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Pakistan – Transfer Pricing (2025)

Pakistan’s domestic framework explicitly references the arm’s length principle. The primary statutory reference appears in the Income Tax Ordinance, 2001, Section 108, Sub-Section 1. Administrative rules include a dedicated transfer pricing chapter (Income Tax Rules 2002, Chapter-VI) and a documentation/CbC reporting chapter (Chapter-VIA). Rule 22 of Chapter-VI instructs that, subject to other rules in the chapter, the Commissioner “shall also be guided by international standards, case law and guidelines issued by the various tax-related internationally recognized organizations” (Income Tax Rules 2002, Chapter VI (Transfer Pricing), Rule 22), which places the OECD Transfer Pricing Guidelines in a clearly advisory role for application and interpretation.

Regarding scope and definitions relevant to reporting, the administrative rules include a definition of “group” for documentation and country-by-country reporting purposes. Income Tax Rules 2002, Chapter-VIA (DOCUMENTATION AND COUNTRY-BY- COUNTRY REPORTING REQUIREMENTS), Rule 4(g) defines the “group” as a collection of entities related through ownership or control such that: (i) it is either required to prepare consolidated financial statements for financial reporting purposes under any law for the time being in force or the accounting standards of the country or territory of which the parent entity is resident; or (ii) would have been required to be prepared had the equity shares of any of the entity were listed on a stock exchange in the country or territory of which the parent entity is resident. The country profile does not provide a broader, operational “related parties” definition for all TP purposes beyond this group definition for reporting.

Arm’s length principle and the role of the OECD Guidelines

The arm’s length principle is built into domestic law via Income Tax Ordinance, 2001, Section 108, Sub-Section 1, and the administrative rules explicitly direct the Commissioner to be guided by international standards including the OECD Guidelines (Income Tax Rules 2002, Chapter VI (Transfer Pricing), Rule 22). Therefore, the OECD Guidelines function as an interpretative and guiding reference in Pakistan’s TP framework although the profile does not indicate that they are directly legally binding.

The profile provides the Rule 4(g) definition of “group” used for documentation and CbCR thresholds (see above). It does not supply comprehensive domestic guidance in the profile on other operational thresholds for related-party status (such as specific ownership percentages, control tests, or family relationships) that apply across the transfer pricing regime. Thus, No specific domestic guidance on a broader “related parties” definition is provided in the country profile beyond the “group” definition for consolidated reporting purposes.

Methods and application criteria

Income Tax Rules 2002, Chapter-VI (Transfer Pricing), Rule 23 Sub Rule 3 lists the transfer pricing methods provided in the domestic rules. According to the profile, the domestic legislation contemplates Comparable Uncontrolled Price (CUP), Resale Price, Cost Plus and Profit Split methods. The TNMM is not indicated as checked in the published responses. Method selection is governed by a “most appropriate method” criterion rather than a strict statutory hierarchy; the framework states that pricing methods are selected “as per the nature of sectoral transactions.” Therefore, method choice is fact-driven and depends on the characteristics of the transactions and industry sector.

Comparability and ranges

The jurisdiction reports that it does not follow (or does not largely follow) the comparability analysis guidance set out in Chapter III of the OECD Transfer Pricing Guidelines. There is no preference for domestic comparables and the country notes that no local comparability databases are available. The domestic framework does not permit the use of secret comparables for assessment purposes, does not allow or require the use of arm’s length ranges or statistical measures (such as interquartile ranges or percentiles) to determine arm’s length remuneration, and does not mandate comparability adjustments. Overall, the approach to comparability is not fully aligned with the Chapter III guidance and lacks local comparable resources.

Intangibles and HTVI

The domestic framework contains no specific guidance for pricing controlled transactions involving intangibles; the profile explicitly indicates that there is no domestic guidance on intangibles. The jurisdiction also does not have guidance on Hard-to-Value Intangibles (HTVI) and therefore does not follow the HTVI approach of Chapter VI of the OECD Guidelines.

Intra-group services and financial transactions

Pakistan provides specific guidance on intra-group services within its transfer pricing framework and indicates that such guidance follows (or largely follows) Chapter VII of the OECD Guidelines (Income Tax Rules 2002, Chapter-VI (Transfer Pricing), Rule 22). However, the jurisdiction does not implement the simplified approach for low value-adding intra-group services set out in Chapter VII; there is no domestic simplified method for low value-adding services.

For financial transactions, the transfer pricing framework does not include specific guidance aligned with Chapter X of the OECD Guidelines. Nevertheless, other domestic provisions outside the TP framework are relevant to the tax treatment of financial transactions. The Income Tax Ordinance, 2001, Section 106, Sub-Section 1 is cited in the profile as an example of such a relevant rule.

Cost Contribution Arrangements

Cost Contribution Arrangements (CCAs) are permitted in Pakistan. The administrative rules indicate the Commissioner is guided by international standards in this area (Income Tax Rules 2002, Chapter-VI (Transfer Pricing), Rule 22), and the jurisdiction reports that it follows (or largely follows) Chapter VIII of the OECD Guidelines for CCAs.

