ISLAMABAD, Jan 22: The Securities and Exchange Commission of Pakistan (SECP) has amended the Fourth Schedule to the Companies Ordinance, 1984 requiring the listed companies to disclose their accounting policy in respect of related party transactions and transfer pricing.
The objective, an SECP source stated here on Wednesday, was to ensure that all such transactions are at arm’s length prices, determined in accordance with any of the admissible methods which have been outlined in line with the OECD transfer pricing guidelines.
The amendments in the Fourth Schedule were considered necessary in view of increasing recourse by the companies to transfer pricing for creative accounting within the corporate sector.
The SECP, while formulating these amendments, also took cognizance of international developments on the subject. Similar initiatives are being taken in other jurisdictions as well, the source pointed out.
The objective was to facilitate fairer measurement and recognition of related party transactions which engendered non-competitive practices in the past, he added.
As corollary to these amendments, the SECP has directed the three stock exchanges to amend their respective listing regulations in such a way as to require listed companies to measure transactions between related parties at arm’s length price, maintain adequate records and give necessary disclosures in this respect.
Under the SECP’s directive, no listed company would be allowed to depart from arm’s length transfer price in measuring related party transactions except in extremely rare circumstances where, subject to the approval of the Board of Directors and for reasons to be recorded in writing, it is in the interest of the company to do so.
The SECP’s directive further requires directors of listed companies to formulate a transfer pricing policy for each related party transaction. In addition, listed companies are required to maintain a statement to record the methods employed by them for determining transfer pricing in various types of related party transactions, maintain a record of all related party transactions as well as filing quarterly returns with the SECP.
Under the directive, every listed company has been asked to file, along with its annual report, a report on implementation of its transfer pricing policy wherein a detailed account of relevant information about related party transactions shall be given. Additional disclosures in the directors’ report too have been prescribed in this regard.