Advance Ruling International Taxation

Advance Ruling International Taxation

With a view to remove any confusion and to avoid disputes in respect of determination of the income tax liability of a non-resident person, a procedure of Advance Rulings has been brought on statute by way of incorporating Section 206A into the Income Tax Ordinance, 2001, w.e.f. 1.7.2003. Through this facility non-residents can obtain, in advance, a binding ruling on the issues that could arise in determining their tax liabilities at a later stage.

Therefore, time consuming and expensive legal disputes can be avoided. The Centre Board of Revenue is empowered to determine any question of law or of fact as specified in the application made before it in respect of a transaction which has been undertaken or is proposed to be undertaken by a non-resident in Pakistan on its own or in combine with a resident concern.

The detailed procedures for obtaining an advance ruling are contained in Rule 231A and 231B of the Income Tax Rules, 2002. An application form for the purpose has also been prescribed in Rule 231B, stipulating the information required to be divulged and the documents to be attached.

Composition of the Advance Ruling Committee

The application for advance ruling is considered and decided upon by a committee headed by the Chairman, Central Board of Revenue, after giving due opportunity to the applicant of explaining his case. Other members of the committee are Member (Direct Taxes), Central Board of Revenue, and Additional Secretary, Law, Justice, and Human Rights Division, Government of Pakistan.

Procedure

The applicant may seek advance ruling by making an application to the Central Board of Revenue in the prescribed form and manner.

  • The application for advance ruling should be presented in the form prescribed for the purpose by the applicant in person or by an authorized representative to the Secretary, International Taxes Operations, Room No. 424, 5th Floor, FBR House, Constitution Avenue, Islamabad.
  • The application and the accompanying annexures may be neatly typed on one side of plain paper of A-4 size leaving a minimum margin of 30mm on all the four sides and may be duly indexed. Legible photocopies of the relevant documents may be attached.
  •  No information as required in the prescribed application form may be withheld. Provision of complete and correct information would help the applicant in getting an early decision.
  • The question(s) of law or fact on which advance ruling is sought may be stated clearly in the application using a text box.

Signing of Application

The application, its verification and the annexures, statements and documents accompanying it, are required to be signed by a person competent to do so. Where a person signing the application and other documents claims to have been duly authorized to do so, the application must be accompanied by a power of attorney authorizing him to sign.

Authorized Representative

The applicant is entitled to present his case before the Advance Ruling Committee either personally or through an authorized representative. If the applicant desires to be represented by an authorized representative, a duly authenticated document authorizing him to appear for the applicant should be enclosed.

Payment of Fee

There is no fee for seeking an advance ruling from the Central Board of Revenue.

Withdrawal of application

The applicant may withdraw his application at any time before the ruling is issued.

Advantages of Advance Ruling

  • Helps non-residents in planning their income tax affairs well in advance.
  • Gives clarity to the local partners of non-residents vis-à-vis their liabilities under the tax laws.
  • Brings certainty in determination of the tax liability.
  • Helps in avoiding long drawn and expensive litigation.
  • It is inexpensive, expeditious and binding.

Rulings Issued

S.NO.

QUESTION

RULING

DATE OF ISSUE

AR No. 01

Whether the payment of Rs. 50 million received by a non-resident as a result of amalgamation with resident concern is taxable in Pakistan or not?

The assessee being non-resident, the income accruing or arising on account of merger and transfer of bank operations with the new entity is revenue receipts in the hands of the applicant, and being Pakistan source income, is liable to tax under the Income Tax Ordinance, 2001.

01.12.2004
AR No. 02

Whether the amount to be received by non-resident company for rendering seismic data processing services is chargeable to tax in Pakistan or not?

The assessee being non-resident, the amount received against seismic data processing/re-processing services as a result of contract executed in Pakistan is liable to tax in Pakistan under the head “business income” in view of the provisions of section 6 of the Income Tax Ordinance, 2001.

05.01.2005
AR No. 03

Whether the amount of Rs.373 million received from the State Bank of Pakistan by a non-resident on conversion of excess amount of capital account to Pak rupees for setting off against accumulated losses is chargeable to tax?

