Section 109: Recharacterisation of income and deductions

109. Recharacterisation of income and deductions. — (1) For the purposes of determining liability to tax under this Ordinance, the Commissioner may – (a) recharacterise a transaction or an element of a transaction that was entered into as part of a tax avoidance scheme; (b) disregard a transaction that does not have substantial economic effect; 1[ ] (c) recharacterise a transaction where the form of the transaction does not reflect the substance2[;] 3[(d) from tax year 2018 and onwards, disregard an entity or a corporate structure that does not have an economic or commercial substance or was created as part of the tax avoidance scheme] 4[; or (e) from tax year 2018 and onwards, treat a place of business in Pakistan as a permanent establishment, if the said place fulfills the conditions as specified in sub-clause (g) of clause (41) of section 2.] (2) In this section, “tax avoidance scheme” means any transaction where one of the main purposes of a person in entering into the transaction is the avoidance or reduction of any person’s liability to tax under this Ordinance. 5[(3) Reduction in a person's liability to tax as referred to in sub-section (2) means a reduction, avoidance or deferral of tax or increase in a refund of tax and includes a reduction, avoidance or deferral of tax that would have been payable under this Ordinance, but are not payable due to a tax treaty for the avoidance of double taxation as referred to in section 107.]

Effective date: 2001-09-13

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