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United States of America
AGREEMENT BETWEEN THE GOVERNMENT OF PAKISTAN AND THE GOVERNMENT OF THE UNITED STATES OF
AMERICA FOR THE AVOIDANCE OF DOUBLE TAXATION
Notification No. S.R.O. 237, dated the 3rd June, 1959. - WHEREAS
the annexed Convention for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with respect to Taxes on Income between the Government of Pakistan and the
Government of the United States of America has been ratified the instruments of
ratification exchanged;
NOW, THEREFORE, in exercise of the powers conferred by section 49AA of the Income Tax Act,
1922 (XI of 1922), the Central Government is pleased to direct that all the provisions of
the said Convention (except the second sentence of paragraph (1) of Article XV thereof)
shall be given effect to in Pakistan.
Annexure
CONVENTION BETWEEN THE GOVERNMENT OF PAKISTAN AND THE GOVERNMENT OF THE UNITED STATES OF
AMERICA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH
RESPECT TO TAXES ON INCOME.
The Government of Pakistan and the Government of United States of
America, desiring to conclude a Convention for the avoidance of double taxation and the
prevention of fiscal evasion with resect to taxes on income, have appointed for that
purpose as their respective Plenipotentiaries;
The Government of Pakistan:
Muhammad Ali, Ambassador Extraordinary. and Plenipotentiary of Pakistan to the United
States of America, and
Syed Amjad Ali, Minister of Finance of Pakistan, and
The Government of the United States of America;
John Foster Dulles, Secretary of State of the United States of America, having
communicated to one another their full powers, found in good and form, have agreed as
follows:
ARTICLE I
(1) The taxes which are the subject of the present Convention are
-
(a) In the United States of America:
The Federal income-taxes, including sur-taxes (hereinafter referred to as United States
tax).
(b) In Pakistan:
The income-tax, super-tax and the business profits tax (hereinafter referred to as
Pakistan tax).
(2) The present Convention shall also apply to any other taxes of a substantially similar
character (including excess profits tax) imposed by either contracting State after the
date of signature of the present convention, or by the Government of any territory to
which the present Convention is extended under Article XVIII.
ARTICLE II
(1) In the present Convention, unless the context otherwise
requires:
(a) The term "United States" means the United States of America and when used in
a geographical sense means the States thereof, the Territories of Alaska and Hawaii and
the District of Columbia.
(b) The term "Pakistan" means the Provinces of Pakistan and the Capital of the
Federation.
(c) The terms "one of the contracting States" and "the other contracting
State" mean the United States or Pakistan, as the context requires.
(d) The term "tax" means United States tax, or Pakistan tax, as the context
requires.
(e) The term "person" includes any body of ,persons, corporate or not corporate.
(f) The term "company" means any body, corporate or not corporate, assessed as a
company under Pakistan law relating to Pakistan tax.
(g) The term "United States corporation" means a corporation, association or
other like entity created or organized in the United States or under the law of the United
States or of any State or Territory of the United States.
(h) The term "resident of the United States" means any individual or fiduciary
who is resident in the United States for the purposes of the United States tax, and not
resident in Pakistan for the purposes of the Pakistan tax, and any United States
corporation or any partnership created or organized in the United States or under the laws
of the United States, being a corporation or partnership which is not resident in Pakistan
for the purposes of Pakistan tax.
(i) The term "resident of Pakistan" means any person than a citizen of the
United States or a United States corporation who is resident in Pakistan for the purposes
of Pakistan tax and not resident in the United States for the purpose of United States
tax. A company is to be regarded as a resident of Pakistan if its business is managed and
controlled in Pakistan.
(j) The terms "resident of one of the contracting States" and "resident of
the other contracting States" mean a person who is a resident of the United States or
a person who is a resident of Pakistan, as the context requires.
(k) The terms "United States enterprise" and Pakistan "enterprise"
mean respectively, an industrial or commercial enterprise or undertaking, carried on in
the United States by a resident of the United States and an industrial or commercial
enterprise or undertaking carried on in Pakistan by a resident of Pakistan; and the terms
"enterprise of one of the contracting States" and "enterprise of the other
contracting State", mean a United States enterprise or a Pakistan enterprise, as the
context requires.
