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Mountains of gold or shifting sand dunes?

Why FBR Won’t Touch Swiss Accounts Anymore

NAB Swiss

Article by: Azeem Waqas

ISLAMABAD-In stark contrast with Pakistan Tehreek e Insaf ’s vociferous lip service to bringing back looted money from abroad, Federal Board of Revenue (FBR) administration seems to have silently stonewalled Pakistan’s efforts to bust ‘looters’ with Swiss bank accounts. PTI rose to power in 2018 on a platform of fighting corruption and repatriating stolen funds siphoned abroad back to Pakistan.

Pakistan is entitled to receiving Swiss cooperation over tax avoidance under multiple multilateral and bilateral covenants, especially since September 2016 when the country officially became a signatory to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters of the Organization for Economic Cooperation and Development (OECD).

The following year, Pakistan signed the Multilateral Convention to implement Tax Treaty Related Measures to Prevent Base Erosion and Profit (BEPS) and the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Accounts Information (MCAA).

The MCAA is the framework agreement in pursuance of Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The Convention offers concrete solutions for governments to close the gaps in the existing international rules which allow corporate profits to disappear or be sneaked to low- or no-tax jurisdictions.

Also, in 2017, Switzerland and Pakistan signed a revised double taxation agreement (DTA) that came into force from 29 November 2018 and was to have effect in Pakistan for any fiscal year beginning on or after 1 July of the next year. Under the revised accord, the contracting states were barred from declining 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.

In February 2019, Minister of State for Revenue Hammad Azhar said the government was seeking foreign bank account data of Pakistani citizens from ten more foreign tax jurisdictions including Switzerland under the OECD arrangement.

“So far we have received details on about 150,000 bank accounts from twenty-nine jurisdictions under the OECD treaty”, the Minister was quoted as saying. “We also made another request to Switzerland for exchange of informa- tion in [the previous month] and they are willing to share data.”

Apparently, that was the last the government agitated the matter as background interviews with officials reveal Pakistan has made no requests for data under these treaties since January 2019, TTI (The Truth International) can report.

A former top tax official speaking on condition of anonymity said a lack of political will was why there has been no movement on this matter. “[The PTI government] knows it has nothing to gain from pursuing the matter, especially nothing against the opposition”.

On the contrary, there were unmistakable apprehensions such a line of inquiry may lead to some influential PTI members, he said. “Many PTI members have foreign bank accounts and money held abroad”. He opined this was yet another instance of party interest coming before national interest.

The Truth International (TTI) sent a questionnaire to the State Secretariat for International Financial Matters (SIF) of Switzerland, seeking the number of Pakistanis holding bank accounts or assets in that country, and the time they would require to respond to a data request from Pakistani authorities.

“The treatment of the request happens according to the international standard in this matter, i.e. in principle 90 days”, said SIF in response to the questionnaire.

However, it declined to share any information about the number of Pakistanis holding bank accounts or assets in Switzerland, saying, “Due to the principle of confidentiality we are not able to share the data of Pakistanis having assets in Switzerland”.

The official alleged the incumbent government had promoted an incompetent officer, who was responsible for inking a flawed agreement with Swiss authorities in 2017. “The flawed [Convention on Avoidance of Double Taxation between Pakistan and Switzerland] caused an array of problems for Pakistan including upsetting a friendly country”, he said, adding the said officer had inserted a clause in the agreement which increased tax on profit of debt to 20 percent, which dismayed the friendly country.

He further alleged that the officer had signed the agreement for which he had no lawful authority – and which was hurtful to Pakistan’s interests, adding, “In any other country, an officer overstepping his authority like this would have been sacked from his job, but the PTI government has promoted an incompetent officer to Member Inland Revenue Operations (IR Ops)”.

TTI also contacted a former member FBR, who also confirmed that the previous agreement was hurtful to Pakistan’s interests. “It lowered tax rate on dividends from 10 percent to 5 percent, which if implemented would have halved the tax revenue of Pakistan”, he said. “The Pakistani Muslim League – Nawaz (PML-N) govern- ment increased the tax from 5 percent to 10 percent under a revised agreement”.

According to the Article 25 of the Convention, it is understood that an exchange of information will only be requested once the requesting party has exhausted all regular sources of information available under the internal taxation procedure.

An international tax expert interviewed by TTI concurred, “The Swiss agreement is not going to help Pakistan in getting any solid data”, he said. “The world is changing, many European countries are facing economic challenges, their banks are getting revenue on holding the money of non-residents and they would not share any concrete data with Pakistan”.

The expert further said most Pakistani citizens who had bank accounts in Switzerland had moved to other, lesser-known tax havens. “Swiss authorities may not be able to provide data on more than thirty or forty cases – which means Pakistan has no hope of making a major money haul from Switzerland”.

“PTI has been in power for more than two years now. It could request the Swiss authorities to provide details of those Pakistanis who had parked money in Swiss Banks. It could also seek the record of assets and bank accounts or the tax information, but it is not pursuing the matter. It has dropped the matter deliberately because it knows that it will create problems for ruling parties too”.

He said that the PML-N government had revised the agreement under pressure from PTI, which was in protest mode back then, staging its famous sit-in in front of the Parliament but never framed rules to implement agreements.

A former member Policy FBR who was part of these developments said, “It was a well-known fact the Swiss treaty would not yield a major money haul for Pakistan – even PTI stalwarts know this. But they kept making a ruckus for the sake of point-scoring and petty politics. Now when they are in power, the matter has come to nothing”.

He added, “The PTI government is in-charge – no one can stop them from seeking record of any one. But they would not, because they know it will yield nothing to show to its voters”.

According to a report Pakistan has received details of about 150,000 bank accounts from 29 jurisdictions under OECD treaties. It has also made a request to Switzerland, but nothing has been shared. TTI repeatedly contacted the FBR Spokesman Syed Nadeem Rizvi, enquiring if the Swiss authorities had shared any data. His steadfast response was, “It’s a confidential area”.

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