Govt to renegotiate Pak-Swiss tax agreement in hopes of recovering illegal funds

ISLAMABAD: The government on Friday informed the National Assembly that it is looking to make use of new Swiss laws to exchange confidential information about the ill-gotten funds from Pakistan stashed away in the clandestine Swiss banking industry. On their part, Swiss authorities have expressed willingness to renegotiate the existing Pak-Swiss agreement on the Avoidance of Double Taxation Agreements (DTAs). These developments were revealed by the Ministry of Finance in a written statement submitted in the National Assembly. The statement was in response to a query from Pakistan Tehreek-e-Insaf (PTI) lawmaker Dr Arif Alvi, who had asked whether the government had taken any steps to bring back the country’s assets deposited in Swiss banks. The Ministry of Finance revealed that the federal government is seeking help of the new Swiss law known as The Restitution of Illicit Asset Act 2010 (RIAA), which now allows the Swiss government to exchange confidential information about money confidentially deposited in Swiss banks. The ministry added that amending or renegotiating the existing Pak-Swiss Tax Treaty — a process which has already been initiated — will be a key step in reaping the benefits of the new Swiss laws. The finance minister informed the assembly that a summary had been placed before the federal cabinet, seeking its approval for renegotiating the Pakistan-Switzerland Tax Treaty, which the cabinet approved in September 2013. The minister added that as per procedure, Federal Board of Revenue (FBR) had taken up the matter with the Ministry of Foreign Affairs to approach the Swiss government, expressing Pakistan’s intent to renegotiate the existing Tax Treaty and to seek a suitable set of dates and choice of venue to start the negotiation at the earliest possible date. The minister also mentioned that the Swiss authorities have expressed willingness to renegotiate the Tax Treaty and that the FBR has accepted the Swiss proposal to hold negotiations on August 26, 2014 to upgrade the existing Pak-Swiss Tax Treaty. In reference to the Ministry of Foreign Affairs statement about the intended changes in the existing Pak-Swiss agreement on the Avoidance of Double Taxation Agreements (DTAs), the Embassy of Switzerland said in a letter that their authorities are ready to host a delegation and discuss possible amendments to the agreement. The ministry said that the FBR delegation will leave for Switzerland in the last week of August to start negotiation. Background According to the finance ministry, Pakistan’s DTA with Switzerland, signed in 2005 and enforced in 2008, does include Article 26, which creates an obligation to exchange information relevant to the correct application of tax treaties. But in the case of this DTA it is deficient and does not enable either country to exchange meaningful tax information about their respective taxpayers. It is assumed that Pakistani nationals have over $200 billion stashed in Swiss banks. One of the directors of Credit Suisse AG Bank has stated on record that $97 billion of worth of Pakistani capital is deposited in his bank alone. Similarly, Micheline Calmy-Rey, the then Swiss foreign minister is reported to have put the figure of Pakistani money hidden in Switzerland at $200 billion — a statement that has not been contradicted. In view of this matter, Pakistan may be a net creditor to the rest of the world in the sense that external assets, measured by the stock capital flight, far exceed external liabilities, as measured by the stock external debt. However, the Ministry of Finance admits that the difference is that the liability belongs to the state and the assets belong to the non-compliant citizens and the situation needs immediate corrective action and reversal. The ministry further states that it is of paramount importance that the existing Pakistan Switzerland DTA is renegotiated and upgraded in line with the latest trends in this all-important area of international cooperation.