Supreme Court has declined an appeal by M/s Payoneer Inc., an international payment processing company, challenging the Federal Board of Revenue’s (FBR) authority to demand income tax returns from it. The ruling allows the FBR to proceed with its inquiry into Payoneer’s potential tax obligations in Pakistan.
FBR Notice Sparks Legal Battle
The case centered on a show-cause notice issued by the FBR to Payoneer on April 7, 2021. Citing Section 114(1) of the Income Tax Ordinance, 2001 (ITO), the FBR required Payoneer to file income tax returns for the tax years 2019 and 2020. The notice warned that failure to comply could lead to the tax authority making a “best judgment assessment” of the company’s income under Section 121(1) of the same law.
Payoneer Denies Taxable Presence in Pakistan
Payoneer, which operates as a non-resident entity, facilitates cross-border payments, including transfers from international clients to Pakistani sellers and freelance consultants via an arrangement with Mobilink Microfinance Bank Limited (MMBL). The company contested the FBR’s notice, arguing it merely provided a payment gateway and did not have a physical or digital presence in Pakistan that would make it liable for local income tax.
Initial High Court Challenge Unsuccessful
Payoneer initially took its case to the Islamabad High Court (IHC). However, the IHC, under Justice Babar Sattar, dismissed Payoneer’s petition on June 20, 2024, siding against the company’s challenge to the FBR’s notice.
FBR Defends Position in Top Court
Representing the FBR before the Supreme Court, Chaudhry Imtiaz Ahmed argued that the High Court’s decision was correct. He pointed out that the FBR had only issued a show-cause notice, not a final assessment, and therefore Payoneer had not yet suffered any concrete harm or prejudice. Ahmed emphasized that Payoneer, having been registered by the FBR (ID A007380) in March 2021, had a statutory obligation under Section 114 of the ITO to file tax returns. He also suggested there were unresolved factual matters concerning the company’s financial arrangements with MMBL.
Top Court Affirms FBR’s Procedural Right
The Supreme Court’s three-judge bench, led by Chief Justice Yahya Afridi, agreed with the lower court and dismissed Payoneer’s appeal. The Chief Justice noted that Payoneer has the avenue to present its arguments and evidence directly to the FBR in response to the show-cause notice. Should the tax authorities eventually issue an order that Payoneer finds objectionable, the company can then pursue challenges through the specific appeal forums established under the Income Tax Ordinance.
Ruling Clears Way for FBR Inquiry
This ruling effectively clears the path for the FBR to continue its proceedings regarding Payoneer’s tax status for the years in question. Payoneer is now expected to respond to the FBR’s initial demand.
