The Finance Act 2016-17 introduced three-tiered documentation requirements based on Action Plan 13 of the OECD BEPS Project. The requirements include that any taxpayer that has entered into related party transactions must maintain:

A Master file and a Local file containing documentation and information as may be prescribed,
A Country-by-Country (CbC) report, where applicable; and
Any other documentation and information that may be prescribed.

Standard Documentation

Master File

The Master file documentation requirements apply for taxpayers that are a constituent entity of an MNE group and have turnover of more than PKR 100 million. The required content of the Master file is generally in line with the Action 13 guidelines.

Local File

Local file documentation requirements apply from the tax year beginning 1 July 2016 for all taxpayers with respect to transactions with associates exceeding PKR 50 million. The required content of the Local file is also generally in line with the Action 13 guidelines. The documentation should be made available within 30 days of request.

Country-by-Country (CbC) Reporting

The CbC reporting requirements are applicable to MNE groups having consolidated annual turnover of EUR 750 million consolidated revenue in the previous fiscal year (or equivalent in amount in Pakistan Rupees). Standard ultimate parent, surrogate parent, and local secondary submission requirements are applicable. Non-parent constituent entities in Pakistan are not required to submit a CbC report in cases where the ultimate parent entity or the surrogate parent entity of the group is not required to file a CbC report in its jurisdiction of residence only for the reason that, as per the rules of the jurisdiction, the group's total consolidated revenue is less than EUR 750 million (or near equivalent in domestic currency). For the purpose of the CbC reporting rules, constituent entities resident in Pakistan include permanent establishments in Pakistan of a nonresident.

The deadline for filing CbC report is 12 months after the end of the reporting fiscal year of the MNE group (tax year 2017 report to be filed not later than fifteen months after the last day of the reporting fiscal year of the MNE group).

Further, notification requirements are also applicable for all constituent entities resident in Pakistan on whether they are the ultimate or surrogate parent entity, and if neither, the details of the ultimate or surrogate parent entity and the country or territory of residence are required to be submitted. The notification is due by tax return deadline (for the fiscal year relating to tax year 2017, the notification is due by 28 February 2018).

Where local filing is required of a non-parent constituent entity resident in Pakistan due to a systemic failure for exchange with the parent's jurisdiction, the CbC report is due within 45 days from receipt of notification. Further, the local filing requirement for a non-parent constituent entity to submit a CbC report is not effective in respect of tax year 2017, if the constituent entity has provided proper notification to the Board that includes details of the ultimate or surrogate parent of the group.

A penalty of PKR 2,000 per day of delay is applicable for failure to furnish information or a CbC report (minimum penalty of PKR 25,000), and a penalty of 1% of the value of transactions for which documentation should be maintained if not maintained.

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