The amount received from the State Bank of Pakistan by a non-resident on conversion of capital account (maintained in Euros) to Pakistan rupees for off setting accumulated losses is not chargeable to tax.

27.04.2005
AR No. 04

Whether the income of non-resident person not having any permanent establishment in Pakistan will be taxable or not?

Income of non-resident person is taxable in Pakistan irrespective of the fact whether it is having PE or not. Treatment of tax deducted, in both the situations, will, however, be different accordingly to provisions of section 153 of Income Tax Ordinance, 2001.

31.05.2005
AR No. 05

 

In view of the applicant’s statement of interpretation of law and facts of the case, is the income of Overseas Private Investment Corporation arising from the Credit Facility extended to Emerging Markets Consulting (Private) Limited is exempt from Pakistan income tax and accordingly not liable to withholding tax under the Income Tax Ordinance, 2001?

 

Income of OPIC under the credit facility extending to Emerging Markets Consultant (Pvt.) Ltd. would be exempt in Pakistan from Income Tax and accordingly not liable to withholding tax under Section 152 of the Income Tax Ordinance, 2001.
[This is a case-specific Ruling given under an existing investment treaty between Pakistan and the USA.]

23.01.2006
AR No. 06

 

“The income of Telcordia under the contract dated November 14, 2005 with Pakistan MNP Database (Guarantee) Limited is liable to withholding tax at 6% under section 153(1) and further under the provisions of section 153(7) such withholding tax is the final tax liability.”

 

The sub-section (7) of section 153 of the Income Tax Ordinance, 2001 has been omitted vide Fin

AR No. 07

“Whether or not a ‘working interest’ in a PCA is an ‘immovable property”?”

The working interest in the PCA belonging to the taxpayer (OPPI) is not an “immoveable property”. It is rather an “intangible” asset which is covered under sub-section (11) of section 24 read with sub-section (30) of section 2 of the Income Tax Ordinance, 2001.

03-02-2009.
AR No. 08

i) Network Fee in the hands of DHL Operations BV shall not be chargeable to tax in Pakistan;

ii) Payment of network fee by DHL Pakistan (Private) Limited to DHL Operations BV is not liable to any income tax withholding in Pakistan.

 

 iii) Network Fee as per computation explained in Annexure 1 shall be an allowable cost in the hands of DHL Pakistan (Private) Limited.”

i) “Network Fee” not being a cost but a Pakistan-source income shall be chargeable to tax in Pakistan.

 ii) The “Network Fee” would be liable to withholding tax, subject to adjustment on determination of final tax liability of DHL BV in Pakistan.

iii) “Network Fee” not being expenditure in nature, will not be allowable expenditure in the hands of DHLP.

03-02-2009.
AR No. 09

“Whether or not the US Corporation (Media Merchants USA, a Limited Liability Company) would be entitled to protection (being taxable only in the country of residence i.e. USA) under the Agreement for Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income between the Government of Pakistan and the United States of America in respect of consideration received by it for providing the ‘Basic Television Services’ to a Pakistani entity.”

Consideration received by Media Merchants USA for providing “Basic television Services” to a Pakistani entity is not taxable in Pakistan under the provisions of Article VIII of Pakistan-USA Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income.

03-02-2009.
AR No. 10

   a. Whether or not M/s Excelerate Energy     (Charterer of Vessels on Wet Lease basis) is to be taxed  in Pakistan because of the absence of Permanent Establishment in Pakistan; and

 

 

b. If it is to be taxed; whether or not it should be taxed as Shipping Income based on the provisions of the local taxed law i.e. Income Tax Ordinance, 2001 as well as the Double Taxation Treaty between Pakistan and U.A.E.

 

Yes, M/s Excelerate Energy DMCC is to be taxed in Pakistan as absence of Permanent Establishment is not relevant in this case.

 

It is not be taxed as shipping income under the relevant provisions of Income Tax Ordinance, 2001 or Article 8 of the Avoidance of Double Taxation Agreement between Pakistan and U.A.E. since it is not engaged in international traffic. Payments received from the lease of FSRU by M/s Excelerate Energy DMCC are in the nature of royalties, hence taxable in Pakistan under Article 12 of the Avoidance of Double Taxation Agreement between Pakistan and U.A.E.

 

20.04.2018

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