This blog is written by Mr. Agha Mudassar Khan, Manager Taxation Advisory Services. Please read this blog and provide your valued comments.

The purpose of this blog is to discuss key matters encircling CbCR, which is part of Action 13 of the Base Erosion and Profit Shifting (BEPS) initiative led by the Organization for Economic Co-operation and Development (OECD), requiring large Multinational Groups of Entities (MNEs) to file a CbCR that should provide a breakdown of the Multinational Group’s global revenue, profit before tax, income tax accrued and some other indicators of economic activities for each jurisdiction in which the MNE operates.


Following two conditions must co-exist to call a group an MNE group:

  • Two or more enterprises the tax residence for which is in different jurisdictions, or an enterprise that is resident for tax purposes in one jurisdiction and is subject to tax with respect to the business carried out through a permanent establishment in another jurisdiction, and has;
  • Total consolidated group revenue 750 million Euros or more, reported in consolidated financial statements of the fiscal year immediately preceding the reporting fiscal year.


 An entity would become a constituent member of an MNE provided that it is:

  • A separate entity of an MNE group, included in group consolidated financial statements or if its stocks are traded on stock exchange;
  • Any such entity excluded from consolidated financial statements merely on size on materiality grounds; and
  • Permanent establishment of any entity including that of a non-resident entity, as per point (i) and (ii) above, provided such a permanent establishment separately prepares financial statements for taxation, corporate or management purposes.


The arm length principle was already available in Section 108 of the Income Tax Ordinance, 2001 (Ordinance) which provided powers to the FBR to distribute, apportion or allocate income, expenditures or tax credits between associates in respect of transactions not made in accordance with the arm’s length principle.

After the announcement of the OECD’s BEPS project, Pakistan joined the BEPS Inclusive Framework which allowed Pakistan to work with OECD and G20 members on developing standards on BEPS related issues and reviewing and monitoring the implementation of the entire BEPS Package

Chapter VIA on CbCR was introduced in Income Tax Rules, 2002 in Pakistan, vide Notification No. SRO 1191(I)/ 2017, dated November 16, 2017, amended further through S.R.O. 144(I)/2018 dated February 9, 2018.


  • Rule 27B

Every constituent entity, resident in Pakistan, except for ultimate parent entity or surrogate parent entity, need to file return to Federal Board of Revenue (FBR) under section 118, details of ultimate parent entity or surrogate parent entity and country or territory of its residence.

Due date: On or before return filing due date of constituent entity.

Frequency: Annually

  • Rule 27C

If a Pakistan resident constituent entity is ultimate parent company or surrogate parent entity, then need to file return with FBR under section 118 and information whether it is an ultimate parent entity or surrogate parent entity.

Due date: On or before return filing due date of constituent entity

Frequency: Annually

  • Rule 27D

Every ultimate parent entity or surrogate parent entity in capacity of reporting entity, in respect of MNE group to which it belongs, need to furnish country-by-country report to FBR, specified under rule 27G, mainly comprising information pertaining to:

  • Reporting entity identification, such as its name, incorporation number, address and status within MNE group etc.
  • Overview of allocation of income, taxes and business activities by tax jurisdiction, such as its tax jurisdiction, revenue, profits, taxes details and main business activities etc.

Due date: Within 12 months of the last day of MNE group fiscal year ending

Frequency: Annually

  • Rule 27E

Any one constituent entity resident in Pakistan belonging to same MNE group, being neither the ultimate parent or surrogate parent entity, designated by MNE group in this regard shall furnish country-by-country report to FBR, specified under rule 27G (main contents discussed already under rule 27D above), in respect of MNE group to which it belongs if:

  • The ultimate parent entity of MNE group is not obliged to file CbCR in its country or territory of residence;
  • The country or territory in which the ultimate parent entity is resident has an international agreement to which Pakistan is a party but does not have a competent authority agreement to exchange country-by-country report; or
  • There has been a systemic failure of the country or territory of which the ultimate parent entity is a resident and the said failure has been intimated by the Board to such constituent entity

This rule shall not apply, if ultimate parent entity or surrogate parent entity is not required to file CbCR in jurisdiction of residence only for the reason that total consolidated group revenue, in near equivalent amount in domestic currency, is less than 750 million euros.

