Tackling tax evasion: Pakistan can seek data from Swiss banks in revised treaty
Information will be used for tax purposes, will not help bring back hidden wealth.
ISLAMABAD:
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.
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.