 said that previously, there was no provision which specified the procedure to be adopted for conducting transfer pricing audit of taxpayers.

It has now been specified that transfer pricing audit of cases selected by the Director General of International Tax Operations shall be conducted as per procedure laid down in 177 of the Ordinance.

Moreover, the right to conduct transfer pricing audit under section 230E of the Ordinance shall not prejudice the right of the Commissioner to determine transfer price at arms length in transactions between associates while conducting audit under section 177 or 214C of the Ordinance or whilst making amendment under section 122 of the Ordinance.

Tax experts at PwC A F Ferguson Chartered Accountants said that Section 230E was introduced in the Income Tax Ordinance, 2001 through the Finance Act, 2017 for establishing a separate Directorate for conducting transfer pricing audit of taxpayers.

Through the Finance Supplementary (Second Amendment) Act, 2019, Section 230E was substituted so as to establish Directorate General of International Tax.

However, no specific procedure or mechanism for transfer pricing audit was prescribed in the said section which was causing ambiguity amongst the field officers and taxpayers.

Through the Second Amendment Ordinance, necessary amendment has been made in Section 230E to prescribe that transfer pricing audit is to be conducted as per the procedure laid down in section 177 and other provisions of the Ordinance.

This way, the ambiguity relating to the transfer pricing audit procedure has now been removed, the experts said.

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