ISLAMABAD: Section 6 of Income Tax Ordinance, 2001 deals with tax chargeability on certain payments made to non-residents.
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FBR sets 200pc penalty for offshore tax evasion
ISLAMABAD: Federal Board of Revenue (FBR) on Tuesday said the amended income tax law attract 200 percent penalty amount of tax evaded in cases of undeclared offshore assets.
The FBR issued income tax circular to explain the changes brought through Finance Act, 2019 regarding offshore assets and tax evasion.
The FBR said that through the Finance Act, 2019, the term “offshore Assets” has been defined by inserting a new clause (38AA) in section 2 of Income Tax Ordinance, 2001, which includes any movable or immovable assets held, any again, profit or income derived, or any expenditure incurred outside Pakistan.
The term “offshore evader” has been defined by inserting a new clause (38AB) in section 2 and it means a person who owns, possesses, control, or is the beneficial owner of an offshore assets and dos not declare, or under declares or provides inaccurate particulars of such assets to the Commissioners.
Penalty has also been provided in serial No. 22 in sub section (1) of section 182 that where an offshore tax evader is involved in offshore tax evasion in the course of any proceedings under this Ordinance before any Income Tax authority or the appellate tribunal, such person shall pay a penalty of Rs100,000 or an amount equal to 200 percent of the tax sought to be evaded, whichever is higher.
Prosecution for concealment of an offshore assets has been provided by inserting a new section 192B according to which any person who fails to declare an offshore assets to the Commissioner or furnishes inaccurate particulars of an offshore assets and the revenue impact of such concealment or furnishing of inaccurate particulars is ten million rupees or more shall commit an offence punishable on conviction with imprisonment up to three years or with a fine up to Rs. 500,000, or both.
A new sub-section (5) has been added in section 145 as per which the Commissioner may freeze any domestic assets of a person where on the basis of information received from an offshore jurisdiction, the Commissioner has reason to believe the such person who is likely to leave Pakistan may be involved in offshore tax evasion or such person is about to dispose of any assets.
The Commissioner may freeze any domestic assets of the person including any assets beneficially owned by such person for a period of 120 days or till the finalization of proceedings including recovery proceedings and any other proceeding under the Ordinance, whichever is earlier.
The term “offshore enabler” has been defined by inserting a new clause (38AC) in section 2 to include any person who enables, assist, or advises any person to plan, design, arrange or manage a transaction or declaration relating to an offshore assets, which has resulted or may result in tax evasion.
Penalty has been provided in serial no.23 of sub-section (1) of section 182 that where in the course of any transaction or declaration made by a person an enabler has enabled, guided, advised or managed any person to design, arrange or manage that transaction or declaration in such a manner which has resulted or may result in offshore tax evasion in the course of any proceedings under the Ordinance, such person shall pay a penalty of Rs 300,000 or an amount equal to 200 percent of the tax which was sought to be evaded, whichever is higher.
Prosecution for enabling offshore tax evasion has been provided by inserting a new section 195B to the effect that any enabler who enables, guides or advises any person to design, arrange or manage a transaction or declaration in such a manner which results in offshore tax evasion, shall commit an offence punishable on conviction with imprisonment for a term not exceeding seven years or with a fine up to five million rupees or both.
The term “asset move “has been defined by inserting a new clause(5C) in section 2 and it means the transfer of non offshore assets to an unspecified jurisdiction by or an behalf of a person who owns, possesses, controls or is the beneficial owner of such offshore asset for the purpose of tax evasion.
An unspecified jurisdiction means a jurisdiction which has not committed to automatically exchange information under the Common Reporting Standard with Pakistan. The term “specified jurisdiction “has been defined by inserting a new clause (60A) in section 2 and it means any jurisdiction which has committed to automatically exchange information under Common Reporting Standard with Pakistan.
Penalty has also been provided in serial 24 of sub-section (1) of section 182 that any person who is involved in asset move from specified to un-specified territory shall pay a penalty of Rs. 100,000 or an amount equal to 100 percent of the tax, whichever is higher.
