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Canada
Contd. 1 of 2
AGREEMENT BETWEEN THE ISLAMIC REPUBLIC OF PAKISTAN
AND CANADA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH
RESPECT TO TAXES ON INCOME
MINISTRY OF FINANCE
[Planning and Economic Affairs]
S.R.O. 71(1)/78, dated the 14th January, 1978. - WHEREAS
the annexed Convention between the Government of the Islamic Republic of Pakistan and the
Government of Canada 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 49AA of the Income Tax Act,
1922 (XI of 1922), the Federal Government is pleased to direct that all the provisions of
the said Convention shall be given effect to in Pakistan.
Annex
CONVENTION BETWEEN THE ISLAMIC REPUBLIC OF PAKISTAN AND CANADA 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 and the
Government of Canada.
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 l
PERSONAL SCOPE
This Convention shall apply to persons who are resident of one or both of the Contracting States.
ARTICLE II
TAXES COVERED
1. This Convention shall apply to taxes on income imposed on
behalf of each Contracting State, 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 capital appreciation.
3. The existing "taxes to which the Convention shall apply are in particular
(a) in the case of Canada:
the income taxes imposed by the Government of Canada (hereinafter referred to as
"Canadian tax"):
(b) in the case of Pakistan:
- the income-tax,
- the super-tax, and
- surcharge.
(hereinafter referred to as "Pakistan tax").
4. The Convention shall also apply to any identical or substantially similar taxes which
are imposed after the date of signature of this Convention in addition to, or in place of,
the existing taxes. The Contracting States shall notify each other of changes which have
been made to their respective taxation laws.
CHAPTER II
DEFINITIONS
ARTICLE III
GENERAL DEFINITIONS
1. In this Convention, unless the context otherwise requires:
(a) (i) the term "Pakistan" used in a geographical sense means Pakistan as
defined in. the Constitution of the Islamic Republic of Pakistan and also includes any
area outside the territorial waters of Pakistan which under the laws of Pakistan is an
area within which the rights of Pakistan with respect to the sea-bed and sub-soil and
their natural resources may be exercised;
(ii) the term "Canada" used in a geographical sense means the territory of
Canada, including any area outside the territorial waters of Canada which under the laws
of Canada is an area within which the rights of Canada with respect to the sea-bed and
sub-soil and their natural resources may be exercised;
(b) the terms "a Contracting State" and "the other Contracting State"
mean, as the context requires, Pakistan or Canada;
(c) the term "person" includes an individual, a company, a partnership, an
estate, a trust and any other entity treated as taxable unit;
(d) the term "company" means any body corporate or any other entity which is
treated as a body corporate for tax purposes; in French, the term "societe" also
means a "corporation" within the meaning of Canadian law;
(e) 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;
(f) the term "competent authority" means ·
(i) in the case of Canada, the Minister of National Revenue or his authorized
representative;
(ii) in the case of Pakistan, the Central Board of Revenue;
(g) the term "tax" means Pakistan tax or Canadian tax as the context requires;
(h) the term "national" means:
(i) any individual possessing the nationality of a Contracting State;
(ii) any legal person, partnership and association deriving its status as such from the
law in force in a Contracting State.
2. As regards the application of the Convention by a Contracting State 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 the subject of
the Convention.
ARTICLE IV
FISCAL DOMICILE
1. For the purposes of this Convention, the term "resident of a Contracting
State" means any person who, under the law of that State, is liable to taxation
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, his status shall be determined in accordance with the following rules
·
(a) he shall be deemed to be a resident of the Contracting State in which he has a
permanent home available to him. If he has a permanent home available to him in both
Contracting States, he shall be deemed to be a resident of the Contracting State with
which his personal and economic relations are closest (hereinafter referred to as his
"centre of vital interests");
(b) if the Contracting State in which he has his centre of vital interests cannot be
determined or if he has not a permanent home available to him in either Contracting State,
he shall be deemed to be a resident of the Contracting State in which he has an habitual
abode;
(c) if he has an habitual abode in both Contracting States or in neither of them, he shall
be deemed to be a resident of the Contracting State of which he is a national;
(d) if he is a national of both Contracting States or of neither of them, the competent
authorities of the Contracting States shall settle the question by mutual agreement.
