MPs say offshore companies exonerated before Panama probe

Amendment to ITO through Finance Bill 2016-17;  FBR chairman says amendment mandatory to become member of OECD global forum

ISLAMABAD: The opposition parliamentarians have alleged that the government has exonerated the offshore companies and foreign trusts before launching a probe into the PanamaLeaks by proposing an amendment to the Income Tax Ordinance through the Finance Bill 2016-17.

The Chairman FBR, Nisar Khan, however, explained that the amendments were mandatory to become a member of OECD global forum for ensuring exchange of information.

In a press conference here on Tuesday, Chairman Senate Standing Committee on Finance Senator Saleem Mandviwalla said the Finance Bill had proposed an amendment to the Clause 23 of Income Tax Ordinance by granting post facto approval to offshore companies and foreign trust funds for facing any probe.

“Now there is no need for a declaration on Terms of Reference (ToRs) among the treasury and opposition benches for probing the PanamaLeaks and even sitting ministers do not know its exact details,” he said.

He said if the government had adopted the normal way of legislation, it would not have been an issue but the government adopted the path of using the money bill to bulldoze the Upper House of Parliament. “We will take the opposition into confidence on this issue and devise a joint strategy,” he added.

Later on, Chairman FBR Nisar Mohammad Khan told reporters in the Parliament House that there was some confusion in the minds of some parliamentarians, as the FBR had proposed amendments to get the membership of OECD global forum.

The Finance Bill 2016-17 states that for removal of doubt it is clarified that a trust under this clause includes a foreign trust.

A statement issued by the FBR said Section 80(2)(vb) of the Income Tax Ordnance in the proposed Finance Bill was meant for granting exemption from imposing any tax liability on foreign trusts.

In this regard, it is clarified that Section 80 of the Income Tax Ordinance, 2001 only defines various entities as individuals, association of persons or companies.

Trusts have also been included in the definition of companies in the same section which states that the company also means a trust, an entity or a body of persons established or constituted by or under any law for the time being in force.

The FBR was of the view that the above definition of trust also includes foreign trusts since it speaks of the establishment of trusts under any law for the time being in force and is not restricted to trusts established in Pakistan only.

However, certain quarters have raised the issue that foreign trusts are not specifically included in the above-mentioned definition of trust and do not fall in the ambit of person for Income Tax Law.

To remove this ambiguity and for the purposes of clarity, be added to clause (vb) of sub-section (2) of section 80 which clarifies that a trust under this clause includes a foreign trust. 

This clarification does not exempt any foreign trust or grant any benefit to these entities or any other person and is only for the purpose of clarity.

The FBR proposed powers through Finance Bill 2016-17 for entering into treaty with bilateral or multilateral forums for exchange of information to ensure prevention of tax evasions in the aftermath of PanamaLeaks that many Pakistanis own offshore companies abroad.

In case of exchange of information related clause, if Parliament approves this amendment, it will enable the tax authorities to sign a treaty at bilateral level with different known tax havens or OCED forum to combat rising phenomena of untaxed money invested in off shore companies by influential of different parts of the world into tax havens as disclosed by recent PanamaLeaks.

Through Finance Bill 2016-17, the FBR seeks to substitute sub section (1) of Section 107 to provide for more instruments and arrangements of international taxation and avoidance of double taxation agreements and to make technical corrections.

In section 107—(a) for sub-section (1), the following shall be substituted, namely:- “(1) The Federal Government may enter into a tax treaty, a tax information exchange agreement, a multilateral convention, an inter-governmental agreement or similar agreement or mechanism for the avoidance of double taxation or for the exchange of information for the prevention of fiscal evasion or avoidance of taxes including automatic exchange of information with respect to taxes on income imposed under this Ordinance or any other law for the time being in force and under the corresponding laws in force in that country and may, by notification in the official Gazette.