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Panama, Paradise leaks and other offshore undeclared assets holders can avail present amnesty scheme
ISLAMABAD: Persons having offshore undeclared assets in Panama and Paradise leaks can avail the latest Asset Declaration Scheme 2019, according to a presentation made by Federal Board of Revenue (FBR).
According to the presentation made available to PkRevenue.com, Panama and Paradise leaks/offshore property holders can also avail the latest asset declaration scheme 2019, which is going to expire on June 30, 2019.
The purpose of the amnesty scheme has been explained as to:
Allow the non documented economy’s inclusion in the taxation system;
Trigger economic revival and growth by encouraging a tax compliance in the economy;
Generate much needed revenue for the exchequer;
Ease out Pakistanis living in and outside with undisclosed assets in an era of international transparency.
The eligibility to avail the amnesty scheme has been explained that it can be availed by anyone except:
A public office holder for the last 10 years; spouse, and dependents;
Public company;
Proceeds of crime;
Gold and precious stones;
Bearer Prize Bonds, shares and other bearer assets;
The eligible assets and transactions for the schemes are:
Any undisclosed assets, undisclosed sales and undisclosed expenditure, held or acquired up to June 30, 2018 by the person, anywhere;
Benami assets acquired or held on or before the date of declaration;
Tax imposed by the FBR without default surcharge and penalty unless it has attained finality.
The presentation explained benami property and transactions as:
Benami Property: Any property which is the subject of benami transaction and includes the proceeds from such property.
Benami transaction: Property held in the name of one person whereas consideration paid by another person except in the case of trustee, partner, director, agent, spouse, child, sibling or descendent;
Property held in a fictitious name, owner denies ownership or is unaware;
Person providing consideration is not traceable – fictitious.
It explains benamidar and beneficial owner as:
Benamidar: A person or a fictitious person, as the case may be, in whose name the benami property is transferred or held and includes a person who lends his name.
Beneficial owner: A person, whether his identity is known or not, for whose benefit the benami property is held by a benamidar.
According to the presentation the procedure of filing declaration is:
Declaration shall be made on the form specified on the web portal, including
Non-filer availing the scheme shall file regular return and wealth statement for tax year 2018
Filer shall revise the return and wealth statement as per declaration (financial statements in cases of companies)
Undisclosed sales to be declared in the first sales tax and federal excise returns due after the declaration.
Return can be revised but value of the assets cannot be decreased.
No tax shall be subsequently payable under Income Tax Ordinance, Sales Tax Act, and Federal Excise Act if tax is paid under the Ordinance.
The conditions of declaration are:
Cash to be deposited into a bank account and retained in the same till June 30, 2019;
Foreign currency held in Pakistan to be deposited into own foreign currency account and retained therein till June 30, 2019;
Liquid foreign assets repatriated to be deposited in declarant’s bank account or invested into Pakistan Banao Certificates or foreign currency denominated bonds issued by the federal government;
Liquid foreign assets if not repatriated, to be deposited and retained in a foreign bank account till June 30, 2018;
Mode of repatriation of foreign assets and payment of tax notified by SBP dated May 25, 2019;
Assets to be declared in foreign currency;
For payment after June 30, 2019, tax and default surcharge at then prevailing exchange rate;
Entitlement to incorporate undisclosed assets in return, wealth statement after availing amnesty.
The presentation explains valuation of immovable property under declaration scheme as:
Domestic immovable properties:
150 percent of FBR value where notified
150 percent of the DC rate where FBR value is not notified
150 percent of FBR value notified for land and 150 percent of DC value for constructed property where FBR rates are not notified.
Other assets:
Fair market value but not less than the purchase value;
Foreign assets to be valued at exchange rate prevalent on the date of declaration.
The applicable tax rates for the asset declaration scheme 2019 are:
01. All assets except domestic immovable properties : 4 percent
02. Domestic immovable properties: 1.5 percent
03. Foreign liquid assets not repatriated: 6 percent
04. Unexplained expenditure: 4 percent
05. Undisclosed sales: 2 percent
The rate of default surcharge shall be:
01. Tax paid after June 30, 2019 and on or before September 30, 2019: 10 percent of the tax amount
02. Tax paid after September 30, 2019 and on or before December 31, 2019: 20 percent of the tax amount
03. Tax paid after December 31, 2019 and on or before March 31, 2020: 30 percent of the tax amount
04. Tax paid after March 31, 2020 and on or before June 30, 2020: 40 percent of the tax amount.
The FBR said that tax paid would not be refundable.
