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S.R.O. 187(I)/84. - Whereas the annexed Convention between the Government of the Kingdom of Belgium and the Government of the Islamic Republic of Pakistan for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income has been made;

NOW, THEREFORE, in exercise of the powers conferred by section 163 of the Income Tax Ordinance, 1979 (XXXI of 1979), the Federal Government is pleased to direct that the provisions of the said Convention shall enter into force on 2nd day of September, 1983 and the provisions of the said Convention shall be given effect to in Pakistan in respect of all taxes payable on income arising in any previous year on or after the first day of July, 1983.

Annex

CONVENTION
BETWEEN
THE ISLAMIC REPUBLIC OF PAKISTAN
AND
THE KINGDOM OF BELGIUM
FOR
THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME

THE GOVERNMENT OF THE ISLAMIC REPUBLIC OF PAKISTAN,
hereinafter referred to as the Government of Pakistan.
and
THE GOVERNMENT OF THE KINGDOM OF BELGIUM,
hereinafter referred to as the Government of Belgium.
Desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.
Have agreed as follows:

CHAPTER I
SCOPE OF THE CONVENTION

ARTICLE 1
PERSONAL SCOPE

This Convention shall apply to persons who are residents of one or both of the Contracting States.

ARTICLE 2
TAXES COVERED

1. This Convention shall apply to taxes on income imposed on behalf of a Contracting State or on its political sub-divisions or local authorities, irrespective of the manner in which they are levied.

2. There shall be regarded as taxes on income all taxes imposed on total income or on elements of income, including taxes on gains from the alienation of movable or immovable property, taxes on the total amounts of wages or salaries paid by enterprises, as well as taxes on a capital appreciation.

3. The existing taxes to which the Convention shall apply are in particular -

(a) in Pakistan: the income tax, the super-tax and the surcharge
(hereinafter referred to as "Pakistan tax");

(b) in Belgium:

(i) the individual income-tax (l'impot des personnes physiques - de personenbelasting);

(ii) the corporate income-tax (l'impot des societies - de vennootsch-apsbelasting);

(iii) the income-tax on legal entities (l'impot des personnes morales - de rechtspersonenbelasting);

(iv) the income on non-residents (l'impot des non-residents - de belasting der niet-verblijfhouders);

(v) the prepayments (les precomptes-de voorheffingen);

(vi) the exceptional and temporaw solidarity contribution (la participation exceptionnelle et temporaire de solidarite-de buiten-gewone en tijdelijke solidariteitsbijdrage);

(vii) the surcharges (les decimes etc centimes additionels-de opdeciemen en opcentiemen) on any of the taxes and prepayments referred to in heads (i) to (iv) including the supplements to the individual income-tax (les taxes additionnelles a l'impot des personnes physiques-de aannvullende belastingen op de person-enbelasting).
(hereinafter referred to as "Belgian tax").

4. The Convention shall apply also to any identical or substantially similar taxes which are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes by either Contracting State or by the Government of any territory to which the Convention is extended under Article 28. The Contracting States shall notify each other of changes which have been made in their respective taxation laws.

5. In case of substantial changes in the system of taxation of either Contracting State, the Contracting States shall consult each other with a view to adapting the Convention to such changes.

CHAPTER II
DEFINITIONS

ARTICLE 3
GENERAL DEFINITIONS

1. For the purposes of this Convention, unless the context otherwise requires:

(a) the term "Pakistan" used in a geographical sense means the national territory and any area in the sea which is under the national jurisdiction of the Islamic Republic of Pakistan;

(b) the term "Belgium" used in a geographical sense means the national territory and any area in the sea which is under the national jurisdiction of the Kingdom of Belgium;

(c) the term "a Contracting State" and "the other Contracting State" mean Pakistan or Belgium as the context requires;

(d) the term "tax" means Pakistan tax or Belgian tax as the context requires;

(e) the term person includes an individual, a company and any other body of persons;

(f) the term "company" means any body corporate or any entity which is treated as a body corporate for tax purposes in the Contracting State of which it is a resident;

(g) the terms "enterprise of a Contracting State" and" enterprise of the other Contracting State" mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

(h) the term "nationals" means ·

(i) all individuals possessing the nationality of a Contracting State;

(ii) all legal persons, partnerships and associations deriving their status as such from the laws in force in a Contracting State;

(i) the term "international traffic" means any transport by a ship or aircraft operated by an enterprise of a Contracting State except when such ship or aircraft is operated solely between places in the other Contracting State;

(j) the term "competent authority" means:

(i) in Pakistan, the Central Board of Revenue, and

(ii) in Belgium, the Director General of direct taxes or his authorised representative.

2. As regards the application of the Convention by a Contracting State any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the law of that State concerning the taxes to which the Convention applies.

ARTICLE 4
RESIDENT

1. For the purposes of this Convention, the term "resident of a contracting State" means any person whose income, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature.

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

(a) He shall be deemed to be a resident of that State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests);

(b) if the State in which he has his centre of vital interests can not be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be resident of the State in which he has an habitual abode;

(c)if he has an habitual abode in both States or in neither of them, he shall be deemed to be resident of the State of which he is a national;

(d) if he is a national of both States or of neither of them, the competent authorities of the Contracting State shall settle the question by mutual agreement.

3. Where by reason of the provisions of paragraph I a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the State in which its place of effective management is situated.

ARTICLE 5
PERMANENT ESTABLISHMENT

1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

2. The term "permanent establishment" includes especially:

(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop or a warehouse;
(f)a mine, an oil or gas well, a quarry or any other place of extraction of natural resources;
(g) a permanent sales exhibition;
(h) a building site or construction or assembly project or supervisory activities in connection therewith, where such site, project or activity continues for a period of more than six months;
(i) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel, where activities of that nature continue (for the same or a connected project) within the country for a period or periods aggregating more than three months within the fiscal year.

