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5 Taxation of Wealth
The Pakistani Taxation Laws do not empower the Federal Government to conclude agreements in respect of taxes wealth. The relevant statute, the Wealth Tax Act, 1963 does not contain any provision to this effect in contrast to section 163 of the Income Tax Ordinance, 1979. Therefore, Pakistan cannot conclude any agreement for avoidance of double taxation of wealth. This Article, however, has been included in the book purposefully; for academic purposes as well as to pinpoint that relevant law may be. amended to extend the scope of Pakistani double tax agreements to an area which is as important as avoidance of double taxation on income. At present, nonresidents (foreigners as well as Pakistanis) and residents cannot take benefit of this Article under any double taxation agreement concluded by the Pakistani government with any country.
CHAPTER IV
TAXATION OF CAPITAL
ARTICLE 22
CAPITAL
(1) Capital represented by immovable property referred to in
Article 6, owned by a resident of a Contracting State and situated in the other
Contracting State, may be taxed in that other State.
(2) Capital represented by movable property forming part of the business property of a
permanent establishment which an enterprise of a Contracting State has in the other
Contracting State or by movable property pertaining to a fixed base available to a
resident of a Contracting State in. the other Contracting State for the purpose of
performing independent personal services, may be taxed in that other State.
(3) . Capital represented by ships and aircraft operated in international traffic and by
boats engaged in inland waterways transport, and by movable property pertaining to the
operation of such ships, aircraft and boats, shall be taxable only in the Contracting
State in which the place of effective management of the enterprise is situated.
(4) All other elements of capital of a resident of a Contracting State shall be taxable
only in that State.
(The Group decided to leave to bilateral negotiations the question of the taxation of the
capital represented by immovable property and movable property and of all other elements
of capital of a resident of a Contracting. State. Should the negotiating parties decide to
include in the Convention an Article on the taxation of capital, they will have to
determine whether to use the wording of paragraph (4) as shown or wording that leaves
taxation to the State in which the capital is located.)
107. Scope
This Article deals with the taxes on capital, which is the source of income. Income
arising from the employment of capital has been dealt with in the foregoing Articles (the
capital what the owner turns to profit by keeping it in his possession which is an income
yielding asset). Taxes on capital generally constitute complimentary taxation of income
from capital. The principles which have been applicable in regard to taxation of income
are also applicable, to taxation on its source, viz., the capital. The right to levy tax
on income from immovable property, or from the movable property of the permanent
establishment or of fixed base; or from ships or aircrafts, has been given to the State
where the property or the permanent establishment (or the fixed base) or the place of
effective management is situated, respectively in terms of Article 6, 7(14) or 8. Such
States have been given rights to levy tax on the capital as represented by the immovable
property, movable property, ships or aircraft. Thus, taxation on capital constitutes
complimentary taxation of income from the capital, as there is no separation of the right
of a State to tax income as well as on capital. The State which is entitled to levy tax on
income arising from the capital, is also entitled to levy tax on that capital.
The entire Article, and the word 'capital' or reference thereto in Article 2 has been
placed between the brackets, with a footnote on the first page of the UN Model Convention
that the words in square brackets are to be deleted if it is not intended to include in
the convention an Article on taxation of capital. Pakistani agreements do not contain
Article on taxation of capital and, therefore, reference to 'capital' in Article 2 is
absent as also the Article relating to 'Taxation of Capital'.
108.Properties on which the source State has the right to levy tax
Paragraphs (1), (2), (3) first specify the property which is the subject-matter of
this Article, as representing the immovable property, the movable property of the
permanent establishment or the fixed base, the ships or aircraft or the movable property
pertaining to the operation of such ships or aircraft then define it, and thereafter
confer rights to the State to levy tax on it where such property or the permanent
establishment or the fixed base or the place of effective management of the enterprise of
ships or aircraft is situated.
109.Properties on which the resident State has rights to levy tax
As regards other elements of capital not specified in the preceding paragraphs (1), (2)
and (3), paragraph (4) of the Article provides that tax on such element is to be levied by
the Contracting State of which the person to whom these belong is a resident.
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