(1) The term "industrial or commercial profits" does not include rents or
royalties in respect of motion picture films or of oil wells, mines and quarries, or
income in the form of dividends, interest, rents, or royalties, or fees or other
remuneration derived by an enterprise from the management, control or supervision of the
trade, business or other activity of another enterprise or concern, or remuneration for
labour or personal services, or income from the operation of ships.
(m) The term "permanent establishment" when used with respect to an enterprise
of one of the contracting States, means a branch, management, factory or other fixed place
of business, but does not include as agency unless the agent has, and habitually
exercises, a general authority to negotiate and conclude contracts on behalf of such
enterprise or has a stock of merchandise from which he regularly fills orders on its
behalf. In this connection -
(i) An enterprise of one of the contracting States shall not be deemed to have a permanent
establishment in the other contracting State merely because it carries on business
dealings in that other contracting State through a bona fide broker or general commission
agent acting in the ordinary course of his business as such; and
(ii) The fact that a corporation or company which is a resident of one of the contracting
States has a subsidiary corporation or company which is a resident of the other
contracting State or which is engaged in trade or business in such other contracting State
(whether through a permanent establishment or otherwise) shall not of itself constitute
that subsidiary corporation or company a permanent establishment of its parent corporation
or company.
(n) The term "taxation authorities" means, in the case of the United States, the
Commissioner of Internal Revenue as authorized by the Secretary of Treasury and in the
case of Pakistan the Central Board of Revenue or their authorized representatives, and, in
the case of any territory to which the present Convention is extended under Article XVIII,
the competent authority for the administration in such territory of the taxes to which the
present Convention applies.
(2) In the application of the provisions of the present Convention by one of the
contracting States, any term not otherwise defined shall, unless the context otherwise
requires, have the meaning which it has under the laws of that contracting State relating
to the taxes which are the subject of the present Convention.
ARTICLE III
(1) A United States enterprise shall not be subject to Pakistan
tax in respect of its industrial or commercial profits unless it is engaged in trade or
business in Pakistan through a permanent establishment situated therein. If it is so
engaged, Pakistan tax may be imposed upon the entire income of such enterprise from
sources within Pakistan.
(2) A Pakistan enterprise shall not be subject to United States tax in respect of its
industrial or commercial profits unless it is engaged in trade or business in the United
States through a permanent establishment situated therein. If it is so engaged, United
States tax may be imposed upon the entire income of such enterprise from sources within
the United States.
(3) Where an enterprise of one of the contracting States is engaged in trade or business
in the other contracting State through a permanent establishment situated therein, there
shall be attributed to such permanent establishment the industrial or commercial profits
which it might be expected to derive in such other contracting State if it were an
independent enterprise engaged in the same or similar activities under the same or similar
conditions and dealing at arm's length with the enterprise of which it is a permanent
establishment, and the profits so attributed shall be deemed to be income of that
permanent establishment and shall be taxed accordingly.
ARTICLE IV
Where -
(a) an enterprise of one of the contracting States participates directly or indirectly in
the management, control or capital of an enterprise of the other Contracting State, or
(b) the same persons participate directly or indirectly in the management, control or
capital of an enterprise of one of the contracting States and an enterprise of the other
contracting State, and
(c) in either case, conditions are made or imposed between the two enterprises, in their
commercial or financial relations, which differ from those which would be made between
independent enterprises, any profits which would but for those conditions have accrued to
one of the enterprises but by reason of these conditions have not so accrued, may be
included in the profits of that enterprise and taxed accordingly.
ARTICLE V
Profits derived by an enterprise of one of the contracting States from the operation of aircraft registered in such State shall be exempt from tax by the other contracting State, unless the aircraft is operated wholly or mainly between places within such other contracting State.
ARTICLE VI
(1) The rate of United States tax on dividends paid by a United
States corporation to a Pakistan company -
(i) not having a permanent establishment in the United States, and
(ii) owing shares carrying more than 50 per cent of the voting power in the corporation
paying such dividends.
shall not exceed fifteen per cent.
