Pakistan and Switzerland have pencilled a revised Avoidance of Double Taxation treaty that will allow Islamabad to seek information for tax purposes about money deposited in Swiss banks.
The documents were inked at the conclusion of three-day talks held in Geneva last week to renegotiate the July 2005 Convention for Avoidance of Double Taxation with respect to tax on income, according to Pakistani authorities.
The amended treaty would be formally signed in the first quarter of next year and it would take at least one more year to enforce it, they added. On behalf of Pakistan, Ashfaq Ahmed, Chief International Taxes of the Federal Board of Revenue (FBR), signed the agreement.
The major difference between the July 2005 treaty and the revised one is the adoption of updated Article 26 of the Model Tax Convention of the Organisation for Economic Cooperation and Development (OECD).
According to the Article 26, competent authorities of contracting states will exchange such information as is foreseeably relevant for applying provisions of the Model Tax Convention or to the administration or enforcement of domestic laws concerning taxes of every kind and description imposed on behalf of the contracting states.
Furthermore, in no case shall the provisions permit a contracting state to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person.
Article 26 will allow Pakistani authorities to seek information from Swiss banks. So far, Pakistan has no legal instrument available to ask Swiss banks to provide information about tax evasion.
“The Swiss government has no issue about signing Article 26 as before seeking any information the other country has to lodge a formal complaint and give evidences,” said Dr Ikramul Haq, an expert in international tax laws.
Although the revised treaty will provide the FBR with a legal instrument, its successful application will depend on the revenue body’s ability to present its case to the Swiss authorities, say tax experts.
Pakistan has similar clauses in domestic tax laws but the FBR has been unable to successfully apply these for the recovery of taxes. Article 165A and 176 of the Income Tax Ordinance 2001 allow the FBR online access to bank accounts besides seeking a range of information.
Under Article 165A, banks are bound to give online access to its central database containing information about all accountholders. However, the present government has reduced the scope of the article by inserting a clause that if a person files income tax return, banks will not be bound to provide information about his accounts.
Even if the person declares no income in the tax return, the bank is not legally bound to share his accounts’ information, according to Haq.
The federal government, particularly Finance Minister Ishaq Dar, has given an impression that the revised treaty will allow the country to bring back $200 billion said to have been stashed in Swiss banks. However, Switzerland Ambassador to Pakistan and Afghanistan Marc George has dismissed any such perception.
The Avoidance of Double Taxation treaty will not facilitate the recovery of any ill-gotten money presumably kept in Swiss banks. For that purpose, there is a separate treaty on sharing of confiscated assets signed on May 18, 2005.
The ambassador also denied that the Pakistanis had parked $200 billion in Swiss banks.
Published in The Express Tribune, September 9th, 2014.
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The treaty which has been revised is of July 2005 pertaining to " Avoidance of double taxation treaty " article 26, while the more important treaty is of May 18, 2005 pertaining to sharing of confiscated assets...both treaty could have been simultaneously taken up & signed but it need serious will to implement the clauses. This will be another eye-wash because as per article 26, the applicant`s ( in this case FBR Pakistan ) ability to lodge complaint with evidence & present its case against tax evasion by contracting state ( Pakistan ). We have similar domestic income tax ordinance, yet we have not been able to exercise that, how will our govt do that with the Swiss authorities will have to be seen ?
@H. Khan:
Caymen Island, Monaco, Malaysia, Luxemburg & there are many off-shore banks...to add few.
Would they ask for data that would incriminate themselves.....that's just stupid. When our Finance Minister made this call some months age it was to send a signal to the right ( or rather wrong ) quarters.
Well this makes little difference to me. I keep my money in Goldsmith Bank London. Not covered by the Treaty
As long as "muk makka" system continues, no corruption will be investigated. One proof is FBR stopped from getting online data on tax evaders who don't pay due taxes. So be a billionaire in Pakistan and pay a few thousand tax and you will not be investigated.
First two years document them.
Two years later put 33% annual tax on them.
If they don't pay, slap inflation adjustment charges for every year they hoarded their wealth there, otherwise send them to jail.
@Ali: What about the $50 billion stolen and laundered by Nawaz Sharif, brothers and sons.
For God sake ,FBR should come out with correct facts and inform the Nation: the correct amount of alleged funds of Pakistani nationals in Swiss Banks is $ 1.94 billion and not $ 200 Billion. These were 3012 figures
Now most of these funds have been transfered out; the jurisdiction where these funds have most likely been parked are: China,UAE,UK,Singapore
Wow!! Simply wow!! What good is this treaty to 99.999% of Pakistanis? Who are not impacted by this legislation. This is for the looters,defaulters,and tax cheats.
Well atleast 30 MILLION dollars belonging to Zardari and Bilawal has been traced there. Let's see if we can't retrieve that first!!!
I be curious to know if this treaty is same as India signed with Swiss to find out crooks of at country who are depositing their lblack money into Swiss banks, Any less than that should not be acceptable to Pakistan.