The declarations would not be admissible for any proceedings relating to imposition of penalty, adverse action, prosecution under any law.
Declaration containing misrepresentation and suppression of fact would be void.
Declaration to be kept confidential. Those who have availed previous amnesty schemes can also avail the present scheme.
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Finance Bill 2019: severe punishment proposed for offshore tax evasion
ISLAMABAD: The government has proposed severe punishment for tax evasion through Finance Bill 2019.
According to commentary on Finance Bill, 2019 by EY Ford Rhodes Chartered Accountants, the country in the recent past had witnessed a lot of hue and cry in respect of undeclared assets / wealth accumulated and held abroad by resident of Pakistan.
Such non-declaration was exposed to severe criticism both on print and electronic media, ultimately resulting in media trial of persons involved.
“While the existing penalty and prosecution provision may generally cater such tax evasions, the Bill now proposes to severely punish taxpayers involved in offshore tax evasions.”
Although, the term offshore tax evasion has not been particularly defined either by the Bill or the Ordinance, internationally the concept refers to a situation where a taxpayer avoids paying taxes in the home jurisdiction in respect of foreign / offshore assets and income.
Hence, if a Pakistan resident evades paying taxes on its foreign source assets and income, it may be regarded as indulging in offshore tax evasion.
In this back drop following definitions are proposed to be inserted in Section 2 of the Ordinance –
— “Offshore asset” in relation to a person, incudes any movable or immovable asset held, any gain, profit, or income derived, or any expenditure incurred outside Pakistan;
— “Offshore enabler” includes any person who, enables, assists, or advises any person to plan, design, arrange or manage a transaction or declaration relating to an offshore asset, which has resulted or may result in tax evasion;
— “Offshore evader” means a person who owns, possesses, controls, or is the beneficial owner of an offshore asset and does not declare, or under declares or provides inaccurate particulars of such asset to the Commissioner;
— “specified jurisdiction” means any jurisdiction which has committed to automatically exchange information under the Common Reporting Standard with Pakistan;
— “unspecified jurisdiction” means a jurisdiction which is not a specified jurisdictions.
— “asset move” means the transfer of an offshore asset to an unspecified jurisdiction by or on behalf of a person who owns, possesses, controls, or is the beneficial owner of such offshore asset for the purpose of tax evasion; Corresponding penalties, in respect of offshore tax evasion have also been proposed as under:
— Where an offshore tax evader is involved in offshore tax evasion, a penalty of Rs100,000 or an amount equal to 200 percent of the tax which the person sought to evade, whichever is higher, would be applicable.
— Where, in the course of any transaction or declaration made by a person, an enabler has enabled, guided, advised or managed any person to design, arrange or manage that transaction or declaration in such a manner which has resulted or may result in offshore tax evasion, a penalty of Rs300,000 or an amount equal to 200 percent of the tax which was sought to be evaded, whichever is higher, would be applicable.
— Any person, who is involved in the transfer of an offshore asset to an unspecified jurisdiction by or on behalf of a person who owns, possesses, controls, or is the beneficial owner of such offshore asset for the purpose of tax evasion, from one specified territory to an un-specified territory, shall pay a penalty of Rs100,000 or an amount equal to 100 percent of the tax whichever is higher.
In addition to the above penal exposures, in order to deter the concealment of offshore assets and to maintain effective monitoring of offshore tax evasion, the Bill also proposes to prosecute the tax evader, as provided for under the newly proposed Sections 192B and 195B.
In terms of Section 192B, any person who fails to declare an offshore asset or furnishes inaccurate particulars of an offshore asset where the financial impact of such concealment or furnishing of inaccurate particulars is Rs100,000 or more, the same shall be treated as an offence, punishable on conviction with imprisonment up to 7 years or a fine up to 200 percent of the amount of tax evaded, or both.
