Can a holding company and its wholly owned subsidiaries be taxed as one group under section 59AA?

Pakistan’s Income Tax Ordinance, 2001 lets a group of companies be taxed as one fiscal unit, but only a narrow kind of group. This page reads section 59AA as amended to 30 June 2026, the procedure in rule 231D of the Income Tax Rules, 2002, and section 97, which covers asset transfers inside a wholly owned group.

What does the law say?

Section 59AA sets out six conditions and features:

Sub-section	What it says
(1)	Holding companies and subsidiaries of a 100% owned group may opt to be taxed as one fiscal unit. Income and tax payable are computed for tax purposes in addition to the consolidated group accounts required under the Companies Act, 2017.
(2)	The companies in the group give an irrevocable option.
(3)	Group taxation is restricted to companies locally incorporated under the Companies Act, 2017.
(4)	Relief is not available for losses from before the group was formed.
(5)	The group must meet the corporate governance requirements and group designation rules or regulations the Securities and Exchange Commission of Pakistan (SECP) specifies, and be designated as entitled to group taxation.
(6)	The Board may regulate group taxation through rules.

Two more provisions matter to a group that qualifies. Clause (103A) of Part I of the Second Schedule exempts income from inter-corporate dividends within companies entitled to group taxation under section 59AA, on the condition that the group’s return has been filed for the tax year. Clauses (11B) and (11C) of Part IV switch off withholding on those inter-corporate dividends and on inter-corporate profit on debt, on the condition that the group’s return has been filed for the latest completed tax year.

How does it work in practice?

Rule 231D of the Income Tax Rules sets out the procedure:

• Who counts as 100% owned. Under rule 231D(1), a subsidiary qualifies where the holding company owns all its equity shares, except shares held by nominees to meet company law requirements.
• Application. Under rule 231D(2), the holding company and each subsidiary each make a separate application, with a declaration of irrevocable option, to the relevant Commissioner. They use the form in the Schedule to the rule and apply within the first quarter of the tax year for which they are opting.
• SECP certificate. Rule 231D(4) requires each company to provide an SECP certificate confirming it has complied with the Code of Corporate Governance.
• One return. Under rule 231D(5), the group return is prepared under the holding company’s name. Tax is paid, or refund claimed, as if the subsidiaries’ business were the holding company’s business. Audited accounts of every group company are attached.
• Subsidiaries still file. Rule 231D(6) requires each subsidiary to file its own return with a copy of the application, stating that the income returned is not taxable.
• Withholding continues separately. Rule 231D(9) applies the Ordinance’s withholding provisions to each subsidiary, and each company files its own withholding statements.
• Same accounting period and arm’s length. Rule 231D(11) requires the same accounting period for all companies. Rule 231D(12) requires transactions inside the group and with associates to be carried out and recorded at arm’s length.

Worked example (illustrative figures)

Ravi Holdings Limited, Lahore, owns all the shares of two companies, Chenab Foods Limited and Jhelum Packaging Limited. All three are incorporated in Pakistan, have the same year end and have been designated by SECP. They opt for group taxation from tax year 2027.

For tax year 2027, the three companies’ results under the head “Income from Business” are:

Company	Result
Ravi Holdings Limited	Profit Rs. 300,000,000
Chenab Foods Limited	Profit Rs. 50,000,000
Jhelum Packaging Limited	Loss Rs. 80,000,000

Because rule 231D(5) treats the subsidiaries’ business as the holding company’s, the group’s result is computed as one: 300,000,000 + 50,000,000 minus 80,000,000 = Rs. 270,000,000.

Jhelum Packaging also has an assessed loss of Rs. 40,000,000 from tax year 2025, before the option. Section 59AA(4) and rule 231D(5) exclude it from the group computation, so the group figure stays at Rs. 270,000,000.

During the year, Ravi Holdings transfers a packing machine to Jhelum Packaging for Rs. 20,000,000. Its written down value just before the transfer is Rs. 12,000,000. If the section 97 conditions are met, no gain arises to Ravi Holdings, and under section 97(2)(b)(i) Jhelum Packaging’s cost for tax purposes is Rs. 12,000,000, not Rs. 20,000,000.

What if the transfer is between group companies that are not taxed as one unit?

Section 97 does not depend on section 59AA. It applies where a resident company disposes of an asset to another resident company and all four conditions in section 97(1) hold:

1. both companies belong to a wholly owned group of resident companies at the time of disposal;
2. the transferee undertakes to discharge any liability in respect of the asset;
3. any such liability does not exceed the transferor’s cost of the asset; and
4. the transferee is not exempt from tax for that tax year.

Section 97(4) defines a wholly owned group: one company beneficially holds all the issued shares of the other, or a third company beneficially holds all the issued shares of both. Section 97(2) then carries the asset across at its tax value: written down value for a depreciable asset or amortised intangible, the tax value for stock-in-trade, and the transferor’s cost in other cases. The asset keeps the character it had in the transferor’s hands, and depreciation or amortisation deductions for the asset that the transferor has not yet set off pass to the transferee.

Common mistakes

• Assuming majority ownership is enough. Section 59AA requires a 100% owned group. Groups with lower holdings fall under the separate group relief rules, covered on the linked group relief page.
• Including a foreign subsidiary. Section 59AA(3) limits group taxation to companies locally incorporated under the Companies Act, 2017.
• Carrying in pre-group losses. Section 59AA(4) excludes them.
• Treating the option as a yearly choice. Section 59AA(2) makes it irrevocable.
• Stopping withholding statements for subsidiaries. Rule 231D(9) requires each company to file its own.

What to check in the official text

Read section 59AA and rule 231D together. Rule 231D is taken from the Income Tax Rules as amended to 24 November 2023, and it still refers to the Companies Ordinance, 1984, while section 59AA now refers to the Companies Act, 2017. Section 59AA(5) depends on SECP’s corporate governance requirements and group designation rules or regulations, which are not in this corpus. Confirm the current SECP requirements and any later amendment to rule 231D before relying on this procedure. Also read clause (103A) of Part I and clauses (11B) and (11C) of Part IV of the Second Schedule for the filing condition each one attaches.