Pakistan has committed to implementing global tax transparency standards to prevent tax evasion and profit shifting by multinational enterprises (MNEs). As part of this commitment, Pakistan adopted the Country-by-Country Reporting (CbCR) requirements in line with the OECD’s Base Erosion and Profit Shifting (BEPS) Action 13. These rules require large multinational groups operating in Pakistan to provide key financial and tax information on a country-by-country basis. This guide offers Chief Financial Officers (CFOs) and financial executives a comprehensive overview of the CbCR obligations in Pakistan, including who is affected, how to comply, and the consequences of non-compliance.

Applicability of CbCR in Pakistan

Criteria for Reporting:

• CbCR applies to multinational enterprise groups with annual consolidated group revenues of at least ₨229.65 billion Pakistani Rupees in the preceding fiscal year.
• The ultimate parent entity of the MNE group that is tax resident in Pakistan must submit the CbC report.
• If the ultimate parent entity is not located in Pakistan, but a constituent entity within the group is a tax resident of Pakistan, it may still be required to file a report if the ultimate parent entity’s jurisdiction does not have CbCR obligations or does not exchange information with Pakistan.

Relevant Legislation:

• Pakistan introduced the CbCR requirements through the Income Tax Ordinance, 2001 (Section 108B) and associated rules under SRO 1191(I)/2017. These regulations implement the OECD BEPS Action 13 guidelines, establishing Pakistan’s CbCR framework.

Reporting Requirements

Information to be Reported:

• The CbC report should contain the following financial and operational data for each jurisdiction in which the MNE group operates:
  • Total revenue (split between related-party and unrelated-party revenues)
  • Profit or loss before income tax
  • Income tax paid and accrued
  • Stated capital and accumulated earnings
  • Number of employees
  • Tangible assets (other than cash or cash equivalents)
• A detailed list of all constituent entities within the group and their respective tax jurisdictions must also be included, along with information on the primary business activities of each entity.

Form and Submission:

• The CbC report must be submitted in the OECD standard XML format, which is consistent with the global CbCR template.
• Reports are filed electronically with Pakistan’s Federal Board of Revenue (FBR) through its online portal.
  • For more information on the submission process, visit the FBR CbCR page.

Filing Deadlines

• The CbC report must be filed within 12 months following the end of the MNE group’s fiscal year. For example, if the fiscal year ends on 31 December 2023, the report must be submitted by 31 December 2024.
• Entities operating in Pakistan as part of an MNE group must notify the Federal Board of Revenue (FBR) about their CbCR obligations and whether they are required to file the report. The notification must be made no later than the last day of the reporting fiscal year.

Penalties for Non-Compliance

Penalties:

• Pakistan has implemented strict penalties for failing to comply with the CbCR requirements:
  • Failure to file the CbC report on time can result in a penalty of PKR 2,000 per day, up to a maximum of PKR 100,000.
  • Submitting inaccurate or incomplete reports, or failing to notify the FBR about CbCR obligations, can result in additional fines and penalties, including the possibility of further investigations by tax authorities.
  • Continuous failure to comply may result in escalating fines and other sanctions.

Defences:

• MNEs may claim reasonable cause for delays or errors in their filings, such as technical issues or administrative difficulties. However, leniency is granted at the discretion of the Federal Board of Revenue (FBR), and companies are strongly encouraged to comply fully and timely to avoid penalties.

Confidentiality and Use of Information

Data Protection:

• The CbC reports submitted to Pakistan’s tax authorities are treated with strict confidentiality. The Federal Board of Revenue (FBR) uses the information for high-level risk assessments to detect potential profit shifting but does not use it directly to assess tax liabilities.
• Pakistan is a signatory to the Multilateral Competent Authority Agreement (MCAA), which enables the automatic exchange of CbC reports with other jurisdictions. Information is shared only with countries that comply with the OECD’s data protection and confidentiality standards.