Due date: Within 12 months of the last day of MNE group fiscal year ending

Frequency: Annually

  • Rule 27F

The CbCR shall not be required from constituent entities under rule 27E if the surrogate parent entity has furnished a country by country report fulfilling conditions provided under rule 27F.


 Every constituent entity of MNE group, resident in Pakistan, shall keep and maintain the following two types of files at all time (Rule 27 K, L, M and N):

  • Master File – only applicable on MNE group having turnover of more than PKR 100 million, comprising standardized information such as:
  • Group structure, arrangements among group entities, main geographic markets & business details etc.;
  • Description of supply chain of group’s five largest products/ services;
  • Information of intangible such as strategy, R&D management, agreements, transfer pricing policies etc.;
  • Inter-company financial activities; and
  • Annual consolidated financial statements
  • Local File – only for all those transactions with associates, exceeding PKR 50 million, comprising information such as:
  • Local entity structure including management structure, organization chart etc.;
  • Description of business & business strategies;
  • Key competitors;
  • Information of about controlled transactions including description, amount, party, agreements, and analysis including changes compared to prior three years, transfer pricing method, etc. and;
  • Financial information including annual accounts, financial data used in transfer pricing method, summary schedule of financial data etc.


Since electronic submission using specified software in accordance with the formats and related specific requirements are not yet developed and available with FBR, documents, reports, information and details are ought to be shared via e-mail at (Rule 27Q).


Failure to comply with the requirements related to maintenance and furnishing necessary information with FBR may result in incurrence of penalties as per section 181 of the Ordinance, on the constituent entity of MNE group within Pakistan responsible for compliance, as depicted in the table below (Rule 27O).



·         Failure to maintain record under section 108 PKR 10,000 or 5% of the amount of tax on income whichever is higher 7
·         Failure to furnish the information required under section 108 PKR 25, 000 for the first default and PKR 50,000 for each subsequent default 9
·         Failures by any reporting financial institution or reporting entity to furnish information or a CbC report to the Board as required under section 107, 108 or 165B of the Ordinance within the due date PKR 2,000 for each day of the default subject to a minimum penalty of PKR 25,000 17
·         Failure to keep and maintain documentation and information required under section 107 of the Ordinance or Income Tax Rules 2002 1% of the value of transaction the record of which is required to be maintained under Section 108 of the Ordinance and Income Tax Rules, 2002 18


FBR is responsible to transmit CbCR report to jurisdictions that are parties to the competent authority agreement, not later than fifteen months after the last day of the reporting fiscal year of the MNE group (Rule 27G).

FBR and tax jurisdictions with whom they are shared are responsible for its appropriate use only for the purpose of conducting high level and informed transfer pricing risk assessment,  assessment of other base erosion and profit shifting (BEPS) related risks and economic and statistical analysis, where appropriate. (Rule 27H).

FBR is further responsible to preserve the confidentiality of the information contained in the CbCR at least to the same extent that would apply if such information were provided to it under the provisions of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and must concede its inappropriate use to the Coordinating Body Secretariat of OECD or other competent authority, as applicable (Rule 27H and I).


CbCR is a way of assigning responsibility among multinational enterprises and authorities to include detailed financial and tax information relating to global allocation of such enterprises income and taxes, among other indicators of economic activity.

In realism, it is an effort by serving the purpose to ensure that adequate taxes are paid on a global level in the jurisdictions where profits are generated, value is added, and risk is taken within the MNE group. The ultimate goal, of course, is to promote transparency and accuracy in financial and tax reporting.

Agha Mudassar Khan