According to the notification, Pakistan has become a signatory to the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information on June 7, 2017. Now, therefore, in exercise of the powers conferred by sub-section (I) of section 107 of the Income Tax Ordinance 2001, the federal government has directed that the provisions of the said Agreement, in terms of its Section 7 of the Agreement, shall come into effect between two competent authorities on the later of the following dates, namely:-
(i) the date on which the second of the two competent authorities has provided notification to the Co-ordinating Body Secretariat under paragraph I, including listing the other Competent Authority's Jurisdiction pursuant 10 subparagraph 1(1) of the Agreement; and (ii) the date on which the Convention has entered into force and is in effect for both jurisdictions.
According to sources, the FBR had compiled a list of 88 countries including Switzerland to ensure reporting by financial institutions to the said participating jurisdictions from July 1, 2017 under global treaties on automatic exchange of information. Pakistan has signed the Multilateral Competent Authority Agreement (the CRS-MCAA) on 7th June, 2017 and its Annexure-E consists of a list of participating jurisdictions for automatic exchange of information. Under clause (am) of rule 78B of Chapter XIIA of the Income Tax Rules 2002, the reporting financial institutions are required to provide the information as specified in Rule 78C of the said rules to FBR pertaining to the reportable persons of the jurisdictions to be identified in a published list to be made available on FBR web portal.
Multilateral Competent Authorities Agreement is related to exchange of Country-by-Country reports (CbC MCAA) aimed at sharing detailed financial and tax information of companies with OECD member countries. Pakistan signed Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MC) under the aegis of OECD (Organisation of Economic Cooperation and Development), on September 12, 2016. Pursuant to Article 6 of the Convention two Multilateral Competent Authority Agreements were to be signed. One relates to automatic exchange of tax related information, which was signed on June 7, 2017, whereas the other, the Multilateral Competent Authorities Agreement is related to exchange of Country-by-Country reports ("CbC MCAA").
As the cornerstone of the OECD's Base Erosion and Profit Shifting (BEPS) project, country-by-country reporting (CbCR) requires multinational enterprises to report detailed financial and tax information relating to the global allocation of their income and taxes, among other indicators of economic activity. The purpose of the CbC MCAA is to set forth rules and procedures necessary for the competent authorities of jurisdictions opting to automatically exchange CbC Reports filed by the MNE (Multinational Enterprises) Group in the jurisdiction of its tax residence, with the tax authorities of all jurisdictions in which the MNE Group operates.
It is of major significance for developing countries like Pakistan, due to their heavy reliance on corporate income tax, particularly from multinational enterprises. Therefore, countries like Pakistan have more to gain from exchange of CbC reports as quite a number of multinationals are assessed here.
Pakistan has put in place the required legal framework by making amendments in primary legislation through Finance Act 2016 and Finance Bill, 2017, by amending sections 107, 108 and 182. Secondary legislation on Country-by-Country (CbC) reporting has also been drafted and is being included as Chapter VIA of Income Tax Rules, 2002.
The OECD has invited Pakistan to join and sign the Multilateral Competent Authority Agreement on Exchange of Country-by-Country Reports on the margins of upcoming meeting of Inclusive Framework in Netherlands on 21-22 June. Pakistan also joined the new Inclusive Framework on BEPS Action reports on June 13, 2016, when the invitation in this regard was accepted by Minister for Finance, sources added.
Copyright Business Recorder, 2017