(2) Appropriate use of country-by-country reports means that the data or information obtained from such reports shall only be used for purposes of —
(a) conducting high level and informed transfer pricing risk assessment;
(b) assessment of other base erosion and profit shifting (BEPS) related risks;
(c) economic and statistical analysis, where appropriate.
Explanation.- For the purpose of clause (b), BEPS related risks refer to risks that may result in the erosion of Pakistan’s tax base resulting from strategies adopted by the MNE groups that make use of tax rules and legislation of different jurisdictions to artificially shift profits to low or no tax jurisdictions where there is little or no economic activity and consequently reduce the overall tax payable by the MNE group. The rules or legislation may include tax credits, carry-forward of losses, hybrid entities, hybrid financial instruments, conduit companies, the use of derivatives to avoid withholding taxes, and profit shifting using the contractual allocation of risk and the pricing of intangibles.
(3) The data in the country-by-country reports shall not be used for purposes of making transfer pricing adjustments on the basis of an income allocation formula or based on a global formulary apportionment of income.
Explanation.- For the removal of doubt it is hereby clarified that nothing in this rule shall prevent making enquiries into the MNE group’s transfer pricing arrangements or into other tax matters in the course of a transfer pricing audit.
(4) Transfer Pricing risk assessment based on the data contained in country-by-country reports shall not be made by an authority below the rank of Commissioner or Director, as the case may be:
Provided that such authority shall obtain prior approval for conducting risk assessment from Director General of Transfer Pricing to ensure that data or information contained in country-by-country report has not been used inappropriately.
(5) To ensure that data or information contained in country-by-country report has been used appropriately in making transfer pricing risk assessment, Director General of Transfer Pricing, on its own or on a request, may issue a circular setting out the guidance or instructions on appropriate use of data contained in such reports and shall be binding on the tax authorities.
(6) Subject to the Ordinance, Director General of Transfer Pricing in issuing circulars referred to in sub-rule (5) shall also be guided by international standards and guidelines issued by the various tax-related internationally recognized organizations.
(7) Where the information or data contained in country-by-country report has not been used appropriately, the Board shall —
(a) notify the breach of appropriate use, to the Co-ordinating Body Secretariat of Organization of Economic Cooperation and Development (OECD) or other competent authority; and
(b) concede inappropriate adjustments in competent authority proceedings that involve a tax adjustment using an income allocation formula or a global formulary apportionment of income based on information from country-by-country report.
(8) The Board may, from time to time, review and update any existing or additional requirements for appropriate use of data or information contained in country-by-country reports.
