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Friday March 29, 2024

Alleged tax evasion: TV channel defends only one out of four FBR charges

The Federal Board of Revenue (FBR) has served tax notice of Rs990 million on ARY mainly on the basis of four major accusations, however, the TV channel made its defence just in case of one point.

By Our Correspondent
September 03, 2019

ISLAMABAD: The Federal Board of Revenue (FBR) has served tax notice of Rs990 million on ARY mainly on the basis of four major accusations, however, the TV channel made its defence just in case of one point.

The FBR has made its case against ARY Communications Pvt. based on four major points 1) that ARY Communications has allegedly inflated its cost by buying from a Dubai-based company which it also significantly owns (ARY FZLLC) 2) ARY Communications is buying content from the same Dubai-based company (ARY FZLLC) whose own 100 percent owned subsidiary -- ARY TV and Film Productions -- had sold. ARY Productions and TV company is showing all sales to Dubai-based company as exports that is showing it as exports which are tax exempt but ARY is using that content primarily in Pakistan 3) that while sending money abroad for purchasing of air time which is exempt from withholding tax, it was actually primarily sending money for content for which there is no tax exemption 4) that ARY Communications tampered documents to later on show that content was part of contract between Dubai and Pakistan-based company.

Of these four FBR accusations, ARY Communications main defence was focusing on one of these points -- that FBR has not made the correct cost comparison and unfairly compared ARY with other media companies and that its costs are not inflated even if they costs are of a related party. Part of ARY’s defence is that its own auditor did not object that transaction with associate were not at arm’s length principle and it also said that FBR did not allow ample time to ARY for the reply.

ARY via letters dated 13/05/2019 AND 25/06/2019 replied back to FBR tax notices of Rs990 by accusing the FBR of fishing for inquires and also added that the proceedings are on whims, assumptions, summaries and guess work.

ARY also requested FBR to provide copies of income tax return, audited accounts, agreements showing airtime rate of comparable companies which the FBR had provided information in hearings and order sheets dated 29-05-19 and 17-06-19 as per documents available with this newspaper.

ARY has also claimed that business model of ARY is different from other channels and thus the comparisons that FBR has made are not relevant. However, even on transfer pricing issue, the FBR has asked ARY specifically for basis of calculation of transmission cost based on the rates in the annexure to ARY’s Pakistan and Dubai company’s agreement, but ARY failed to give those details.

The FBR had written to ARY, “In case, notwithstanding there is no discloser in financial statement, you hold that position that the transactions under consideration are at arm’s length, the please tell us the transfer pricing method and its workings whereby you have determined the arm’s length price of these transactions with your associated undertaking.”

ARY Communications also failed to satisfy the FBR on its scheme of showing content as exports when the same company that is selling the content to ARY Dubai FZLLC via its own parent company is buying the content back from the same ARY Dubai FZLLC company. ARY also avoided a direct reply on FBR’s direct accusation on tampering documents. The main accusation of FBR that ARY Communications through its tri-party agreements failed to pay withholding tax (on royalty that is liable as per law when sending money abroad for content) was also not addressed in correspondence to FBR. ARY Communications is challenging the FBR’s order of June 30, 2019 and has filed for appeal to the Income Tax Commissioner.

Meanwhile, a top official of the FBR said the tax machinery was not facing any pressure on probing alleged tax evasion by a TV channel. When this reporter asked FBR Chairman Shabbar Zaidi about the alleged tax evasion case against the ARY, Shabbar said he did not want to discuss any specific case against anyone.

However, when this reporter contacted the FBR’s Member Inland Revenues and official spokesman Dr Hamid Ateeq Sarwar for his comments on Monday, he said it was an old case that happened two to three months back and not last week. He said the case proceedings were underway at different relevant forums. He said the FBR being tax collection machinery did not take into account the party concerned but they always pursued the case on merit.