3. Where by reason of the provisions of paragraph 1 a company is a resident of both
Contracting States, then its status shall be determined in accordance with the following
rules:
(a) it shall be deemed to be a resident of the Contracting State of which it is a
national;
(b) if it is a national of neither of the Contracting States, it shall be deemed to be a
resident of the Contracting State in which its place of effective management is situated.
4. Where by reason of the provisions of paragraph 1 a person other than an individual or a
company is a resident of both Contracting States, the competent authorities of the
Contracting States shall by mutual agreement endeavour to settle the question and to
determine the mode of application of the Convention to such person.
ARTICLE V
PERMANENT ESTABLISHMENT
1. For the purposes of this Convention, the term "permanent establishment" means
a fixed place of business in which the business of the enterprise is wholly or partly
carried on.
2. The term "permanent, establishment" shall include especially:
(a) a place of management
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop;
(f) a mine, quarry or other place of extraction of natural resources;
(g) 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 3 months -
(h) 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 3
months within the fiscal year.
3. The term "permanent establishment" shall not be deemed 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 enterprise solely for
the purpose of processing by another enterprise;
(d) the maintenance of a stock of goods or merchandise belonging to purchasing goods or
merchandise, or for collecting information, for the enterprise;
(e) the maintenance of a fixed place of business solely for the purpose of advertising,
for the supply of information, for scientific research, or for similar activities which
have a preparatory or auxiliary character, for the enterprise,
4 A person acting in a Contracting State on behalf of an enterprise of the other
Contracting State (other than an agent of an independent status to whom paragraph applies)
shall be deemed to be a permanent establishment in the first-mentioned State if:
(a) he has and habitually exercised in that State an authority to conclude contracts on
behalf of the enterprise, unless his activities are limited to the purchase of goods or
merchandise for the enterprise; or
(b) he habitually maintains in the first-mentioned State a stock of goods or merchandise
from which he regularly fills orders on behalf of the enterprise.
5. An enterprise of a Contracting State shall not be deemed to have a permanent
establishment in the other Contracting State merely because it carries on business in that
other State through a broker, general commission agent or any other agent of an
independent status, where such persons are acting in the ordinary course of their
business. However, when the activities of such an agent are performed 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 has a subs/diary or
is a subs/diary of a company which 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 for either company a permanent establishment of
the other.
CHAPTER III
TAXATION OF INCOME
ARTICLE VI
INCOME FROM IMMOVABLE PROPERTY
1. Income from immovable property may be taxed in the Contracting State in which such
property is situated.
2. The term "immovable property" shall be defined in accordance with 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, 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; ships and aircraft shall not be
regarded as immovable property.
3. The provisions or paragraph 1 shall apply to income derived from the direct use,
letting, or use in any other form of immovable property and to profits from the alienation
of such property.
4. The provisions of paragraphs 1 and 3 shall also reply to the income from immovable
property of an enterprise and to income from immovable property used for the performance
of professional services.
ARTICLE VII
BUSINESS PROFITS
l. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on or has carried on business in Contracting State through a
Permanent establishment the other enterprise carries on business as aforesaid, the profits
of the enterprise may be taxed situated therein. If the in the other State, but only so
much of them, as is attributable to:
(a) that permanent establishment; or
(b) sales of goods or merchandise of the same or similar kind as those sold, or from other
business activities 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 or has carried on business in the other Contracting State through a permanent
establishment situated therein, there shall be attributed to that permanent establishment
profits which it might be expected to make if it were a distinct and separate 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 the determination of the profits of a permanent establishment, there
shall be allowed those deductible expenses which are incurred for the purpose of the
permanent establishment including the executive and general expenses so incurred, whether
in the State in which the permanent establishment is situated or elsewhere.
