Islamabad: Federal cabinet has approved to amend the existing convention between Pakistan, and Turkey, Finland, Italy and Bahrain for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income for updating of articles on exchange of information.
Copies of official documents available with Pakistan Today show that federal cabinet has given its approval on September 7, 2017 to amend the existing convention between Pakistan, and Turkey, Finland, Italy and Bahrain for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes, on income for updating of articles on exchange of information.
The summaries were given in terms of Rule-16(1)(h) of Rules of Business, 1973, by Revenue Division for approval of the Cabinet. It was solicited to amend the existing convention between Pakistan and Turkey, Italy, Finland and Bahrain for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income for updating of article on exchange of information.
The Cabinet was apprised that Pakistan has signed convention for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income with Turkey, Italy, Finland and Bahrain which contained Article 24 on exchange of information. Over the period of time, many changes had been brought in the model taxation convention by organization for economic cooperation and development (OCED) including Article 26 on exchange of information which had been replaced and its scope extended to taxes other than the income tax. Out of sixty-three agreements/conventions signed by Pakistan, twenty-four are already under the process of revision including updating of the Article 26 on exchange of information.
Article 26 of the OCED Model Tax Convention envisaged that the competent authorities of the contracting states shall exchange information and no state shall decline to provide information merely for the reason that such information is of no interest to it, or because the information is held by a bank, other financial institution or nominee or a person acting in an agency or fiduciary capacity.
According to the new version of the Article, the contracting states shall exchange such information on request as is foreseeable relevant for carrying out provisions of the convention or to the administration or enforcement of the domestic tax laws of the requesting states. The exchange of such information was not any more restricted by Articles 1 and 2 of the model convention which pertained to persons and taxes covered under the avoidance of double taxation agreement. The Ministry of Foreign Affairs and Ministry of Law and Justice had issued concurrence from political and legal point of view respectively.
The Cabinet was also informed that FBR of the opinion that to implement the internationally agreed standards on exchange of information for tax purposes, Article 26 of the OCED Model Tax Convention 2010, developed jointly by the OCED and non-OCED members and endorsed by the UN, may be adopted in existing convention between Pakistan and Turkey, by replacing the existing Article 24 on exchange of information.
Sources in Revenue Division said need for amendments and signing the law was felt in the wake of Panama Papers case. And, after signing on amended agreement, these countries will undertake internal procedures for ratification of the agreement. And, after exchange of instruments of ratifications, the agreement will come into force. They said amendments in the article on exchange of Information will greatly expand the existing scope of information to be obtained on request basis for the enforcement of domestic tax laws. It will also give 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, said sources.
The Cabinet was further apprised that Pakistan and Bahrain signed convention for the avoidance of double taxation and prevention of fiscal evasion with respect taxes on income on 27th June 2005, which came into force on September 25, 2009. Cabinet vide its decision No. 129/04/15 dated 24-08-2015 had granted its approval to initiate the negotiation to amend the existing convention for the avoidance of double taxation between Pakistan and Bahrain with reference to Article 8 pertaining income from shipping and air transport and Article 25 on exchange of information of the existing convention for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income.
The Cabinet was also told that Pakistan proposed amendment in Article 8 and 25 of the existing convention for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income through draft protocol. Bahrain had accepted Pakistani’s proposal and had requested for signing the protocol amending the existing convention. Foreign Affairs and Law & justice Divisions had cleared agreed text of the protocol to amend the existing convention from political and legal points of view.
In September 2016, Pakistan became the 104th member of Organization of Economic Cooperation and Development (OECD), a global forum on an exchange of tax information of offshore accounts and investments.
Signing the OECD Convention on Mutual Administrative Assistance in Tax Matters paved the way for Pakistan to enter into exchange of information of offshore accounts. The need for signing the law was felt in the wake of Panama Papers case.
