Swiss authorities to be formally approached for information of black money invested by Pakistanis; FBR gathers data from field formation

KARACHI: The Federal Board of Revenue (FBR) is in process of gathering data from its offices to formally ask Swiss authorities to share information of Pakistanis invested or parked black money in their banks without paying due liabilities to the government of Pakistan.
Sources told Customnews.pk that billions of dollars have been deposited in banks of different countries that were either transferred through money laundering, hundi or hawala besides ways of transferring through legal means to avoid taxes. The latest exercise has been conducted to obtain information of those Pakistani those who invested in Switzerland during past 5 to 10 years.
The FBR sources said that the revenue departments had compiled data through third party information and cross checking of transactions of different individuals and corporate firms.
Pakistan and Switzerland have signed treaty of avoidance of double taxation to facilitate taxpayers of both the countries but the treaty also gave right to both to obtain information of an individual or a company.
The FBR officials said that the Treaty discussed exchange of information, it said: “The competent authorities of the contracting states shall exchange such information (being information which is at their disposal under their respective taxation laws in the normal course of administration) as is necessary for carrying out the provisions of this convention in relation to the taxes which are the subject of this convention.”
The sources said that the exercise to gather information was initiated a year ago and through a circular of Income Tax that the FBR directed the field formation to compile data in a systematic way of persons whose information required.
Pakistan is an important part of the global network having signed 62 treaties with other countries and all of those full scope agreements contain a specific provision to address the issue of exchange of information between treaty partners. The Article 26 of most of the treaties, in principal, states that the contracting states shall exchange all such information as is necessary to carrying out the provisions of the agreements or those of the domestic laws of the contracting states concerning taxes covered by the agreements in so far as taxation there under is not contrary to the agreements.
Interestingly despite having large number of treaties Pakistan was only on the giving-end and so failed to obtain information invoking the provision of the treaties.
In the document, the FBR said that over the past few years field formations had approached FBR for only four cases, and even in those cases references had not been properly drawn up to delineate clearly. A year ago the directives issued by the FBR included: The references should include all relevant background information that will enable the foreign tax authority to understand both the nature of investigation and what is to be established from the inquiries, information which is assumed by the auditor as opposed to information, which is factual. Where the facts are complex, charts showing interrelationships between entities, transfers of funds etc, and should be provided as an attachment. The year under investigation should also be clearly mentioned in the subject.
The field formation was directed to clearly mention all names and addresses pertaining to the foreign entities. Where individuals are involved, the year of birth should also be given, if known. Other information which could assist the foreign tax authority in identifying the foreign client should also be provided such as available, identification numbers and corporation numbers could prove invaluable in extracting quick and correct information.
“Where reference is made to sections of the national tax laws or other technical terms, an explanation of the section or the term should be given, bearing in mind that the foreign tax authority will not be familiar with such legislation,” the FBR directed. It was further added that to make full and effective use of the information sought, time limitation as contained in the law must also be borne in mind, and all such cases be dealt with on priority as the average time of exchange of information between tax authorities ranges between three months to a year.
The field formation was advised that important angle of information exchange was its economics. Preferably maximum projected revenue – in case the information sought vindicates the audit assumptions – needs to be meticulously worked out for purposes of analysis and clarity; but in no case the possibility of receipt of information contrary to audit assumption should breed fear and prove discouragement to undertake the very process of information exchange.
FBR sources said that latest reports to be sent to foreign authorities were prepared keeping in mind that the non-resident persons has been paid an amount debited to the accounts of a resident taxpayer and the aforementioned person is not chargeable to tax in Pakistan; the non-resident person has been taxed at a reduced tax rate under the provisions of the applicable agreement; and the non-resident person has been wholly exempted due to any provision of law.
The FBR sources said that there were no exact figures for deposited money in Swiss banks but experts believed that billions of dollars could be retrieved in taxes from Swiss banks.
According to data compiled from various sources, the details of amounts recovered from Switzerland include: US $780 million, Nigeria $700 million, Philippines $680 million, Peru $180 million and Kazakhstan $84 million.
Meanwhile, the Large Taxpayers Unit (LTU) Karachi previously informed the FBR that many people’s with having National Tax Number (NTN) as well as non-NTN have undeclared money to foreign bank accounts for a long time. So information should be obtained from Swiss Bank under the treaty between Pakistan and Switzerland.
However, it is notified by the LTU that the FBR is likely to face an obstacle in terms of the expiry of period of limitation with reference to cases where the money has been kept in Swiss accounts for a period in access of the stipulated limit. The LTU Karachi had proposed that the obstacle should be removed through amendments in the law.

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