This has been disclosed in the report of the FBR submitted to the Supreme Court of Pakistan in a suo motu case regarding maintaining foreign accounts by Pakistani citizens without disclosure of the same and paying taxes in Pakistan. The FBR said that the two major issues of limitations, including mandatory disclosure requirements of Pakistani residents regarding their foreign assets/income, are likely to be addressed through next Finance Bill.
The FBR report has categorically said that FBR intends to commence automatic exchanges of financial accounts information under the OECD umbrella, however, confidentiality of information received from other tax jurisdictions cannot be compromised. According to the FBR, the FBR has proceeded to investigate the cases of individuals reported in Panama and other leaks professionally and with sincerity of purpose, to realize the lost revenue. However optimum outcome/results could not be achieved. The main reasons have been on two counts. First, being limitations provided in the domestic tax statute, primarily on account of prescribed time limitation to amend/reopen a completed assessment and absence of mandatory disclosure requirements of Pakistani residents in respect of their foreign assets and income. Second, legal framework mechanism binding foreign jurisdictions to exchange information with Pakistan were also not available. Whereas, the first limitation requires amendments in the domestic law and may be included in the forthcoming Finance Act 2018. At the same time, the second limitation, however, has been catered for through signing of various multilateral tax conventions, agreements and updating articles on exchange of information in existing tax treaties, though with prospective effect.
It is also important to mention here that Pakistan and UAE have signed the Convention for the Avoidance of Double Taxation in 1993. The Article 27 of the said Convention deals with exchange of information. The UAE authorities had earlier requested for amendment in various articles of the Convention in 2012 and amendment in Article 27 was also proposed to align it with the OECD Model 2010. Approval of the federal cabinet was sought in this regard to initiate the negotiations for amendment in the Convention between the two countries and after the necessary approval, the matter was taken up with the UAE authorities through the diplomatic channels. It was requested that an appropriate set of dates and venue for the negotiations to revise the convention may be conveyed to Pakistan at the earliest, but the UAE authorities have not yet replied. Recently, a list of hundred Pakistani individuals who had allegedly made investment in real estate in Dubai was received from Economic Crimes Wing of Federal Investigation Agency, (FIA). For obtaining details and verification of the said information, a request for exchange of information was forwarded, on 16th November, 2017 to the Head of Exchange of Information Unit, Ministry of Finance, UAE. In consequence to consistent efforts of FBR, the UAE tax authorities have exchanged detailed information in respect of 53 Pakistani individuals having a number of investments in real estate along with copies of passports in 31 cases vide letters dated January 22, 2018 and January 28, 2018, respectively. The FBR is taking further action on the data received from UAE, the FBR said.
It is important to mention here that all the information exchanged under the Avoidance of Double Taxation Agreement signed between the governments of Pakistan and UAE is to be treated under the Article 27 of the said agreement. This Article provides that any information received by a contracting state shall be treated as secret in the same manner as information obtained under the domestic laws of that state. However, if the information is originally regarded as secret in the transmitting state, it shall be disclosed only to persons of authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes which are the subject of the Convention. Such persons or authorities shall use the information only for such purposes but may, disclose the information in public court proceedings or in judicial decisions. As such, the information cannot be shared with any other agency or department for any other purpose in view of the provisions of the Avoidance of Double Taxation Agreement between the two countries.
Confidentiality of Information received under Tax Treaties: The information received from foreign tax authorities is to be treated under the provisions of Article 26 of the OECD Model Tax Convention which constitutes the international standard for exchange of information under the tax treaties. This Article proves that any information received by a contracting state shall be treated as secret in the same manner as information obtained under the domestic laws of that state and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment, collection, prosecution and appeals proceedings in relation to the aforementioned taxes, or the oversight of the above. The information received may be used for other purposes when such information may be used for such other purposes under the laws of both states and the competent authority of the supplying state administrative bodies) concerned with the assessment, collection, prosecution and appeals proceedings in relation to the aforementioned taxes, or the oversight of the above. The information received may be used for other purposes when such information may be used for such other purposes under the laws of both states and the competent authority of the supplying state authorizes such use.
In view of this, it is submitted that the information received by FBR cannot be shared with other agencies and departments at this point in the absence of any such authorization by the competent authority of the supplying jurisdictions. It has been provided in the OECD Commentary on Article 26 that in situations in which the requested state determines that the requesting state does not comply with its duties regarding the confidentiality of the information exchanged under this Article, the requested state may suspend assistance under this Article. In view of the fact, it is submitted that FBR intends to commence automatic exchanges of financial accounts information under the OECD umbrella, however, confidentiality of information received from other jurisdictions cannot be compromised, the FBR report added.