On 14th September 2016, Federal Finance Minister Ishaq Dar signed the amended convention on Mutual Administrative Assistance in Tax Matters but did not give the date for the deposit of instrument of ratification, acceptance or approval, or the date of entry into force becoming the 104th jurisdiction to join the Convention. Pakistan did not sign the original convention. Significantly Switzerland did not sign the original convention either and signed the amended convention on 15th October 2015 and, like Pakistan, has yet to provide the dates for deposit of instrument of ratification, acceptance or approval or the date of entry into force and so is the United States.
In marked contrast, however, India signed the amended convention on Mutual Administrative Assistance in Tax Matters as early as on 26th January 2012, deposit of instrument of ratification, acceptance or approval, on 21st February 2012 and entry into force on 6th June 2012. One would have to wait and see how long Pakistan takes before proceeding with a date for deposit of instrument of ratification, acceptance or approval, and date of entry into force.
The OECD website declares that “by signing Pakistan will send a strong signal of its commitment to fight offshore tax evasion and avoidance”. It is relevant to recall that Finance Minister Ishaq Dar in the first week of June this year, two months after the Panama Papers were revealed, claimed that “we have started exercises on this matter from April 21, and with the legal consultation of the State Bank, Federal Board of Revenue (FBR) and Securities and Exchange Commission of Pakistan (SECP) we are in process to devise a law to bring transparency in the disclosure of Pakistani assets parked abroad.” The law is still awaited and one hopes that the signing of the amended convention is the first step in the right direction and more steps would follow.
The original convention developed by the OECD and Council of Europe in 1988 was amended by protocol in 2010 which “provides for all possible forms of administrative cooperation between states in the assessment and collection of taxes, in particular with a view to combating tax avoidance and evasion. This cooperation ranges from exchange of information, including automatic exchanges, to the recovery of foreign tax claims.” However Article 6 of the convention, as per the OECD website “requires the Competent Authorities of the Parties to the Convention to mutually agree on the scope of the automatic exchange of information and the procedure to be complied with. Against that background, the Multilateral Competent Authority Agreement on the Exchange of CbC Reports (the “CbC MCAA”), for the automatic exchange of Country-by-Country Reports, and the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (the “CRS MCAA”), for the automatic exchange of financial account information pursuant to the Common Reporting Standard (CRS), have been developed.” The CRS was developed in response to the G20 request and approved by the OECD Council on 15th July 2014, and “calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.”
We welcome the formal signature by the government of Pakistan on the Convention on Mutual Administrative Assistance in Tax Matters. However, as noted above, there is now a need to undertake the challenging exercise of forging bilateral agreements with countries with whom we do not have bilateral tax avoidance treaties amongst the signatories to the convention. This is essential to ensure an automatic exchange of information. The challenge is all the greater as the Sharif administration has, in its fiscal policies, supported tax evasion as well as avoidance by taxing the transactions.
In this context, a report prepared by The Global Forum on Transparency and Exchange of Information for Tax Purposes, the multilateral framework within which work in the area of tax transparency and exchange of information is carried out by over 120 jurisdictions which participate in the work of the Global Forum on an equal footing, is revealing: “Pakistan overall is largely compliant with the international standard. Pakistan’s legal framework ensures that ownership information, accounting and banking information is available and can be obtained in line with the standard. The main findings of the report relate to a room for improvement in supervision and enforcement of obligations ensuring availability of ownership and accounting information. Pakistan is also recommended to improve its response times to requests for exchange of information. The report further notes a potential ambiguity concerning rules regulating confidentiality of information exchanged under Pakistan’s agreements”. Study after study has declared our statutes as second to none; however, the issue that has raised time and again is one of implementation and as noted in the report prepared by the Global Forum on Transparency enforcement and implementation are issues in this area as well.
