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Global
PARIS: Google is not liable for 1.115 billion euros ($1.272 billion) in unpaid taxes claimed by the French state, a French court ruled Wednesday, saying the internet giant’s Irish subsidiary is not taxable in France. 

“The French company Google Ireland Limited (GIL) is not taxable in France for the 2005 to 2010 period,” the court ruled. 

Google paid just 6.7 million euros in corporate taxes in 2015 in France by booking revenues for its online empire at its European subsidiary in low-tax Ireland, a legal loophole prized by multinationals. 

The group employs 700 people in France but advertising contracts for its search engine or video-sharing website YouTube are signed with its Irish subsidiary. 

The French claim was the latest in a series against the California-based group, which faces mounting legal problems in the EU.

European action has become increasingly aggressive against US technology giants Amazon, Facebook and Apple as well as Google. 
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Taxation
Directorate General of Customs Intelligence has seized goods valuing Rs 8.1 billion during 2016-17 and detected evasion of duty/taxes of Rs 6.3 billion, taking the total to Rs 14.4 billion in 2016-17 against Rs 6.4 billion during 2015-16, registering an increase of 123 percent.

Sources told Business Recorder here on Wednesday that the performance of the Directorate General for the financial year 2016-17 has surpassed all previous records of achievement in a single financial year. Goods valuing Rs 8,111 million were seized during 2016-17, besides detection of evasion of duty/taxes to the tune of Rs 6,363 million taking the total to Rs 14,474 million as compared to that of Rs 6,477 million achieved during 2015-16, registering an increase of Rs 7,997 million or 123%. Similarly, the amount (other than the ones pointed out above) deposited into the treasury by the delinquent tax payers as a consequence of intervention / detection of the Directorate General rose to Rs 280 million as against the recovery of just Rs 18 million on this front during the previous financial year, indicating an improvement of Rs 262 million.

Break-up of data revealed that the value of the seized goods was Rs 8,111 million in 2016-17 against Rs 5,602 million in 2015-16, reflecting an increase of 45 percent. The evasion of duties and taxes detected of Rs 6,363 million against Rs 875 million (627 percent increase) and other recoveries amounted to Rs 280 million in 2016-17 against Rs 875 million.

Known, as well as lesser known, routes of smuggling were choked all over the country and unprecedented cases of seizure of smuggled goods were affected during the year. Similarly, huge quantities of goods smuggled into the country under the garb of import were seized at various customs stations and cases of evasion of duty/taxes to the tune of billions of rupees in relation to imported goods were detected.

Brief details of some of the mega anti-smuggling and anti-evasion cases detected during the period revealed a racket involved in importing (unlawfully) kerosene oil by way of mis-declaring it white spirit (in connivance with HEJ lab and customs staff) and supplying the same to petrol pumps for mixing it (obviously illegally) with diesel and petrol. HDIP confirmed it to be kerosene oil. As much as, 10,000 MTs of kerosene oil, valuing Rs 479 million, imported under the guise of white spirit, was seized. Value of the previously cleared kerosene oil is Rs 1700 million. FIRs against six unscrupulous importers were lodged. Investigation is in progress. The value of seized goods/evaded amount detected is Rs 2,179 million.

Another mega case involving Rs 700 million revealed that six Lahore-based importers (fake addresses) were discovered to be importing (actually smuggling) banned Indian origin Greig/Grey cloth by mis-declaring its origin as China. The offence was established through overseas investigations. The importers-cum-smugglers failed to establish either money trail (that is, transfer of money to the purported/claimed Chinese manufacturers/suppliers) or shipment trail (that is, shipment of claimed consignments from China to Pakistan). Actually, the banned cloth was transported to Dubai from India in the first place and then shipped to Lahore via Karachi. As much as 58.5 million meters of banned Indian origin Greig/ Grey cloth valuing Rs 700 million was found to have been smuggled into Pakistan in connivance with officers/officials of customs, playing havoc with, and forcing virtual closure of, grey-cloth manufacturing industry (looms) of Faisalabad. The FIRs were lodged against all concerned. Investigation is in progress.

