ISLAMABAD: Pakistan and Switzerland on Tuesday signed the much-awaited revised agreement on avoidance of double taxation with respect to income. The agreement will allow both countries to shore up a mechanism for information sharing to detect tax evaders.

Federal Board of Revenue Chairman Dr Muhammad Irshad and Ambassador of Switzerland to Pakistan Marc George signed the agreement on behalf of their respective governments.

Minister for Finance Ishaq Dar, Special Assistant to the Prime Minister on Revenue Haroon Akhtar Khan and officials of the Swiss Embassy were present at the ceremony.

After signing, the two countries will undertake internal procedures for ratification of the agreement. After exchange of instruments of ratifications, the agreement will come into force in Pakistan on July 1 of the next calendar year following that of the entry into force.

Both sides have already initialled the revised draft of the agreement. The two countries initiated talks on the revised agreement in 2014, following unconfirmed reports that Pakistani nationals had over $200 billion stashed in Swiss banks.

The revised agreement contains improvements with regard to the taxation of service fees and capital gains resulting from the sale of qualifying participants.

As per the agreement, 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 important aspects of the 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 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.

According to an official announcement, on the approval of the federal cabinet 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, Pakistan delegation visited Switzerland for re-negotiation of Pak-Swiss Treaty and initialled the draft agreement. 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 proposed signing was to be held on March 21, 2017 in Berne but could not materialise.

In the interest of avoiding any delay in the signing of the agreement, Pakistan proposed that the signing may be held in Islamabad. The Swiss government acceded to this proposal and authorised the Ambassador in Islamabad to sign the agreement, while Prime Minister Nawaz Sharif issued the instrument of full powers for the Chairman FBR to sign the agreement.

Published in Dawn, March 22nd, 2017