4. In so far 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 apportionment as may be
customary; the method of apportionment adopted shall, however, be such that the result
shall be in accordance with the principles laid down in this Article.
5. No profits shall be attributed to a permanent establishment by reason of the mere
purchase by that 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.
*See also paragraph 1 of Protocol (page 19).
ARTICLE VIII
SHIPPING AND AIR TRANSPORT
1. Profits derived by an enterprise of a Contracting State from the operation of ships or
aircraft in international traffic shall be taxable only in that State.
2. Notwithstanding the provisions of paragraph I or Article VII, profits derived from the
operation of ships or aircraft used principally to transport passengers or goods
exclusively between places in a Contracting State may be taxed in that State.
3. The provisions of paragraphs i and 2 shall also apply to profits referred to in those
paragraphs derived by an enterprise of a Contracting State from its participation in a
pool, a joint business or in an international operating agency.
ARTICLE IX
ASSOCIATED ENTERPRISES
Where:
(a) an enterprise of a Contracting State participated 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 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 enterprises, 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 X
DIVIDENDS
1. Dividends paid by a company which is a resident of a 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 Canada and which owns 26 per cent or more of the share capital of the
first-mentioned company, the tax charged in Pakistan on such dividends shall not exceed:
(a) 15 per cent of the gross amount of the dividends where the first-mentioned company is
engaged in an industrial undertaking; and
(b) 20 per cent of the gross amount of the dividends in all other cases.
3. Where a company which is a resident of Canada pays dividends to a resident of Pakistan
who is the beneficial owner thereof, the tax charged in Canada on such dividends shall not
exceed 16 pet- 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,
assimilated to income from shares by the taxation law of the State of which the company
making the distribution is a resident.
(b) The term "industrial undertaking" as used in this Article means an
undertaking engaged in:
(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 working of an oil-well or the source of any mineral deposit; and
(v) any other undertaking, which may be declared by the competent authority to be an
industrial undertaking for the purposes of this Article.
5. The provisions of paragraphs 2 and 3 shall not apply if the recipient of the dividends,
being a resident of a Contracting State, has in the other Contracting State, of which the
company paying the dividends is a resident, a permanent establishment or a fixed base with
which the holding by virtue of which the dividends are paid is effectively connected. In
such a case, the provisions of Article VII or Article XIV shall apply.
6. Where a company is a resident of a Contracting State, the other Contracting State may
not impose any tax on the dividends paid by the company to persons who are not residents
of that other State, or subject the company to a tax on undistributed profits, even if the
dividends paid or the undistributed profits consist wholly or partly of profits or income
arising in such other State. The provisions of this paragraph shall not prevent that other
State from taxing dividends relating to a holding which is effectively connected with a
permanent establishment or a fixed base operated in that other State by a person who is
not a resident of that other State.
7. The provisions of this Article shall not affect the taxation of the company on the
profits out of which the dividends are paid.
ARTICLE XI
INTEREST
1. The rate of Pakistan tax on interest paid by a resident of Pakistan to a resident of
Canada who is subject to tax in respect thereof shall not exceed 25 per cent of the gross
amount of the interest.
2. The rate of Canadian tax on interest paid by a resident of Canada to a resident of
Pakistan who is subject to tax in respect thereof shall not exceed 15 per cent of the
gross amount of the interest.
3. 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, as well as income assimilated to income from money lent
by the taxation law of the State in which the income arises. However, the term
"interest" does not include income dealt with in Article X.
4. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the interest,
being a resident of a Contracting State, has in the other Contracting State in which the
interest arises a permanent establishment or a fixed base and the debt-claim in respect of
which the interest is paid is effectively connected with such permanent establishment or
fixed base. In such a case, the provisions of Article VII or Article XIV, as the case may
be, shall apply.
5. 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 that interest
is borne by that permanent establishment or fixed base, then such interest shall be deemed
to arise in the Contracting State in which the permanent establishment or fixed base is
situated.