Alarming extent of under invoicing in import of surveying equipment by trading company of Lahore was detected. Actual export documents from the supplier in Hong Kong were obtained. An amount of Rs 100 million was found to have been evaded in duty/ taxes, on the goods valuing Rs 307 million. An FIR was lodged and court proceedings are under way.

Huge under-invoicing was detected on the import of poultry vaccines and medicines resulting in evasion of duty/taxes to the tune of Rs 160 million by M/s Marush International, Lahore. Value of the seized goods was Rs 541 million. An FIR was lodged against the offending importer and investigations are under way.

Another mega case revealed that a Lahore-based importer had imported water purification filters from USA on grossly under-invoiced value and cleared from Karachi Customs. Evasion of duty/taxes of Rs 139 million was established with the help of original export documents obtained from US customs. Office of the fraudulent importer, in Lahore, was also raided by Customs Intelligence and corroborative evidence was recovered. An FIR was lodged, arrests were made and court proceedings are in progress.

Sources said that a car company of Lahore was discovered to have suppressed import value of components and subcomponents imported by them, by way of not including the royalty fee in the import value. The case is under adjudication with Customs Appellate Tribunal, Lahore, and the amount of duty/taxes evaded works out to Rs 2478 million.

Huge scam of importing and clearing high-end consumer goods like cloth and cosmetics as iron & steel scrap through Port Qasim Collectorate, with active connivance of Customs hierarchy posted there, was detected. Four containers cleared by Port Qasim Customs were seized by Customs Intelligence. Cloth (3 containers), Cosmetics & Auto Parts (1 container) were seized. An FIR against all concerned including 4 customs officers was lodged and court proceedings are under way. Previously, the same racket had cleared 120 containers from West Wharf, Karachi and Port Qasim, Karachi. The UAE Customs have been approached for obtaining details of the goods exported from UAE through 120 containers (previously cleared from Port Qasim as iron & steel scrap). Sensational revelations are expected once response from UAE Customs is received. The Directorate General is following the issue vigorously.

According to sources, tax fraud amounting to Rs 1612 million was detected against a telecom company of Rawalpindi by Customs Intelligence on account of misclassification of imported goods and gross under invoicing thereof. The case is under adjudication with the Collector of Customs (Adjudication), Islamabad.

Even more significant, and of historical proportions, achievement of the Directorate General was initiation of proceedings under the Anti-Money Laundering Act, 2010 against quite a few importers who were detected to have sent huge sums of money abroad through illegal channels of transmission. An amount exceeding US $ 30 million is under investigation and assistance from a number of countries has been sought, as well as obtained. It is a matter of great pride for the Directorate General that it has outperformed, by a long distance, all other agencies notified under the AML Act, 2010 which are FIA, NAB, SBP and I&I-IR.

In addition to the performance quantified above, the Directorate General contributed significantly towards revenue collection efforts of Model Customs Collectorates (MCCs) throughout the country. The deterrence generated by the strong, unflinching and sustained anti-smuggling and anti-evasion drive of the Directorate General not only resulted in routing of the smuggling prone goods to channels of legal import but also plugged avenues of evasion in the import regime to a great extent which contributed significantly towards achievement of the revenue target assigned to the Customs Wing of FBR. The above-referred invisible and indirect performance of the Directorate General needs to be considered as important as its visible and quantifiable performance.

It may, however, be worthwhile to place on record that bulk of the above-stated performance took place during the period from October, 2016 to June, 2017: the anti-smuggling and anti-evasion performance of the Directorate General during the period July-September, 2016 was just Rs 826 million and Rs 82 million respectively, indicating a decrease of 45% and 37% respectively compared to the performance of the corresponding period of the previous financial year.

The Directorate General is in the process of evolving even more effective strategy to further enhance its performance in all spheres of its mandate during 2017-18.
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Business, Taxation
The tax department on the intervention of Lahore High Court has accepted the contention of the taxpayer that the grace period of 30 days for payment of tax provided in the demand notice cannot be curtailed.

