Taxmen mishandled Swiss treaty talks in 2014

Pakistani team made commitments beyond its mandate, forcing a pullout

ISLAMABAD:

Pakistan’s hopes to seek information from Switzerland about the presumed $200 billion stashed in Swiss banks have apparently been ruined by tax authorities who mishandled delicate negotiations for amending a convention on avoidance of double taxation.

A Pakistani delegation that visited Switzerland in August 2014 to renegotiate the 2005 treaty gave commitments beyond its mandate, forcing the government to abandon the negotiation process in the middle, sources in the Federal Board of Revenue told The Express Tribune on Friday.



Mohammad Ashfaq Ahmed, the then chief of FBR’s international tax department, had signed the revised agreement after the conclusion of three-day talks held in Geneva in August 2014 to amend the July 2005 Convention for Avoidance of Double Taxation with respect to tax on income.

His mandate was to negotiate only inclusion of a clause that deals with exchange of information, said the sources. He overstepped the mandate and agreed to halve income tax rate on fees for technical services and dividends being charged from Swiss companies operating in Pakistan, said the sources.

During the 2014 talks, Pakistan and Switzerland had agreed to formally sign the revised treaty in the first quarter of 2015. However, instead of further proceeding, FBR wrote to Swiss authorities that Islamabad wanted to renegotiate the agreement, they added.

The sources said FBR afterwards put the matter under the carpet instead of actively pursuing the Swiss authorities. They said the Swiss government also gave a cold shoulder, apparently because of mishandling of the issue by Pakistani authorities.



“Implementing the agreement signed by the Pakistani delegation would carry immense implications for the country,” said an FBR official who handled the post-negotiation process in 2014. He said this would have provided huge unilateral tax relief to dozens of Swiss companies working in Pakistan. The other countries would also demand similar treatment, he added.

Pakistan currently charges 10% of the gross amount in fees for technical services from Swiss companies. It is also charging 10% tax of the gross amount of the dividends from a company having certain amount of foreign capital and 20% of the gross amount of the dividends in all other cases.

From July through November this year, Swiss companies working in Pakistan repatriated $9.8 million as compared to $86.9 million in the comparative period of the last year, according to the State Bank of Pakistan.

Ashfaq is currently serving as commissioner of Regional Tax Office (RTO) Islamabad and was not available for comments.



The FBR management of the time did not initiate any disciplinary action against its official, terming his act as “a bona fide mistake and error of judgment.” FBR officials were reluctant to speak on the record due to political sensitivities attached to the issue.

After coming into power in June 2013, the PML-N government had announced that it would bring back $200 billion said to have been stashed in Swiss banks. Pakistan Tehreek-e-Insaf has been constantly reminding the government about its promise.

“The government is using delaying tactics as two and half years is more than sufficient time to show some tangible results,” said MNA Asad Umar, PTI’s financial wizard.

FBR officials admitted that there was no push from the political leadership to expedite the matter and effectively the issue has been put at the backburner.

Although, Pakistan claims that its citizens have stashed $200 billion in Swiss banks, Switzerland’s Ambassador to Pakistan and Afghanistan Marc George has already dismissed any such perception.

The August 2014 talks had raised hopes that Pakistan may at least get information about the money parked by Pakistanis in Swiss Banks. Islamabad wanted to include the updated Article 26 of the Model Tax Convention of the Organisation for Economic Cooperation and Development (OECD) in the bilateral avoidance of double taxation treaty. It binds the contracting countries to exchange information.

Published in The Express Tribune, January 9^th, 2016.