Exchange of information on bank accounts

Federal Finance Minister Ishaq Dar, in one of his rare appearances in the august National Assembly, stated that "Switzerland has sent an official invitation letter to me on 02 March 2017 to sign a new treaty on our terms and conditions on exchange of information regarding bank accounts. In the invitation letter, Switzerland authority has given dates 21 March or 5, 23 or 24 May to Pakistan for signing the agreement. We are going to sign the agreement on the earlier date. 21st March, because we will be busy preparing the budget 2017-18 in May." He maintained that subsequent to the operationalizing of the agreement by June 2018, "it will be impossible to keep tax evaded money in these countries."
Eyebrows by the minister's critics were raised as he mentioned tax evasion but not its twin evil regarded as much more applicable in Pakistan namely tax avoidance. In point of fact, there are several statutory regulatory orders (SROs) that have been issued by the Dar-led Finance Ministry that specifically mention how it can be used for tax avoidance. Be that as it may, the assumption that the bilateral agreement with Switzerland and/or with the other 107 signatories to the Convention at last count necessarily implies tax evaded or avoided accounts then that assumption is simply not accurate.
The government of Pakistan signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters of the Organisation for Economic Co-operation and Development (OECD) on 14th September 2016 - a convention described by OECD as the "most powerful multilateral instrument against offshore tax evasion and avoidance", enabling countries to exchange information, conduct co-operative tax examinations and collaborate on tax collection, while protecting taxpayers' rights". And, as per the OECD website on 1st March 2017, the Convention came into force prompting the letter to the Ministry of Finance on 2nd March 2017. The operative words, however, are co-operation and collaboration which, in essence, emphasise that the government of Pakistan would have to first request the Swiss/bilateral authorities/offshore companies for information.
It remains unclear whether this would lead to proactively unearthing of offshore accounts held by Pakistanis given that the Federal Board of Revenue (FBR) recently informed the apex court that as per the provisions of the Income Tax Ordinance 2001, its investigators had succeeded in getting information on the whereabouts of only 336 individuals who were named in the Panama Papers and issued notices to all though only 113 had responded to these notices so far. In this context, it is relevant to note that around one month before signing the convention - on 10th August 2016 - Ishaq Dar had informed the National Assembly that the FBR is in the process of obtaining information and documentary evidence on investment or income of offshore companies of Pakistani residents which, he stated, would be cross-matched with the database of FBR and the taxpayers' record. Sadly, it remains unclear whether this exercise was more fruitful than the one undertaken by the FBR with respect to issuing notices.
Additionally, bilateral agreements, such as the one between Pakistan and Switzerland, a stipulated outcome of being a signatory to the Convention, would, as per the OECD, "provide for all forms of administrative assistance in tax matters: exchange of information on request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection. It guarantees extensive safeguards for the protection of taxpayers' rights". But again, the government of Pakistan would have to request the Swiss authorities to provide the information prior to it being provided, and equally importantly the Swiss authorities would not provide detailed information on the bank accounts of Pakistani nationals but instead deduct the tax payable, based on the rates as applicable in the country of nationality, and remit the money to the treasury.