The background facts are that in the case of Mukhtar Feeds, Faisalabad, a demand notice under section 137(2) was served on 20.06.2017 requiring payment within 7 days of the receipt of demand notice. On curtailment of period of 30 days provided in the statute, the taxpayer filed a writ petition before the Lahore High Court challenging the curtailment for which there was no enabling power with any authority. During the hearing, the attending counsel urged that the period has been curtailed by the assessing officer at the behest of the commissioner to attach the bank accounts of the petitioner for recovery. On that, the court ordered that no coercive recovery measures would be adopted and directed the chief commissioner regional tax office Faisalabad to decide through a speaking order whether the period can be curtailed and till such speaking order the recovery proceedings would remain stayed.

Shahid Jami, counsel of the petitioner appeared before the chief commissioner and referred to the provision of section 137(2) wherein there is a fixed period of 30 days with no power to curtail the same as evident from the below text: “(2) Where any tax is payable under an assessment order or an amended assessment order or any other order issued by the commissioner under this Ordinance, a notice shall be served upon the taxpayer in the prescribed form specifying the amount payable and thereupon the sum so specified shall be paid within 30 days from the date of service of notice.”

The counsel further apprised the chief commissioner that the statutory period was curtailed by the assessing officer on the illegal direction of the commissioner (withholding) who has become personal with the taxpayer as evidenced by audio recording. On that the chief commissioner has passed an order and has directed the commissioner (withholding) to amend the period of seven days mentioned in the demand notice to 30 days and no recovery measure in the meanwhile.
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Business, Taxation
Directorate General of Intelligence and Investigation Inland Revenue has seized 79.15 million sticks of non-duty paid cigarettes during the tax year ended on June 30, 2017, reflecting a remarkable performance against illicit trade. Sources told Businesses Recorder here on Wednesday that matter of growth in illicit trade of local branded cigarettes and consequent loss of government revenue was always taken seriously by the FBR.

After taking over the charge of Director General I&I-IR in early 2016, Khawaja Tanveer Ahmed initiated a countrywide campaign against the curse of illicit trade of cigarettes.

According to sources, the Directorate General has shown remarkable performance in this sector during tax year 2017 ended on June 30 last. Out of seven directorates in the country, Faisalabad Directorate is leading from the front by seizing 310,420,000 sticks of illicit cigarettes of local brands by taking actions under relevant provisions and rules of Federal Excise Act, 2005 and Sales Tax Act, 1990 against 26 culprits. Amount of revenue involved is Rs 80.258 million; however Rs 3.06 million were recovered. Lahore Directorate was equally good by seizing more than 28,353,000 sticks of illicit cigarettes of local brands, where revenue of Rs 22.31 million was involved. Hyderabad Directorate seized 9,680,000 sticks of illicit cigarettes of local brands involving total revenue of Rs 20.68 million and recovered Rs 1.74 million. Multan Directorate seized more than 4,596,000 sticks of illicit cigarettes of local brands involving total revenue of Rs 12.28 million. The Peshawar Directorate contributed in the campaign by seizing 3,048,000 cigarette sticks that involved Rs 7.44 million of tax revenue, whereas Karachi Directorate seized 2,056,800 sticks of illicit cigarettes involving tax revenue of Rs 7.18 million. In aggregate, the Directorate General of I&I-IR has seized 79,056,200 sticks of illicit cigarettes of local brands that involved tax revenue of Rs 127.83 million of tax revenue during its campaign in tobacco sector during tax year 2017. A few of culprits paid out the tax involved ie Rs 4.8 million. Remaining cases are under adjudication at different RTOs. Despite remarkable performance of the directorate general, there is still a lot of work to do in this regard. However, it is expected that the directorate general will exceed the standards set by it during the tax year 2017-18.
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Global
Secretary Commerce Younus Dagha said on Wednesday that special efforts are required to actualize trade and investment potential of SAARC. Talking to a delegation of SAARC CCI led by its President Suraj Vaidya, he said that SAARC member countries must focus on removal of non-tariff barriers (NTBs) and work for enhancing B2B interaction to boost trade, says a press release issued here.

