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  • Jan 10th, 2018
  • Comments Off on Revised convention on avoidance of double taxation: information with Switzerland of old cases cannot be obtained
The senior member of the Federal Board of Revenue, Dr Muhammad Iqbal, said on Tuesday that Pakistan is in a position to exchange information with Switzerland under the revised convention on avoidance of double taxation from this month but it would only be applicable to future cases. Dr Muhammad Iqbal informed the Senate Standing Committee on Finance that information on old cases cannot be obtained under the revised convention between Pakistan and Switzerland. The provisions of the new Article 26 (Exchange Of Information) of the Convention on Avoidance of Double Taxation between Pakistan and Switzerland have been implemented from this month.

"If we strictly interpret law, the future information after signing of the agreement would be available, but we would try our level best to get past information as well, specifically bank accounts details of Pakistanis held in Swiss banks." He said the exchange of information provisions have been implemented from this month but so far no specific request has been made. "We have requested the Swiss government to include name of Pakistan in the list of countries for exchange of information, which has been endorsed by the Swiss Parliament."

The committee members raised the issue whether information about Pakistanis having $200 billion in Swiss banks cannot be obtained under the revised convention on Avoidance of Double Taxation between the two countries. "We will pursue the Swiss tax authorities to provide us old information under exchange of information provisions prior to 2018," he said. Dr Iqbal stated that the FBR did not withdraw from pursuing information under the said treaty with Switzerland.

He said that the Swiss tax authorities had demanded certain concessions from Pakistan which were against the country's national interest. If Pakistan had granted such tax concessions to Swiss companies operating in Pakistan, it would not be in favour of Pakistan.

Therefore, Pakistani tax authorities have declined to such concessions. For example, it was proposed by Swiss government that the tax on dividend going out of Pakistan may be reduced from 10 to 5 percent. "Big Swiss companies are operating in Pakistan and it would not be appropriate to name them, but the dividend tax rate was required to be reduced from 10 to 15 percent in case we accept their demands. Therefore, the FBR rejected the proposal of any reduction in tax rates on dividend earned by Swiss companies operating in Pakistan."

The Swiss government is also seeking the status of most favoured nation which has also been declined by Pakistan. The concessions sought by the Swiss government were not in favour of Pakistan. Therefore, such concessions under the convention on Avoidance of Double Taxation between Pakistan and Switzerland have not been granted to them. Dr Iqbal said, "Pakistan has obligation to take financial institutions on board and we need secured data of IT systems. Our all systems are timely in place which has been highly appreciated by the global community and we are fully ready to exchange information with Swiss government."

Senator Ilyas Ahmad Bilour said that Ishaq Dar had informed the National Assembly in the past that Pakistani nationals have over $200 billion in Swiss banks. Responding to this, Minister of State for Finance and Economic Affairs, Rana Muhammad Afzal Khan, said that it is not an authentic figure. This estimated figure has been taken from statement of Swiss banks officials.

Rana Muhammad Afzal Khan further said, "We are not in a position to contradict the statement of Ishaq Dar but major developments have been made in exchange of information with the Swiss authorities." Briefing the negotiation/up-gradation of treaty with Swiss government on Avoidance of Double Taxation (ADT) to retrieve the money of Pakistani nationals deposited in the Swiss banks, the FBR officials said that retrieving money of the Pakistani nationals deposited in Swiss banks neither under the domain of the FBR nor is it mandated by any agreement made for avoidance of double taxation.

However, the federal government and the FBR has taken several measures to obtain information about Pakistanis' wealth/assets lying in secret deposits and investments in Swiss banks for the purposes of taxation, including the successful renegotiation of the Avoidance of Double Taxation Agreement (ADTA) with Switzerland. The revised ADTA with Switzerland, inter alia, contains the article on exchange of information on request for tax purposes. This article has been renegotiated and updated with Switzerland on the basis of the latest OECD/UN models which extend scope beyond the information available with tax administration in normal course of business.

Briefly, the new Article 26 of the OECD Model Tax Convention provides that the contracting states shall exchange information and no state shall decline to provide information merely for the reason that such information is of no interest to it, or because the information is held by a bank or other financial institution. According to the new version of the article, the contracting states will exchange such information on request as relevant for carrying out provisions of the ADTA or to the administration or enforcement of the domestic tax laws of the requesting state.

The steps taken by the government to update the article on exchange of information revealed that in August 2013, the government decided to review the existing Avoidance of Double Taxation Agreement, particularly its article on the exchange of information and a summary to this effect was submitted to the cabinet. In September 2013, the cabinet granted approval for renegotiation of the Avoidance of Double Taxation Agreement with Switzerland.

Accordingly, the matter was taken up with Switzerland through diplomatic channels for date and venue of negotiations. In August 2014, negotiations were held for revision of the exiting treaty. However, Switzerland was seeking a number of concessions as a quid pro quo for incorporating the revised article on exchange of information. In December 2014, Pakistan took up the matter with Switzerland for the second round of negotiations in order to settle the issues with mutual consent.

Pakistan consistently approached Switzerland for the second round of negotiations. In April 2016, the Swiss authorities finally communicated their consent for the second round of negotiations. In June 2016, the second round of negotiations was held and the agreement was finalized with Switzerland which included the article on exchange of information without giving away anything by Pakistan.

In March 2017, the initialed ADTA was signed in Pakistan with the ambassador of Switzerland in Pakistan. In May 2017, the federal cabinet ratified the revised ADTA and accordingly the internal procedure was completed in Pakistan. The ADTA will come into force as soon as internal procedures are completed by Switzerland. However, the provisions of ADTA relating to exchange of information will be applicable for information concerning facts that relate to any fiscal year beginning on or after January 1, 2018.

The FBR will now be able to send requests to Switzerland about any particular information regarding Pakistani nationals under the provisions of Article 26 of the ADTA in financial year 2018-19.

Copyright Business Recorder, 2018


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