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Wealth trail lost in a maze

Wealth trail lost in a maze

THE revelations in the Panama Papers have revived the old grumblings and debate over how powerful people move money abroad after extracting it through corruption, tax evasion and frauds.

The naming of so many high-profile personalities with offshore accounts has taken popular uproar to its next level. There has, however, been limited effort to track down those accounts or trace the legal or illegal flows and origins of this money.

Is it possible that these funds could be brought back from destinations like British Virgin Islands, Cook Islands, Singapore, the UAE and Switzerland — known hosts for ill-gotten money rather than their business-friendly credentials?

There has been a lot of talk about Pakistanis holding over $200bn in Swiss banks since the PML-N came to power. In fact, Finance Minister Ishaq Dar announced taking steps to bring back that money. Two years down the road, he has told the parliament that the effort has remained a non-starter so far.

In a report to parliament last week, the Ministry of Finance has said Pakistan could succeed in getting to know about such details through two new global initiatives. Pakistan could become a member of internationally sponsored initiatives like the Global Forum for Transparency and also of the Exchange of Tax Information and the Multilateral Convention for Mutual Administrative Assistance.

These memberships will enable the country to receive and send information under automatic exchange and provide a strong signal of its commitment to fight tax fraud and evasion at the international level.

This may help retrieve important bank accounts, dividend, interest and asset ownership information, not only from Switzerland but also from other tax havens, and tax it accordingly.

In 2014, the government was looking at the new Swiss Policy which now allows the exchange of earlier classified ‘confidential information’ about ill-gotten monies stashed in the Swiss banks. Exchange of tax information is the new mechanism for catching the tax dodgers.

Accordingly, the government decided to review the existing Avoidance of Double Taxation Agreement (ATDA) with Switzerland, particularly its article on the exchange of information.

In September 2013, the cabinet approved a summary on the issue to re-negotiate the agreement. Negotiations on the issue were held in August 2014 in Switzerland.

The highlight of the re-negotiated treaty was the replacement of the archaic article 26 on ‘Exchange of Information’ with the new one reflecting the internationally accepted standard on ‘Exchange of Information’ backed both by the latest OECD and UN models.

The new article, upon formal signing of the ADTA, will oblige the Swiss authorities to exchange all the requested information, including heretofore confidential bank accounts.

Re-negotiating the Pakistan-Swiss Treaty is, however, taking longer than expected. In December 2014, Pakistan requested for the second round of talks that has yet to be held.

Not only Switzerland but also the governments of Malaysia, UAE and UK have not shown any eagerness to share information with Pakistan regarding ill-gotten wealth stashed there, even though Islamabad has accepted international proposals about anti-money laundering and counter-terrorism financing initiatives.

The government’s move for an agreement on exchange of information about investments and black money under the aegis of the Global Forum on Transparency and Exchange Information will also take time.

It requires major voluntarily sharing of information on investments. This mechanism will have global legal protection and is expected to come into force in 2017.

In what appears to be a longer route, the authorities are also working to introduce amendments to the avoidance of double taxation treaties with various countries to include exchange of information clauses on the OECD model tax convention. This could enable access to bank accounts of citizens and their assets in various countries on a mutual cooperation basis.

How far these efforts materialise will depend on the readiness of others to change existing treaties, given the fact that there may be a few foreigners who have stashed their black money in Pakistan compared to Pakistanis keeping their funds and assets abroad.

Unfortunately, Geneva and London have zealously protected their perception as tax havens for international investments, and banking secrecy to attract surplus global funds, including those from poor countries.

The Swiss authorities, however, relaxed their laws two years ago, allowing states some access to information after meeting certain legal requirements.

After these legal changes, the alleged culprits are believed to have already moved their assets to other destinations.

For tax purposes, the FBR has been trying to seek information from Malaysia, the UK, UAE, Thailand and Australia, among others, regarding investments made by Pakistanis in those countries.

Pakistan has a history of introducing tax amnesty schemes with limited contributions to national exchequer. A new amnesty to encourage these wealthy Pakistanis to voluntarily bring back their funds for investment in real sectors may go well with triggering economic growth.

Courtesy : Dawn News



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