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FBR advises vigilance on overseas taxation

September 02, 2012

ISLAMABAD, Sept 1: The Federal Board of Revenue has instructed its field offices to adequately utilise the ‘exchange of information’ article contained in the avoidance of double taxation agreements, while dealing with non-resident or resident taxpayers having overseas fiscal connections.

Under the global network of Avoidance of Double Taxation Agreements, Pakistan being an important part of the network, has signed 62 such agreements with other countries while 12 more being in the pipeline, says FBR circular.

The board says it has observed that field formations while dealing with cases of fiscal fraud or evasion involving non-resident taxpayers or resident taxpayers having overseas fiscal connections or dealings generally adopt an unenthusiastic and laid-back attitude leading to substantial revenue loss for the national exchequer.

The main reason for such sub-optimal taxation is lack of information about these taxpayers’ economic activities in overseas jurisdictions. This lack of access to relevant information by the field officers is reinforced by the geographical distance and incapacity to enforce domestic tax laws in the foreign territories.

Article 26 of the agreement, in principle, states that “the contracting States will exchange all such information as is necessary to carrying out the provisions of the agreements or those of the domestic laws of the contracting States concerning taxes covered by the agreement in so far as taxation there-under is not contrary to the agreements.”

The circular explained that the enabling provision of the agreement is frequently resorted to by the States to abate tax evasion, optimise revenue collection, and raise the deterrence level in order to impact the potential tax evasion ploys.

However, this is not true in the case of Pakistan as FBR is always at the giving-end of information exchange particularly to countries having larger segments of immigrant Pakistanis.

Over the past few years, field offices have approached FBR in merely four cases, and even in those cases references had not been properly drawn up to delineate clearly the parameters of the information required, its scope, use, and the purpose. This only led to either refusal or delay in receipt of information from the treaty partners.

According to FBR, it is of paramount importance that not only the field officers make full use of the provisions of information exchange in all cases having substantial revenue potential, but also that they are skilled and trained to draw up the information exchange references properly.