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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;
(c) recharacterise a transaction where the form of the transaction does not reflect the substance ;
(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 ; 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.
(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.
(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;
(c) recharacterise a transaction where the form of the transaction does not reflect the substance ;
(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 ; 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.
(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.
Amendment history (5)
- The word “or” omitted by the finance Act 2022.
- Full stop substituted with a semicolon by the finance Act 2022.
- Inserted by the finance Act 2018
- Full stop substituted and a new clause (e) added by the Finance Act 2022.
- Added by the finance Act 2018
Amendment notes captured from the source page(s); they may include changes to neighbouring provisions.
Source FBR PDF page 208
Unofficial reference, compiled from the FBR’s consolidated Income Tax Ordinance 2001 (amended up to 30 June 2026). Provided for general information only — not an official FBR publication and not legal or tax advice. Always verify against the official FBR text before relying on it for filing or any decision.