- Islamabad High Court upholds FBR’s authority in assessing tax liabilities on high-value intra-group transactions, specifically involving the transfer of a telecom operator’s tower assets
The Islamabad High Court (IHC) has ruled in favor of the Federal Board of Revenue (FBR), affirming its authority in assessing tax liabilities on high-value intra-group transactions, specifically involving the transfer of a telecom operator’s tower assets.
According to media reports, the ruling, delivered by a bench headed by Justice Babar Sattar, means that the telecom operator will now be required to pay taxes amounting to Rs22 billion ($78 million) on the gain derived from the transaction.
The case revolves around an internal asset reorganisation in 2018, when the telecom operator transferred its nationwide tower infrastructure to its wholly-owned subsidiary. The transaction was valued at Rs98.5 billion ($940 million), with the telecom operator recording an accounting gain of approximately Rs75.9 billion.
However, the telecom operator argued that the transaction was exempt from tax under section 97(1) of the Income Tax Ordinance 2001 (ITO), which pertains to intra-group transfers, as it involved the sale of assets to a subsidiary.
The court rejected this argument, stating that section 97 of the ITO allows tax neutrality only if certain conditions are met, including that the written-down value of the asset remains unchanged in the hands of the transferee. Since the transfer occurred at a fair market value of $940 million, which the telecom operator accepted as consideration, the court ruled that this violated the provisions of the ITO.
Consequently, the court concluded that the gain from this transaction constituted a taxable event.
Moreover, the IHC affirmed that the commissioner had the authority to consider accounting income when evaluating taxable income.
The ruling represents a victory for the FBR and highlights its strengthened position in assessing and collecting taxes on complex corporate transactions.
FBR Chairman Rashid Mehmood Langrial and his team, including Mir Badshah Khan Wazir and Dr. Ishtiaq Ahmed Khan, played a key role in the legal efforts, successfully representing the FBR before the court.
In a separate matter, the court also dismissed another petition from the telecom operator regarding a show-cause notice issued under the Federal Excise Act, 2005, and imposed a fine of Rs100,000 to be paid to the Deputy Commissioner-IR, LTO, Islamabad.
This ruling underscores the FBR’s increasing efforts to tackle tax avoidance and enforce compliance in large-scale corporate transactions, contributing to Pakistan’s overall tax revenue efforts.
