By Muhammad Sarfraz Arshad
As Pakistan becomes increasingly integrated into the global economy, the way companies price transactions between their local and foreign subsidiaries has come under intense scrutiny. This pricing, known as transfer pricing, lies at the heart of international tax regulation — and has become a critical area for legal compliance, tax enforcement, and corporate governance.
Over the years, multinational enterprises (MNEs) have used transfer pricing not only as a business mechanism but, at times, as a tax planning tool — shifting profits from high-tax jurisdictions to lower ones through manipulated intercompany pricing. To counter this, Pakistan has gradually developed its transfer pricing regime to align with global standards, notably those set by the Organisation for Economic Co-operation and Development (OECD) and enforced under the Financial Action Task Force (FATF) guidelines.
The legal foundation of transfer pricing in Pakistan rests primarily in Section 108 of the Income Tax Ordinance, 2001, which req