(2) Where a United States corporation:-
(i) has no permanent establishment in Pakistan and
(ii) is a public company as defined in paragraph (4) of this Article, and
(iii) owns shares carrying more than 50 per cent of the voting power of a company which is
a resident of Pakistan and is engaged in an industrial undertaking of the classes
specified in section 15-B of the Income Tax Act, 1922 (XI of 1922), the rate of Pakistan
super tax otherwise payable with respect to dividends paid by such company to such
corporation shall be reduced by 1 anna in the rupee.
(3) The provisions of section 23-A of the Income Tax Act, 1922 (XI of 1922) (relating to
the distribution of company profits) shall not apply to the income of a company in which
shares carrying more than 50 per cent of the voting power are owned by United States
corporation constituting a public company, as defined in paragraph (4) of this Article, if
the company is engaged in an industrial undertaking of the classes specified in section
15-B of the Income Tax Act, 1922 (XI of 1922) and its profits are retained for the purpose
of its industrial development and expansion in Pakistan.
(4) In paragraphs (2) and (3) of this Article, the term "public company" means
in relation to any year of assessment-
(a) A corporation which does not restrict the right to transfer its shares which does not
prohibit the issue of its shares or debentures to the public or the sale of its shares on
a stock exchange and of which shares carrying more than 50 per cent of the voting power
were not at any time during the previous year held by less than six persons, or
(b) a corporation all of whose shares were held at the end of the previous year by one or
more public companies as defined in clause (a) of this paragraph.
ARTICLE VII
(1) Dividends paid by a company which is a resident of Pakistan
shall be exempt from United States tax except where the recipient thereof is a citizen or
resident or corporation of the United States.
(2) Dividends paid by a United States corporation shall be exempt from Pakistan tax except
where the recipient thereof is resident in Pakistan.
ARTICLE VIII
(1) Any royalty (other than royalties or rentals from motion
picture films) paid as consideration for the use of, or for the privilege of using, any
copyright, patent, design, secret process or formula, trade-mark, or other like property,
and derived from sources in one of the contracting States by a resident of the other
contracting State not having a permanent establishment in the former State shall be exempt
from tax by such former State.
(2) Where any royalty exceeds a fair and reasonable consideration in respect of the rights
for which it is paid, the exemption provided by the present Article shall apply only to so
much of the royalty as represents such fair and reasonable consideration.
ARTICLE IX
(1) Remuneration including pensions and annuities, paid by or on
behalf of the Government of the United States or its political sub-divisions to an
individual who is a citizen of the United States, not ordinarily resident in Pakistan, for
services rendered to that government in the discharge of governmental functions shall be
exempt from Pakistan tax.
(2) Remuneration including pensions and annuities, paid by or on behalf of the Government
of Pakistan or the Government of a Province in Pakistan or any local authority thereof to
any individual who is a citizen of Pakistan not having immigrant status in the United
States, for services rendered in the discharge of functions of that Government or of local
authority, as the case may be, shall be exempt from United States tax.
(3) The provisions of this article shall not apply to payments in respect of services
rendered in connection with any trade or business carried on for purposes of profit.
ARTICLE X
(1) A pension or annuity [other than a pension or annuity of the
kind referred to in paragraphs (1) and (2) of Article IX] derived from sources within one
of the contracting States by a resident of the other contracting State shall be exempted
from tax by the former State.
(2) The term "annuity" for the purposes of this Article means a stated sum
payable periodically at stated times during life or during a specified or ascertainable
period of time, under an obligation to make the payments in return for adequate and full
consideration in money or money's worth.
(3) This Article shall not apply to a pension or annuity payable from a superannuation
fund approved or recognized under the tax law of Pakistan nor to a pension or annuity from
a fund under an employee's pension or annuity plan, contributions to which under the tax
law of the United States are deductible in determining the taxable income of the employer.
ARTICLE XI
(1) An individual, who is a resident of the United States, shall
be exempt from Pakistan tax on profits or remuneration in respect of personal (including
professional) services performed within Pakistan in any financial year if-
(a) he is present within Pakistan on a temporary visit for a period or periods not
exceeding in the aggregate 183 days during that year, and
(b)the services are performed for or on behalf of a resident of the United States, and
(c) the profits or remuneration are subject to United States tax.