He expressed pleasure that establishment of SAARC CCI has provided a platform to the business communities of region for coming together and discussing the prospects of doing business together. He highlighted that although SAARC region holds immense trade and investment potential, being home to 21% of world’s population, yet it still remains one of the least integrated regional blocs with intra-regional trade constituting only 5% of the total world trade, in comparison to 51% for NAFTA and 25% for ASEAN.

The secretary commerce also mentioned that SAFTA has fallen short of expectations due to complex safeguard measures and non-tariff barriers (NTBs) among SAARC member countries. Younus Dagha stressed that special focus and effort are required for regional integration and removal of NTBs to boost regional trade and actualize the immense trade and investment potential present between the SAARC member states.

The secretary commerce commended the efforts of the SAARC CCI for arranging activities like SAARC Business Conclave and an exhibition on the sidelines of every SAARC Summit. “These activities are good for bringing business community together and promoting regional trade,” added Younus Dagha.

President SAARC CCI, Suraj Vaidya updated secretary commerce on the progress made on the permanent headquarters building project at Islamabad and expressed gratitude for releasing of funds for the building. He said that it will help in strengthening the capacity-building of the institution and state-of-art building of SAARC-CCI headquarters in Pakistan

Dagha assured the delegation that Ministry of Commerce will provide full support to the SAARC CCI in achieving its objectives and hoped that SAARC CCI will continue to create business-friendly environment that helps businesses succeed.-PR
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Taxation
The Lahore High Court (LHC) has set aside SRO 116 of the Federal Board of Revenue (FBR) relating to the powers and functions of Directorate General Intelligence and Investigation, Inland Revenue under Sales Tax Act 1990 and declared the SRO 116 as illegal.

According to a judgement of LHC in writ petition No. 37358 of 2016, SRO 116 is hereby set aside as being ultra vires the powers of the FBR and is declared without lawful authority and is of no legal effect. The FIRs registered and the criminal prosecution set in motion in pursuance of SRO 116 are also set aside and quashed.

The LHC judgment added that the federal government is directed to frame rules with regard to the transfer and postings under the Federal Board of Revenue Act, 2007 (Act, 2007) of officers and employees of the FBR. The FBR is directed to frame rules with regard to the Directorates and their functioning. In particular, the FBR will enact rules for structuring the powers given in section 37A which is couched in a broad language and confers wide powers on officers of Inland Revenue.

The FBR and its officers are directed to comply with the judgment in Taj International until it is set aside by the Supreme Court of Pakistan, the LHC judgment added. Under SRO 116, the Federal Board of Revenue has appointed the officers of the Directorate General Intelligence and Investigation, Inland Revenue, to be the officers of Inland Revenue and exercise such powers and perform functions of officers of Inland Revenue as mentioned in Sales Tax Act.

In its judgment, LHC said that the judgment shall also decide connected constitutional petitions No. 29474 of 2015, WP No. 28698 of 2015, WP No. 16866 of 2015, WP No. 30331 of 2017 and WP No. 21988 of 2017. These petitions are woven into a unified fabric by the challenge in these petitions to SRO 116(I)/2015 issued by the Federal Board of Revenue (FBR) on 9.2.2015 (SRO 116) in exercise of the powers conferred by sections 30, 30A and 30E of the Sales Tax Act, 1990 (“the Act, 1990”). It is the case of the counsels for the petitioners that SRO 116 is out with the authority of FBR and must be struck down. As a consequence, the prayer is for the proceedings set in motion on the basis of SRO 116 to be quashed as being without lawful authority and of no legal effect.

The challenge to SRO 116 has its genesis in two separate but related arguments:

Firstly, whether the provisions of section 30 read with section 30A of the Sales Tax Act, 1990 (Act, 1990) require the setting up and formation of a Directorate General (Intelligence & Investigation) [Inland Revenue] (DG I&I)IR prior to the declaration of those officers as officers of Inland Revenue and the conferment of powers under the Act, 1990 in terms of section 30E. Secondly, whether the powers conferred on the officers of DG I&I under SRO 116 can validly be conferred as such powers are beyond the remit of the authority of officers appointed to D.G (I&I) IR?

