Probing Swiss accounts

The Finance Minister, Senator Muhammad Ishaq Dar, according to a news item, published in Dawn, August 1, 2014, made a firm pledge that "talks will be held with Swiss authorities in August to bring back US $200 billion to Pakistan from banks in Switzerland". As we mentioned in our article 'Retrieving Swiss money', published in Business Recorder, July 25, 2014, there is no basis for the claim that US $200 billion belonging to Pakistanis are lying in the Swiss banks alone. These are not only news reports, which do not reveal any reliable source nor is there any reliable document or study available to confirm this figure.
In our article ['Retrieving Swiss money', published in Business Recorder, July 25, 2014] the figure of 1.95 billion Swiss francs [$2.06 billion] wrongly appeared as 195 billion Swiss francs and $206 billion, respectively, leading to the erroneous impression that Pakistanis had stashed $200 billion in the Swiss banks. In our earlier, 'The Swiss accounts', Business Recorder, September 6, 2013 the correct amounts were cited quoting a story published in The Times of India of July 21, 2013. This mythical figure of $200 billion, propagated in the Press for the last many years, was rightly contested by Khurram Husain in his column 'Number in the news' [Dawn, August 7, 2014].
Ascertaining the correct figure is a very difficult exercise-India is facing a daunting task of ascertaining the amount of untaxed, ill-gotten money remitted to the alpine state by its citizens. On coming into power in May this year, Indian Prime Minister Narendra Modi constituted Special Investigations Team (SIT) in pursuant to a pending court order. The Indian Supreme Court, on a writ petition filed by former Law Minister Ram Jethmalani in July 2011, specified the terms of reference for the team. The previous Indian government failed to comply with the order and sought a review. Modi's government moved swiftly to implement the order.
Before coming to power, Modi was consistently campaigning for retrieving black money from foreign banks. Now, SIT is tasked with developing a comprehensive action plan aimed at creating institutional structures and conducting investigations into unaccounted assets being stashed in foreign banks by Indians. SIT comprises two former Supreme Court justices, a deputy governor of the Central Bank and a gamut of senior bureaucrats from the Department of Revenue, the Intelligence Bureau, Enforcement Directorate, the Central Bureau of Investigation, the Research and Analysis Wing, Revenue Intelligence and the Central Board of Direct Taxes. One hopes that our Premier, Nawaz Sharif, will also follow in the footsteps of Modi if he is serious in bringing back money to Pakistan.
The good news is that a new Swiss law, Tax Administrative Assistance Act (TAAC), entered into force on August 1, 2014, has made it easier for other countries to extract information on tax dodgers. Are our experts in the Ministry of Finance and Federal Board of Revenue (FBR) aware of it? Do they know what the revised TAAC mean for countries like Pakistan?
Our team, planning to visit Zurich for re-negotiating Avoidance of Double Taxation Agreement [DTA], must be aware about the latest development that has taken place in Switzerland and elsewhere. As we mentioned in our column of July 25, 2014, the government of Pakistan after modifying DTA with the Swiss government will have to produce credible and watertight requests for data to demonstrate that any information it wants from Switzerland has 'foreseeable relevance' to a criminal investigation into tax dodgers in Pakistan, according to Article 26 of Organisation for Economic Co-operation and Development's Model Tax Convention, of which Switzerland is a signatory.
What has the TAAC revisions actually modified? The first and foremost is that that they now make it possible for countries to make group requests. This could speed up the paperwork process considerably where there is evidence of multiple tax dodgers at a particular bank. And secondly, it significantly waters down a Swiss law that requires account holders to be informed in advance that their data will be handed over to a third party. This greatly reduces the chance of tax dodgers simply withdrawing their assets and vanishing before they can be prosecuted.
For countries like India and Pakistan TAAC holds new promises. Switzerland has not changed its laws for no reason-the country was responding to criticism from the Global Forum on Transparency and Exchange of Information for Tax Purposes, a body set up to monitor the crackdown on tax evasion on behalf of the OECD and the G20. In Jakarta last November, the Global Forum said that Switzerland could never meet international standards of transparency until it allowed group requests and stopped tipping off tax cheats about impending investigations. The TAAC revisions are actually to be seen in the context of a whole series of reforms that Switzerland has introduced in the last few years. These include erasing the legal distinction between tax evasion and fraud, loosening the standards of identifying suspected tax cheats and renegotiating dozens of double taxation agreements-it all became possible due to efforts of many countries that showed firmness to tackle the scourge of tax evasion.
For achieving real and quick success, experts suggest that advocacy groups like the Tax Justice Network should stress for devising a multilateral system for automatic exchange of tax information. In other words, a global standard that compels all financial institutions around the world to automatically inform any country's tax authorities when one of its citizens invests money abroad. In this direction as well, Switzerland has taken some encouraging steps. In October 2013, the alpine State signed the OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters, which allows for the automatic exchange of tax information in certain circumstances. In May this year, Switzerland went one stage further by expressly agreeing to take part in automatic information exchange provided that the recently-negotiated global standard governing the system is rubber-stamped by all major financial centres. The OECD presented the final draft in July-an important milestone in reaching general acceptance of standard rules would thus be reached if G20 finance ministers give the thumbs-up at one of their regular get-togethers in coming September.
Against this backdrop, Pakistan, India and other countries of the region must join hands to approach Switzerland for multilateral agreement on relaxing bank secrecy and automatic exchange of information. They must hold joint negotiations to thrash out a multilateral treaty with Switzerland based on new global standards if they really want to bring the money back as has been done successfully by USA, UK, Germany and many other countries.
(The writers, tax lawyers and partners in law firm, HUZAIMA & IKRAM (members Taxand: www.taxand.com), are members of Adjunct Faculty of Lahore University of Management Sciences (LUMS) They can be contacted at [email protected])