Similarly, through Section 195B, the Bill seeks to hold any enabler who enables, guides or advises any person to design, arrange or manage a transaction or declaration in such a manner which results in an offshore tax evasion, the same will be treated as an offence punishable on conviction with imprisonment for a term not exceeding 7 years or with a fine up to Rs5 million or both.
The Bill further proposes to insert a new Sub-section in Section 145 of the Ordinance in terms of which the Commissioner is empowered to freeze any domestic asset of a person including any asset beneficially owned by him, where he has reason to believe that such person who is likely to leave Pakistan may be involved in offshore tax evasion or such person is about to dispose of any such asset.
The asset frozen can be held by the Commissioner for a period of one hundred and twenty days or till the finalization of proceedings including but not limited to recovery proceedings under the Ordinance whichever is earlier.
Finally, the Bill proposes to insert Sub-sections (6B) and (6C) in Section 216 of the Ordinance whereby FBR is empowered to publish the names of offshore evaders and offshore enablers in the electronic and print media.
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FBR establishes directorate for taking action against undeclared offshore assets
ISLAMABAD: Federal Board of Revenue (FBR) has established Directorate General of International Tax Operations to initiate legal proceedings in undeclared offshore assets by Pakistanis.
The FBR issued notification to set up the directorate on March 29, 2019. The directorate will have head office in Islamabad and its subordinate offices will be at Lahore, Peshawar, Multan, Karachi, Quetta.
The directorate was introduced through Finance Supplementary (Second Amendment) Act, 2019 by inserting Section 230E to Income Tax Ordinance, 2001.
The functions and powers of the directorate general of international tax operations would be:
a. receive and send information from other jurisdictions under spontaneous, automatic and on demand exchange of information under exchange of information agreements.
b. Levy and recover tax by passing an assessment order under section 123(1A) in case of undeclared offshore assets and incomes.
c. Receive, transmit and exchange country by country reports of the jurisdictions that are parties to international agreements with Pakistan.
d. Conduct transfer pricing audit in cases selected for such audit by the directorate genera of international tax operations.
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Finance Supplementary (2nd Amendment) Act 2019: Directorate set up for tax recovery from undeclared offshore assets
ISLAMABAD: The federal government has set up Directorate General of International Tax Operations for recovery of tax in undeclared off-shore assets and incomes.
According to Finance Supplementary (Second Amendment) Act, 2019, the directorate has been established under new section 230E of Income Tax Ordinance, 2001.
The new section is as follow:
Section 230E: Directorate General of International Tax Operations:
Sub-Section (1): The Directorate General of International Tax Operations shall consist of a Director General and as many Directors, Additional Directors, Deputy Directors, Assistant Directors and such other officers as the Federal Board of Revenue (FBR) may, by notification in the official Gazette, appoint.
Sub-Section (2): The Board may, by notification in the official Gazette,-
(a) specify the functions and jurisdiction of the Director General and its officers; and
(b) confer the powers of authorities specified in Section 207 upon the Directorate General and its officers.
Sub-Section (3): The functions and powers of the Directorate General of International Tax Operations shall include but not limited to –
(a) receive and send information from other jurisdiction under spontaneous, automatic and on demand exchange of information under exchange of information agreements;
(b) levy and recover tax by passing an assessment order under section 123(1A) in case of undeclared off-shore assets and incomes;
(c) receive, transmit and exchange country by country reports to the jurisdictions that are parties to international agreements with Pakistan; and
(d) conduct transfer pricing audit in cases selected for such audit by the Director General of International Tax Operations.
Sub-Section (4): The FBR may, by notification in the official Gazette, specify the criteria for selection of the taxpayer for transfer pricing audit.
Explanation: For the removal of doubt, it is clarified that transfer pricing audit refers to the audit for determination of transfer price at arm’s length in transactions between associates and is independent of audit under Section 177 and 214C which is audit of the income tax affairs of the taxpayer.
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Bill to further empower FBR to tighten noose around undisclosed offshore assets
ISLAMABAD – The Federal Board of Revenue (FBR) has announced a significant move to enhance its authority in dealing with undisclosed offshore assets, as outlined in the proposals of the Finance Supplementary (Second Amendment) Bill, 2019.
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