Tax expert explains CRS for Iqama, foreign passport holders

Despite extension of date for availing amnesty scheme, the resident taxpayers who are having Iqama of Gulf States or holding foreign passports are apparently reluctant to file declaration on the understanding that their foreign bank accounts would not be reported to Pakistan by the foreign tax authorities and financial institutions.
When contacted, Shahid Jami, a Lahore-based tax consultant, explained that by now it is common knowledge that resident taxpayers of Pakistan who intend to open bank accounts outside Pakistan and purchase property overseas, invariably set up a company in tax-free jurisdiction, like UAE and obtain Iqama or residence permit and by using this residence permit they open bank accounts in the UAE or across the world and purchase properties as well.
As per Jami, these Iqama holders are under the impression that the UAE banks and tax authorities would treat these Iqama holders as tax residents of UAE and their financial information would not be passed on to Pakistan under the Common Reporting Standards (CRS) though copy of their Pakistani passport used as the identity document and similarly other counties would also send information to the UAE and not to Pakistan and due to the UAE authorities this information would not be passed on to Pakistan where these Iqama holders are actually tax residents.
Jami explained that to protect the integrity of tax system, governments around the world have introduced a new information gathering and reporting requirement for financial institution known as CRS. Under the CRS bank is required to determine where its account holders are tax residents and in case the account holders are tax resident outside the country where bank account is maintained, bank will need to give local tax authorities this information, along with information relating to accounts. The local tax authorities will share this information with tax authorities of other countries participants in the CRS and where the accountholder is found to be tax resident.
Jami stated that certain taxpayers have already received such notices from their banks at their overseas or Pakistan addresses. Along with the notice, the bank has attached a form titled as 'Individual Tax Residency Self Certification Form' which contains identifying columns such as full name, current residential address, current mailing address, date of birth, place of birth, and country of birth. Thereafter there are columns for country of tax residence and tax payer identification number or functional equivalent.
Form further states that in case no taxpayer's identification number is not available then the reason of the same has to be disclosed. At the end of the form there is declaration under signature acknowledging that the information contained in the form and information regarding the account holder and reportable accounts may be provided to the tax authorities of the country in which this account is /are maintained and exchange with tax authorities of another country or countries in which the account holder maybe tax resident, pursuant to intergovernmental agreements to exchange financial account information. Similar notices have been issued to the trusts and companies wherein the contributor of funds of the trusts or company appears to be non-resident.
Jami added that on the initiative of Organization of Economic Cooperation and Development (OECD) a multilateral agreement has been signed by over 100 countries for exchange of information of financial accounts on automatic basis. Pakistan has also signed this multilateral treaty and will provide and receive automatic information from Sep 2018 onwards. Jami added that the list of countries includes those countries which were earlier considered as tax havens, including Switzerland, British Virgin Islands and United Arab Emirates.
Jami was of the view that FBR can easily obtain from Pakistan Immigration Authorities details of those taxpayers who have used Iqama or foreign passport while travelling abroad and even without having information under the CRS would be in a position to dig out the information about the undisclosed salaries received or receivable as Iqama holders and the bank accounts where this was or was to be credited.
He was of the view that detection of undisclosed bank account would lead to detection of undisclosed investment in immoveable and moveable assets. He was of the view that Iqama or foreign passport of resident taxpayers is no protection and amnesty declaration should be considered in respect of foreign assets created out of Pakistan source undisclosed income.
However, he was of the view about unlimited time limitation for foreign assets abroad source income are not valid as amendment made through Finance Act 2018 with effect from first July 2018 is not applicable retrospectively to the foreign assets acquired before 30 June 2012 at least if not before 30 June 2018 as Supreme Court has already laid down principles regarding date of applicability of amendments regarding change in time limitation. He further observed that the Explanation inserted through the Ordinance regarding the date of rate of exchange rate is substantive amendment in the grab of Explanation and may be challenged.