Pakistan, Switzerland sign revised Agreement on Avoidance of Double Taxation

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Pakistan and Switzerland signed on Tuesday the revised Agreement on Avoidance of Double Taxation with respect to taxes on income. The agreement was signed by the Ambassador of Switzerland, Marc George and Chairman, Federal Board of Revenue, Dr Muhammad Irshad.

The signing ceremony was witnessed by Minister for Finance Ishaq Dar, Special Assistant to the Prime Minister on Revenue Haroon Akhtar Khan and other officials from the Embassy of Switzerland, Ministry of Finance and Federal Board of Revenue.

After signing, both the States will undertake internal procedures for ratification of the agreement. After the exchange of instruments of ratifications, the agreement will come into force in Pakistan on first July of the next calendar year.

The revised Avoidance of Double Taxation Agreement between Pakistan and Switzerland will open new vistas for cooperation, especially in the areas of exchange of information for tax purposes.

It contains improvements with regards to the taxation of service fees and capital gains resulting from the sale of qualifying participants. These rules promote economic exchange in bilateral relations. The agreement also contains an arbitration clause, which should guarantee the avoidance of double taxation.

One of the highlights of the renegotiated treaty is the replacement of the Article on “Exchange of Information” with the new one, reflecting the internationally accepted standard which is based on the OECD Model.

The new Article on Exchange of Information will considerably expand the existing scope of information to be obtained on a request basis for the enforcement of domestic tax laws.

It will also provide access to bank information for tax purposes and such information shall not be refused solely because the information is held by a bank or other financial institution.

For this purpose, the requesting State will be providing information to the requested State such as the identity of the person under investigation and period of time for which the information is requested.

The existing Avoidance of Double Taxation Agreement between Pakistan and Switzerland was signed in 2005 and enforced in 2008. However, subsequent to the federal cabinet approval in August 2013, Pakistan had approached Switzerland for incorporating the updated version of the Article on Exchange of Information based on the OECD Model.

In August 2014, a Pakistani delegation visited Switzerland for renegotiation of Pak-Swiss Treaty and initialled the draft agreement between the two countries.

However, in order to safeguard national interests and to bring certain provisions of the initialled agreement in line with Pakistan’s tax policy, Switzerland was requested for a second round of negotiations, which was finally agreed in May 2016 and held in Berne, Switzerland in June 2016. The negotiations were held in a very cordial and friendly atmosphere and all the issues were amicably resolved.

It may be recalled that the Swiss government had invited the finance minister to sign the agreement with the Head of the Federal Department of Finance (FDF) of Switzerland, and had proposed the signing to be held on 21st March 2017 in Berne.

However, owing to unforeseen commitments of the Head of FDF, the Swiss government informed the Government of Pakistan that it can no longer proceed with the signing in Berne on 21st March 2017.

In the interest of avoiding any delay in the signing of the agreement, the Government of Pakistan proposed that the signing may be held in Islamabad on 21st March 2017.

The Swiss government acceded to this proposal and authorised the Ambassador in Islamabad to sign the agreement, while the Prime Minister of Pakistan issued the instrument of full powers for the Chairman FBR to sign the agreement.

The Swiss government has also proposed a meeting between the finance minister of Pakistan and the Head of FDF of Switzerland on the side-lines of the upcoming Spring meetings of the World Bank Group and the IMF on 21 – 23 April 2017. The Government of Pakistan has agreed to the proposed meeting.