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It has been reported in a section of the press that the explanation added to section 80(2)(vb) of the Income Tax Ordnance in the proposed Finance Bill is meant for granting exemption from imposing any tax liability on the foreign trusts. In this regard, it is clarified that section 80 of the Income Tax Ordinance, 2001 only defines various entities as individuals, association of persons or companies. Trusts have also been included in the definition of companies in the same section which states that company also means a trust, an entity or a body of persons established or constituted by or under any law for the time being in force.
FBR was of the view that the above definition of trust also includes foreign trust since it speaks of the establishment of trusts under any law for the time being in force and is not restricted to trusts established tin Pakistan only. However, certain quarters have raised the issue that foreign trusts are not specifically included in the above mentioned definition of trust and do not fall in the ambit of person for Income Tax Law. To remove this ambiguity and for the purposes of clarity, an explanation is proposed to be added in clause (vb) of sub-section (2) of section 80 which clarifies that a trust under this clause includes a foreign trust. This clarification does not exempt any foreign trust or grant any benefit to these entities or any other person and is only for the purpose of clarity.