3. Notwithstanding the preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include:

(a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise:

(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery:

(c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods of merchandise or of collecting information, for the enterprise;

(e) the maintenance of a fixed place of business solely for the purpose of carrying on advertisement, for the supply of information, for scientific research or for similar activities which have a preparatory or auxiliary character, for the enterprise.

4. Notwithstanding the provisions of paragraphs 1 and 2, an enterprise of a Contracting State shall be deemed to have a permanent establishment in the other Contracting State if it has in that other State an agent-other than an agent to whom paragraph 5 applies - who:

(a) has and habitually exercises a general authority to negotiate and conclude contracts on behalf of the enterprise, unless the activities of the agent are limited to the purchase of goods or merchandise for the enterprise; or

(b) has in that other State a stock of goods or merchandise from which he regularly fills orders on behalf of the enterprise.

5. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, where the activities of such an agent or broker are devoted wholly or almost wholly on behalf of that enterprise, he would not be considered an agent of an independent status within the meaning of this paragraph.

6. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

CHAPTER III
TAXATION OF INCOME

ARTICLE 6
INCOME FROM IMMOVABLE PROPERTY

1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

2. The term "immovable property" shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; shops, boats and aircraft shall not be regarded as immovable property.

3. The provisions of paragraph i shall apply to income derived from the direct use, letting, or use in any other form of immovable property.

4. The provisions of paragraphs I and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

ARTICLE 7
BUSINESS PROFITS

1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State, but only much of them, as is attributable to:

(a) that permanent establishment, or

(b) the sale of goods or merchandise of the same or similar kind as those sold, or to other business transactions of the same or similar kind as those effected, through that permanent establishment.

2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

3. In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere.

However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the permanent establishment. Likewise, no account shall be taken in the determination of the profits of a permanent establishment, for amounts charged (otherwise than towards reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the head office of the enterprise or any of its other offices.

4. Insofar as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may customary; the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained in this Article.

5. No profits shall be attributed to a permanent establishment by reason of the mere purchase by the permanent establishment of goods or merchandise for the enterprise.

6. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

7. Where profits include items of income which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article.

ARTICLE 8
SHIPPING AND AIR TRANSPORT

1. Profits of an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.

2. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.

ARTICLE 9
ASSOCIATED ENTERPRISES

Where:

(a) an enterprise of a Contracting State participates directly or indirectly in the management, control or financing of an enterprise of the other Contracting State, or

(b) the same persons participate directly or indirectly in the management, control or financing of an enterprise of a Contracting State and an enterprise of the other Contracting State,

and 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 enterprise, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

ARTICLE 10
DIVIDENDS

1. Dividends paid by a company which is a resident of Contracting State to a resident of the other Contracting State may be taxed in both Contracting States.

2. Where a company which is a resident of Pakistan pays dividends to a company which is a resident of Belgium and owns not less than 20 per cent of the voting shares of the first-mentioned company, the rate of the Pakistan tax on the dividends shall not exceed:

(i) 10 per cent of the gross amount of the dividends if the paying company is engaged in an industrial undertaking;

(ii) 15 per cent of the gross amount of the dividends in all other cases.

3. Where a company which is a resident of Belgium pays dividends to a resident of Pakistan who is the beneficial owner thereof, the Belgian tax charged on such dividends shall not exceed 15 per cent of their gross amount.

(4)(a) The term "dividends" as used in this Article means income from shares, "jouissance" shares or "jouissance" rights, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other Corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident. This term means also income - even when paid in the form of interest - which is taxable under the head of income on capital invested by the members of a company other than a company with share capital, which is a resident of Belgium.

(b) The term "industrial undertaking" as used in the present Article means:

(i) the manufacture of goods or materials or the subjection of goods or materials to any process which results in substantially changing their original condition;

(ii) ship-building;

(iii) electricity, hydraulic power, gas and water supply;

(iv) mining including the working of an oil-well or any other source of mineral deposits;

(v) any other undertaking which may be declared to be an "industrial undertaking" by the competent authorities for the purposes of this Article.

5. The provisions of paragraphs 1, 2 and 3 shall not apply if the recipient of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the. case may be, shall apply.

6. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company to a resident of that first-mentioned State, except insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

7. The provisions of this Article shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

ARTICLE 11
INTEREST

1. Interest arising in a Contracting State and paid to a resident of the Contracting State may be taxed in that other State.

2. However, such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 15 per cent of the gross amount of the interest.

3. Notwithstanding the provisions of paragraph 2:

(a) the State Bank of Pakistan shall be exempt from Belgian tax with respect to interest from sources within Belgium;

(b) the National Bank of Belgium (Banque Nationale de Belgique-Nationale Bank van Belgie) shall be exempt from Pakistan tax with respect to interest from sources within Pakistan;

(c) the Government of a Contracting State shall be exempt from the tax of the other Contracting State with respect to interest on loans derived by that Government from sources within that other Contracting State;

(d) any financial institution owned or controlled by the Government of a Contracting State shall be exempt from the tax of the other Contracting State with respect to interest on loans derived by that institution from sources within that other Contracting State.

4. The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to Participate in the debtor's profits, and in Particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. However, the term interest shall not include for the purpose of this Article penalty charges for late Payment nor interest regarded as dividends under the second sentence of paragraph 4(a) of Article
10.

5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of Which the interest is paid is effectively connected with such permanent establishment of fixed base. In such case, the provisions of Article 7 or Article 14 as the case may be, shall apply.

6. Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for Which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial Owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments may be taxed in the Contracting State in which the interest arises according to the law of that State.

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