6. Where, owing to a special relationship between the payer and the recipient or between
both of them and some other person, the amount of the interest paid, 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 recipient in the absence of such relationship, the provisions of this
Article shall apply only to the last-mentioned amount. In that case, the excess part of
the payment shall remain taxable according to the law of each Contracting State, due
regard being had to the other provisions of this Convention.
7. Notwithstanding the provisions of paragraphs 1 and 2,
(a) interest arising in a Contracting State and paid in respect of a bond, debenture or
other similar obligation of the Government of that Contracting State or of a political
sub-division or local authority thereof shall, provided that the interest is beneficially
owned by a resident of the other Contracting State, be taxable only in that other State;
* (b) interest paid by a resident of Pakistan to a resident of Canada on
approved loans and on foreign currency accounts shall be exempt from Pakistan tax;
(c) interest arising in Pakistan in respect of a loan made or credit extended by the
Export Development Corporation of Canada shall be taxable only in Canada;
(d) interest arising in Canada in respect of a loan made by any financial institution
controlled by the Government of Pakistan and agreed to by the competent authorities shall
be taxable only in Pakistan;
(e) the State Bank of Pakistan shall be exempt from the Canadian tax with respect to
interest arising in Canada;
(f) the Bank of Canada shall be exempt from Pakistan tax with respect to interest arising
in Pakistan.
*See also paragraph 2 of Protocol (page 19).
ARTICLE XII
ROYALTIES
1. The rate of Pakistan tax on royalties arising in Pakistan and paid to a resident of
Canada shall not exceed 20 pet- cent of the gross amount of royalties as defined in
paragraph 4(a) and 15 per cent of the gross amount of royalties as defined in paragraph
4(b).
2. The rate of Canadian tax on royalties arising in Canada and paid to a resident of
Pakistan who is subject to tax in respect thereof shall not exceed 15 per cent of the
gross amount of the royalties.
3. Notwithstanding the provisions of paragraphs 1 and 2 copyright, royalties and other
like payments in respect of the production or reproduction of any literary. dramatic,
musical or artistic work (but not including royalties in respect of motion picture films
and works on film or videotape for use in connection with television) arising in a
Contracting State and paid to a resident of the other Contracting State who is subject to
tax thereon shall be taxable only in that other State.
4. The term "royalties" as used in this Article means:
(a) payments of any kind received as a consideration for the use of, or the right to use,
any copyright, patent, trade mark, design or model, plan, secret formula or process, for
the use of, or the right to use, industrial, commercial or scientific equipment and
includes payments of any kind in respect of motion picture films and works on film or
videotape for use in connection with television;
(b) payments received as consideration for technical know-how or information concerning
industrial, commercial or scientific experience.
5. The provisions of paragraphs I and 2 shall not apply if the recipient of the royalties,
being a resident of a Contracting State, has in the other Contracting State in which the
royalties arise a permanent establishment or a fixed base and the right or property in
respect of which the royalties are paid is effectively connected with such permanent
establishment or fixed base, In such a case, the provisions of Article VII or Article XIV,
as the case may be, shall apply.
6. Royalties 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 royalties, whether he is a resident of Contracting State or
not, has in a Contracting State a permanent establishment or. fixed base in connection
with which the obligation to pay the royalties was incurred, and those royalties are borne
by that permanent establishment or fixed base, then such royalties shall be deemed to
arise in the Contracting State in which the permanent establishment or fixed base is
situated.
7. Where, owing to a special relationship between the payer and the recipient or between
both of them and some other person, the amount of the royalties paid, having regard to the
use, right or information for which they are paid, exceeds the amount which would have
been agreed upon by the payer and the recipient in the absence of such relationship, the
provisions of this Article shall apply only to the last-mentioned amount. In that case,
the excess part of the payments shall remain taxable according to the law of each
Contracting State, due regard being had to other provisions of this Convention.
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