Tax evasion challenge Pakistan, Switzerland moving towards greater cooperation
Pakistan and Switzerland would exchange information on tax evasion once the contracting state exhausts all regular sources of information available under the internal taxation procedure. On August 31, 2016, the Federal Cabinet approved initialed draft for revision of the Convention between Pakistan and Swiss Confederation for the avoidance of double taxation with respect to taxes on income.
The Cabinet was informed that Pakistan and Switzerland had signed Avoidance of Double Taxation Agreement (ADTA) in 2005 which was enforced in 2008. This agreement contained the old version of article 25 on exchange of information which had very limited scope and did not oblige any of the contracting states to exchange information held by the other”s institutions, including banks.
After approval of the cabinet in its meeting held in September 20, 2013, FBR initiated negotiations for revision of Convention for the ADTA with respect to taxes on income between Government of Pakistan and Swiss Confederation, in order to update and replace the article on exchange of information.
The cabinet was further informed that the draft initialed agreement updates and replaced the article on exchange of information with the latest OECD model which had also been adopted in the UN model. The new article extended the scope of the provision of information considerably to include information to be provided to the requesting state whether it was at the disposal of the tax authority or held by any other authority in the requested state. The requested state was also obliged to provide information even it was held by a bank, other financial institutions, nominee or a person acting in an agency or fiduciary capacity and even if that state did not need such information for its own tax purpose. Furthermore, the revised Convention would provide safeguards against double taxation and adequate certainty in respect of taxation rules applicable to cross border business transactions, dividends, interest and royalties, etc.
According to the draft, it is understood that the tax authorities of the requesting state shall provide the following information to the tax authorities of the requested State when making a request for information under article 25 of the Convention: (i) the identity of the person under examination or investigation; (ii) the period of time for which the information is requested; (iii) a statement of the information sought including its nature and the form in which the requesting State wishes to receive the information from the requested State; (iv) the tax purpose for which the information is sought; and (v) to the extent known, the name and address of any person believed to be in possession of the requested information.
In case of an exchange of information, the administrative procedural rules regarding tax payers” rights provided for in the requested contracting State remain applicable. It is further understood that these provisions aim at guaranteeing the taxpayer a fair procedure and not at preventing or unduly delaying the exchange of information process.