Transfer pricing documentation (Master, Local, CbC): thresholds, timing, language

Pakistan requires transfer pricing documentation following the three-tier approach: Master file consistent with Annex I to Chapter V of the OECD Guidelines, Local file consistent with Annex II to Chapter V, and a Country-by-Country Report consistent with Annex III to Chapter V (Income Tax Ordinance, 2001, Section 108, Sub-Section 3-5; Income Tax Rules 2002, Chapter-VIA (DOCUMENTATION AND COUNTRY-BY- COUNTRY REPORTING REQUIREMENTS), Rule 27A-27Q).

As to timing and thresholds, the country-by-country report must be filed not later than twelve months after the last day of the reporting fiscal year of the MNE group. The CbCR filing threshold is a consolidated group revenue equivalent to seven hundred and fifty million euros (€750,000,000) or more, or an equivalent amount in Pakistani Rupees, during the fiscal year immediately preceding the reporting fiscal year as reflected in the group’s consolidated financial statements for that preceding fiscal year. While the profile states that timing for preparation/submission, language and CbCR notification requirements are described in the rules, the country profile itself does not provide granular operational details (e.g., explicit deadlines for Master File or Local File submission or the required language for those documents). Therefore, No specific domestic guidance on exact preparation/submission timelines or language requirements for Master and Local Files is provided in the published country profile; the governing provisions are Section 108 Sub-Sections 3-5 and Rules 27A-27Q of Chapter-VIA.

Penalties and compliance incentives

The domestic framework establishes penalties for failure to file or late filing of documentation. Income Tax Ordinance, 2001, Section 182, Sub-Section 1A provides for imposition of a penalty of Rs.2,500 for each day of default from the due date, subject to a minimum penalty of Pakistani Rs.10,000/-. The profile indicates there are no exemptions from documentation obligations.

Administrative dispute resolution: APAs and MAP

Mechanisms to prevent or resolve transfer pricing disputes include Mutual Agreement Procedures (MAP). Pakistan currently has no Advance Pricing Agreements (APAs): the profile explicitly states “Pakistan has no APAs at the moment.” No details on APA procedures or timelines are provided because APAs are not available; MAPs are the indicated international dispute resolution route. The jurisdiction is developing a Transfer Pricing Manual to provide further administrative guidance.

Simplified approaches, safe harbours and simplification measures

There are currently no safe harbours or other statutory simplification measures for particular industries or taxpayers in Pakistan. The simplified and streamlined approach for baseline marketing and distribution activities is under consideration, but as of March 2025 there was no regulation in place. Pakistan has stated that it will respect outcomes of the application of the simplified and streamlined approach by a covered jurisdiction in line with the Inclusive Framework political commitment.

Other legislative aspects, year-end and secondary adjustments

The domestic transfer pricing framework does not provide for downward corresponding adjustments in the absence of a MAP, and there is no domestic regulation that requires or permits year-end transfer pricing adjustments; the profile clarifies that “there are no regulations available in domestic law mentioning the TP year-end adjustments in Pakistan.” The framework, per the country profile, also does not provide for secondary adjustments.

Attribution of profits to Permanent Establishments (PEs)

Pakistan’s treaties largely include Article 7 as it reads after 2010 in a number of treaties (the profile indicates nine treaties contain Article 7 in its post-2010 form). Rather than following the Authorized OECD Approach (AOA), Pakistan applies domestic rules under Income Tax Ordinance, 2001, Section 105 to attribute profits to PEs. Section 105 states that the profit of the PE shall be computed on the basis that it is a distinct and separate person engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the non-resident person of which it is a PE. Deductions are allowed for expenses incurred for the purposes of the PE’s business activities, including executive and administrative expenses incurred in Pakistan or elsewhere. However, no deduction is allowed for amounts paid or payable by the PE to its head office or to another PE of the non-resident (other than reimbursement of actual expenses incurred by the non-resident to third parties) by way of: (i) royalties, fees or other similar payments for the use of any tangible or intangible asset by the PE; (ii) compensation for any services including management services performed for the PE; or (iii) profit on debt on moneys lent to the PE, except in connection with a banking business. Similarly, no account shall be taken in determining the income of a PE of amounts charged by the PE to the head office or another PE of the non-resident person for the same categories (i-iii), except for reimbursement of actual third-party expenses. These provisions constitute Pakistan’s domestic approach to PE attribution and differ from the AOA.

Other relevant information

The country profile notes that a Transfer Pricing Manual is under development. No additional domestic rules on re-characterization, secondary adjustments, or procedural year-end mechanisms are provided in the profile.

Conclusion

Pakistan’s transfer pricing regime formally embraces the arm’s length principle and directs the tax administration to be guided by international standards and the OECD Guidelines. The country prescribes several TP methods and adopts a most-appropriate-method approach. Documentation obligations follow the three-tier Action 13 model with a €750 million consolidated revenue threshold for CbC reporting and a 12-month filing deadline for the CbCR. However, Pakistan does not fully implement OECD Guidance on comparability analysis, lacks local comparable databases, does not have APAs or statutory safe harbours, and currently does not provide for year-end or secondary adjustments. Attribution to PEs is governed by Section 105 of the Income Tax Ordinance rather than the AOA.

References

For further information and to consult the official country profile published by the OECD, see: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html

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La información presentada en este perfil se ha generado tomando como base datos y contenidos publicados por la OCDE. Si bien se busca reflejar fielmente la información disponible, no se garantiza su exactitud ni exhaustividad y se recomienda consultar las fuentes originales de la OCDE para fines oficiales o de investigación.