(2) An individual, who is a resident of Pakistan shall be exempt from United States tax on
profits or remuneration in respect of personal (including professional) services performed
within the United States in any taxable year if-
(a) he is present within the United States on a temporary visit for a period or periods
not exceeding in the aggregate 183 days during that year; and
(b) the services are performed for or on behalf of a resident of Pakistan; and
(c) the profits or remuneration are subject to Pakistan tax.
ARTICLE XII
A professor. or teacher, resident in one of the contracting States, who temporarily visits the other contracting State for the purpose of teaching for a period not exceeding two years at a university, college, school or other educational institution in the other contracting State, shall be exempted from tax by such other contracting State in respect of remuneration for such teaching.
ARTICLE XIII
(1) A resident of one of the contracting States who is
temporarily present in the
other contracting State solely -
(a) as a student at a recognized university, college or school in such other State, or
(b) as the recipient of a grant, allowance or award for the primary purpose of study or
research from a religious, charitable, scientific or educational organization of the
former State,
shall be exempted from tax by such other State: (i) on all remittances from abroad for the
purposes of his maintenance, education or training, and (ii) with respect to an amount not
in excess of 5,000 United States dollars for any taxable year, representing compensation
for personal services.
(2) A resident of one of the contracting States who is temporarily present in the other
contracting State for a period not exceeding one year, as an employee of or under contract
with, an enterprise of the former State or an organization referred to in paragraph (1),
solely to acquire technical, professional or business, experience from a person other than
such enterprise or organization, shall be exempted from tax by such other State on
compensation for such period in an amount not in excess of 6,000 United States dollars
(including remuneration from such person in the other contracting State).
(3) A resident of one of the contracting States temporarily present in the other
contracting State under arrangements with such other State or any agency or
instrumentality thereof solely for the purpose of training, study of orientation shall be
exempted from tax by such other State with respect to compensation not exceeding 10,000
United States dollars for the rendition of services directly related to such training,
study or orientation (including emoluments and remuneration, if any, from the employer
abroad of such resident).
ARTICLE XIV
(1) Effective January 1, 1956 the State Bank of Pakistan shall be
exempted from United States tax with respect to interest from sources within the United
States.
(2) Effective January 1, 1956 the Federal Reserve Banks of the United States shall be
exempted from Pakistan tax with respect to interest from sources within Pakistan.
ARTICLE XV
(1) Subject to the provisions of Internal Revenue Code (as in
effect on the date of signature of the present Convention) regarding the allowance of a
credit against United States tax or tax payable in a territory outside the United States,
Pakistan tax payable, whether directly or by deduction, in respect of income from sources
within Pakistan shall be allowed as a credit against United States tax payable in respect
of that income. For the purposes of this credit there shall be
deemed to have been paid by a United States domestic Corporation the amount by which such
Pakistan taxes (other than the business profits tax) have been reduced under the
provisions of section 15-B of the Income-tax Act, 1922 (XI of 1922), as in effect on the
date of the signature of the present Convention: Provided, that any extension made by law
of the period within which an industrial undertaking may be set up or commenced in order
to obtain the reduction provided in section 15-B shall be deemed to be in effect on the
date of the signature of the present Convention.]
(2) Subject to the provisions of Pakistan income-tax law (as in effect on the date of
signature of the present Convention), United States tax payable, whether directly or by
deduction, by a person resident in Pakistan, in respect of income from sources within the
United States (including income accruing or arising in United States but deemed, under the
provisions of the law of Pakistan, to accrue or arise in Pakistan) shall be allowed as a
credit against any Pakistan tax payable in respect of that income.
(3) For the purposes of this Article, profits or remuneration for personal (including
professional services performed in one of the contracting States shall be treated as
income from sources within that State.
