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Pakistan: Transfer pricing audit, penalty provisions in budget 2017

Pakistan: Transfer pricing audit, penalty provisions

Pakistan’s Finance Minister presented to the Parliament in the evening of 26 May 2017, the federal budget for 2017-18. The related finance bill includes provisions establishing an office responsible for conducting transfer pricing audits (Directorate-General of Transfer Pricing) and proposes penalty provisions with respect to certain taxpayer failures such as the failure to maintain or produce transfer pricing documentation and the failure to furnish a timely country-by-country report.


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The Finance Act, 2016 introduced into Pakistan’s income tax law, requires that every taxpayer entering into a transaction with its “associates” must:

  • Maintain a Master file and Local file 
  • Keep and maintain a country-by-country (CbC) report
  • Keep and maintain any other information or documentation concerning transactions with “associates” (related parties)
  • Keep files, documents, information, and reports for a prescribed period

Upon request by the Commissioner, these documents must be furnished to the tax authorities within 30 days (unless extended by the Commissioner). It was expected that the extent and manner as to how such documents were to be maintained and the information furnished to the tax authorities were to be provided would be issued.

New measures

The finance bill proposes the establishment of the Directorate-General of Transfer Pricing for the purpose of conducting transfer pricing audits. The term “transfer pricing audit” is defined as an audit for purposes of determining that the transfer price of transactions with “associates” is at arm’s length, and such audit would be independent of an audit for income tax compliance. The finance bill also proposes that the Federal Board of Revenue may specify the criteria for selecting taxpayers for transfer pricing audits and also specify the functions, jurisdiction, and authority of the Directorate-General of Transfer Pricing.

The finance bill proposes to introduce a penalty regime in relation to taxpayer noncompliance with the transfer pricing documentation rules.


Read a May 2017 report [PDF 2.73 MB] prepared by the KPMG member firm in Pakistan

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