To sum up, the Board has sufficient powers under the Act, 2007 to appoint, by posting or transfer, officers of DG (I&I) and upon such appointment these officers shall perform functions which are peculiar to that Directorate. The powers and functions shall be specified by the Board through a notification issued under Section 30E of the Act, 1990 and those powers and functions will have a close nexus with the purpose which DG (I&I) is designed to achieve. By appointment, once again, as officers of Inland Revenue (as has been done through SRO 116), the officers so appointed shall be deemed to have been transferred and thereby ceases to function as officers of DG (I&I). Appointment made under Section 30 is independent of an appointment made under Section 30A and must remain so. But the fundamental principle is that officers should be posted to the Directorates independently with separate and distinct functions. The SRO 116 fails to meet these foundational requirements and is thus held to be without lawful authority and of no legal effect.

In WP No. 21988 of 2017, WP No. 30331 of 2017, WP No. 29474 of 2015, WP No. 28698 of 2015 and WP No. 37358 of 2016, the registration of the first information report (FIR) has also been challenged. The primary reliance of the challenge to the registration of an FIR and the initiation of criminal prosecution under the provisions of the Act, 1990 is on the basis of a judgment of a division bench of this court. In a nub, the division bench held that the registration of a criminal case was to be preceded by the determination of the tax liability as a civil liability and the amount of tax due ought to be fixed against a person so as to grant jurisdiction in the hands of the officer of Inland Revenue or any other officer authorized by law to set in motion proceedings of a criminal nature.

It has been vehemently stated at the bar, by almost all the petitioners that the department forcibly hauls up taxpayers under the threat of arrest and criminal prosecution and releases them after extraction of money (shown as the amount of tax due under section 37A). In the absence of tax assessment under section 11 of the Act and without knowing the “amount or loss of tax involved,” neither compoundability is possible nor the award of sentence against the tax payer. Hence the process of hauling up taxpayers and effecting recovery of self-determined amount of sales tax by the officer of the Inland Revenue is brutally unconstitutional”.

As a conclusion, we once again reiterate that civil and criminal proceedings can run independently and simultaneously or otherwise. The purpose and objective of criminalizing tax fraud and tax evasion is retribution and deterrence which is achieved through punishment or fine or both. If the law, however, goes further and criminalises recovery of tax in addition to retribution and deterrence, then tax assessment has to take place first under the provisions of the Act. In this background the term “shall be further liable” re-appearing several times in section 33 of the Act holds a chronological significance, ie, that criminal prosecution follows adjudication and assessment of tax under section 11 of the Act.

Even if the criminal prosecution under the present scheme of the Act is initiated after assessment of tax under section 11 as discussed above, the constitutionality of hurriedly invoking section 37A on the basis of material evidence requires consideration. Material evidence must be credible and definite if it is to deprive a citizen of his constitutional protection and safeguards under Articles 4 (due process), 9 (human liberty), 10A (fair trial) and 14 (human dignity). Setting in motion of the criminal prosecution cannot be left in the hands of any officer of the Inland Revenue, especially when the said officers are under an obligation to recover the tax and meet tax targets before the close of the financial year set by the FBR. The process of initiation of criminal prosecution must comply with the requirement of due process and fair trial. The material evidence collected under section 37A needs to be credible and can best pass the test of fair trial and due process if it is an outcome of an inquiry or investigation envisaged under the proviso to section 25(2) of the Act. The outcome of any such inquiry and investigation must be placed before an independent forum like the Directorate General (Intelligence and Investigation), Inland Revenue established under section 30A of the Act to first review the inquiry and investigation and the material evidence and then proceed under the law. Anything short of this process will not only lead to persecution of the tax payers, it will also make a mockery of the fundamental right of fair trial.

The LHC held that that the pre-trial steps including arrest and detention cannot be given effect to unless the tax liability of the taxpayer is determined in accordance with section 11 of the Act.
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