ARTICLE XVI
(1) The taxation authorities of the contracting States shall
exchange such information (being information which is available under their respective
taxation laws in the normal course of administration) as is necessary for carrying out the
provisions of the present Convention or for the prevention of fraud or for the
administration of statutory provisions in relation to the taxes which are the subject of
the present Convention. Any information so exchanged shall be treated as secret and shall
not be disclosed to any person other than those concerned with the assessment and
collection of the taxes which are the subject of the present Convention. No information
shall be exchanged which would disclose any trade, business, industrial or professional
secret or trade process.
(2) The taxation authorities of the contracting States may consult together, as may be
necessary, for the purpose of carrying out the provisions of the present Convention and in
particular the provisions of Articles III and IV. Where a taxpayer claims that he has been
or may be subjected to double taxation contrary to the provisions of the present
Convention, he may present the facts to the taxation authorities of either contracting
State. Should the taxpayers' claim be deemed worthy of consideration, the taxation
authorities shall endeavour to come to an agreement with a view to avoidance of the double
taxation in question.
(3) The taxation authorities of both contracting States may prescribe regulations
necessary to interpret and carry out the provisions of the present Convention and may
communicate with each other directly for the purpose of giving effect to the provisions of
the present Convention.
(4) The provisions of the present Convention shall not be construed to restrict in any
manner any exemption, deduction, credit or other allowance now or hereafter accorded by
the laws of either contracting State in determining the tax of such State.
ARTICLE XVII
(11) The citizens or nationals of one of the contracting States
shall not, while resident in the other contracting State, be subjected in such other State
to taxes or any requirement connected therewith which is either higher or more burdensome
than the .taxes and connected requirements to which the citizens or nationals of such
other State resident therein are or may be subjected.
(2) The term "citizens" or "nationals" as used in this Article
includes all legal persons, partnerships and associations deriving their status from, or
created or organized under, the laws, in force in the respective contracting States.
(3) Nothing contained in this Article shall be construed -
(a) as obliging either of the contracting States to grant to persons not resident in its
territory those personal allowances, reliefs and reductions for tax purposes which are by
law available only to persons who are so resident; or
(b) as affecting any provisions of the law of Pakistan regarding the imposition of tax on
a non-resident or the grant of rebate of tax to companies fulfilling specified
requirements regarding the declaration and payment of dividends, unless those requirements
are fulfilled.
ARTICLE XVIII
(1) The present Convention may be extended, either in its
entirety or with modifications, to any territory for whose international relations either
of the contracting States is responsible and which imposes taxes substantially similar in
character to those which are the subject of the present Convention and any such extension
shall take effect from such date and subject to such modifications and conditions
(including conditions as to termination as may be specified and agreed between the
contracting States in notes to be exchanged for this purpose).
(2) The termination in respect of Pakistan or the United States of the present Convention
under Article XX shall, unless otherwise expressly agreed by both contracting States,
terminate the application of the present Convention to any territory to which the
convention has been extended under this Article.
ARTICLE XIX
The present Convention shall come into force on the date when the
last of all such things shall have been done in Pakistan and the United States as are
necessary to give the Convention the force o law in Pakistan and the United States,
respectively, and shall thereupon have effect-
(a) n the United States, for the taxable years beginning on or after the first day of
January of the year in which the instruments of ratification are exchanged;
(b) in Pakistan, in respect of the "previous years" or the chargeable accounting
periods" (as defined by the tax laws of Pakistan) beginning on or after the first day
of January of the year in which the instruments of ratification are exchanged.
ARTICLE XX
The present Convention shall continue in effect indefinitely but
either of the contracting States may, on or before the 30th day of June in any calendar
year not earlier than three years from the date of signature of the present Convention,
give to the other contracting States written notice of termination and, in such event the
present Convention shall cease to be effective -
(a) in the United States, for the taxable years beginning on or after the first day of
January next following such written notice of termination; and
(b) in Pakistan, in respect of the "previous years" or the "chargeable
accounting periods" (as defined by the tax laws of Pakistan) beginning on or after
the first day of January next following such written notice of termination.
IN WITNESS WHEREOF, the respective Plenipotentiaries have signed this Convention and have
affixed thereto their seals.
DONE in duplicate at Washington this first day of July, 1957.
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