FBR slaps Rs992m tax evasion notice on ARY

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  • Authority claims media house ‘evaded tax through misrepresentation, concealment and misuse of exemptions’
  • ARY claims FBR’s proceedings are ‘based on whims, assumptions, and guesswork’

ISLAMABAD: The Federal Board of Revenue (FBR) served a notice on June 30, 2019, to ARY Communications Limited (ARY) with a tax demand of Rs991.9 million, alleging that the media house had “evaded the said amount through misrepresentation, concealment and misuse of exemptions”.

There has also been evidence of tampering with the documents by the ARY Communications. As per some estimates from the tax collecting authority, if the suspicions of tampering hold true, total penalties and tax demands may amount to a whopping Rs5 billion.

Pakistan Today contacted ARY Communications for comment on the tax notice, however a member of the staff denied they had received any such notice from the FBR.

“Even if there was such a notice, it never reached the ears of the staff,” said the source, requesting not to be named.

A senior official in FBR Sindh confirmed to Pakistan Today that an order was “indeed issued to ARY” but refused to divulge any further details.

“Following a detailed, weeks-long exchange with ARY Communications as well as interactions with its representatives, the media house was unable to clear its position of misrepresenting facts in its income tax returns to avoid millions in taxes,” the FBR’s claimed in its detailed findings.

During the course of investigation, FBR further found that the media house, in an attempt to escape new tax demands, also tampered with previously submitted official agreement documents. Therefore, separate prosecution and penalties might also be initiated.

ARY Communications, on the other hand, repeatedly accused the tax collecting body of conducting a fishing expedition, saying the proceedings were “based on whims, assumptions, and guesswork”.

The FBR tax demand pertains to the year 2012-13; however, the revenue board uncovered this matter when it started assessing previous tax statements. Upon discovering evidence of misrepresentation, FBR has now given the media house an amended assessment, which it has the right to do under tax laws, of approximately Rs992 million. ARY has challenged these finding in its replies to the FBR.

The FBR investigation states that an offshore related party (co-owned), ARY FZLLC, undertook transactions with the other two companies, ARY COMM and ARY Films & TV Productions, which, by virtue of Section 85 of the Income Tax Ordinance, 2001, were its associates.

The notice explains that as per the investigation, the tripartite agreement was utilised to allow the three companies to settle their receivables and payables in Pakistan on behalf of ARY FZLLC. The group tax assessment showed that the group obtained exemptions by claiming to export locally-produced content to the offshore entity in order to evade local taxes. However, the same content was subsequently bought from the same Dubai entity and then telecast in Pakistan.

According to the FBR, the amount of approximately Rs2.5 billion was shown by ARY Communications, which operates in Pakistan, and is subject to Pakistani taxes, as being an expense against non-resident, offshore company ARY Digital FZLLC, which is based in the UAE and is exempt from relevant Pakistani taxes. Hence no taxes were paid on Rs 2.5 billion because it was shown under a head, which ARY Communications claims, was exempted from relevant taxes.

FBR’s notice also includes a section on comparing the amounts mentioned by ARY Communications to a number of generic companies in the country that are also claiming the same deductions. The comparison between the amounts of those companies to the amount claimed by ARY led the FBR to allege that the “Cost of Transmission” as claimed by the media group has not been calculated at an arm’s length basis. Justification for this has also been sought from the media group by the authority.

Therefore, the FBR found the taxpayer company, “in garb of exempted payments, also remitted payments against cost of production and services, which were added under a single cost of transmission costs, without deduction of relevant tax as required under Pakistani law”.

The FBR notice states that the media house claimed incorrect exemptions, and concludes that the amount is liable to be taxed in Pakistan.

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