The SECP has issued Draft Group Companies Registration Regulations-2008 to provide an enabling framework for companies wanting to avail tax relief from the Federal Board of Revenue (FBR). These companies have to obtain prior designation from the commission for availing group tax relief from the tax authorities.
The draft regulations upon promulgation will enable a holding company to apply for registration along with its subsidiary companies as a group, which will be required to comply with the requirements of the Code of Corporate Governance, International Accounting Standards/International Financial Reporting Standards, related party transactions, and such other requirements as specified by the Commission.
To fulfil obligations of the holding company within a Group, the holding company shall ensure that transactions by any company within the Group with its associated companies and associated undertakings are carried out and recorded on an "arm's length basis".
The holding company within a Group may apply to the Commission for designation of the Group for the purpose of availing tax relief under sections 59AA and 59B of the Income Tax Ordinance, 2001. The Commission shall on being satisfied that the Group is in compliance with these Regulations issue a designation letter stating details of the shareholding structure between the holding company and its subsidiaries.
Under the proposed regulations, a company incorporated in Pakistan which is desirous of forming a group with its subsidiary companies shall furnish an application for registration as a Group to the Commission along with the certain documents. It included statement showing details of the holding company and its subsidiaries, their sponsors, directors and pattern of shareholding; affidavit by the directors of the holding company; resolution of the board of directors of the holding company and its subsidiaries for formation of a Group; original bank receipt evidencing the payment of application fee of Rs 200,000 and any other information required by the Commission.
Where the Commission is satisfied with the application made, it may register the holding company and its subsidiary companies as a Group. In case composition of a group changes, the SECP shall, on an application made by the holding company, alter the name of the holding company or its subsidiaries in the certificate of registration granted.
Whoever contravenes or fails to comply with any provision of these Regulations shall, in addition to any other liability under the Ordinance or the rules or regulations made thereunder, be punishable with fine which may extend to Rs 500,000 and in the case of continuing failure, to a further fine, which may extend to Rs 10,000 for every day after the first during which the contravention continues.
Meanwhile, the SECP has announced that the draft Group Companies Registration Regulations, 2008 will provide an enabling framework and would also serve to promote the group concept, which is imperative because the consolidation of the corporate sector for the emergence of strong groups in a global marketplace is the need of the time to enable them perform effectively in the competitive environment of the international markets. The draft Regulations have been placed on the SECP's website to elicit comments and suggestions of the stakeholders and the general public.