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S.R.O. 1253 (K), dated the 5th October, 1960. - Whereas the annexed Convention between Pakistan and the Federal Republic of Germany for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income has been ratified and the instruments of ratification have been exchanged as required by the Article XXIII.

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 shall be given effect to in Pakistan.

ANNEXURE

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

Pakistan and the Federal Republic of Germany,

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:

ARTICLE I

(1) The taxes which are the subject of this Convention are ·

(a) in Pakistan ·
the income-tax,
the super-tax, and
the business profits tax,
(hereinafter referred to as "Pakistan tax"); and

(b) in the Federal Republic.
the Einkommensteuer (income-tax),
the Koerperschaftsteuer (corporation tax), and
the Notopfer Berlin (Berlin emergency aid tax),
(hereinafter referred to as "Federal Republic tax").

(2) The present Convention shall also apply in any other taxes of a substantially similar character imposed by the Government of Pakistan, or in the Federal Republic, subsequently to the date of signature of this Convention.

ARTICLE II

(1) In this Convention, unless the context otherwise requires ·

(a)The term "Pakistan" means the Provinces of Pakistan and the Federal Capital;

(b) The term "Federal Republic" means the Federal Republic of Germany; and the territory of the Federal Republic of Germany means the territory in which the Basic Law for the Federal Republic of Germany is in force;

(c) The terms "one of the territories" and "the other territory" mean Pakistan and the Federal Republic of Germany, as the context requires;

(d) The term "tax" means Pakistan tax or Federal Republic tax as the context requires;

(e) The term "person" includes natural persons, companies and all other entities which are treated as taxable units under the tax laws of the respective States;

(f) The term "citizen" means a natural person, who is a citizen according to the laws of the respective States;

(g) The term "company" means any body corporate and any entity which is treated as a body corporate for tax purposes;

(h) The terms "resident of Pakistan" and "resident of the Federal Republic" mean respectively any person who is resident in Pakistan for the purposes of Pakistan tax and not resident in the Federal Republic for the purposes of Federal Republic tax, and any person who is resident in the Federal Republic for the purposes of Federal Republic tax and not resident in Pakistan for the purposes of Pakistan tax.

A company shall be regarded as resident in Pakistan if its business is managed and controlled in Pakistan.

A company shall be regarded as resident in the Federal Republic if its business is managed and controlled in the Federal Republic;

(i) The term "Pakistan company" means a company which is a resident of Pakistan; and the term "Federal Republic company" means a company which is a resident of the Federal Republic;

(j) The term "dividend" includes profits distributed by a Gesellschaft mit beschrankter I-Iaftung to its shareholders;

(k) The terms "Pakistan enterprise" and "Federal Republic enterprise" mean respectively an industrial or commercial enterprise or undertaking carried on by a resident of Pakistan and an industrial or commercial enterprise or undertaking carried on by a resident of the Federal Republic; and the terms "enterprise of one of the territories" and "enterprise of the other territory" mean a Pakistan enterprise or a Federal Republic enterprise, as the context requires;

(1) The term "permanent establishment" means a fixed place of business in one of the territories in which the business of the enterprise is wholly or partly carried on:

(aa) the term "fixed place of business" shall include a branch, an office, a factory, a workshop, a warehouse, a mine, a quarry or other place of extraction or exploitation of natural resources;

(bb) The use of mere storage facilities or the maintenance of a stock of goods or merchandise, whether in a warehouse or not, merely for convenience of delivery and not for purposes of display, shall not constitute a permanent establishment, unless sub-paragraph (ee) applies;

(cc) The term "permanent establishment" shall not include an office or like establishment ·

(1) maintained by a news-agency or a newspaper or journal, being an enterprise of one of the territories, exclusively for the collection and transmission to that territory of information on behalf of that enterprise; or

(2) maintained by an enterprise of one of the territories in the other territory for scientific research or for the collection of information, provided such activities are of a preparatory character and relate to the business intended to be carried on in that other territory by such enterprise and are for the exclusive use and benefit of such enterprise;

(dd) An enterprise of one of the territories shall not be deemed to have a permanent establishment in the other territory if it carries on in that other territory installation, or setting up of plant or machinery, the duration of which does not exceed 183 days in a taxable year, notwithstanding the fact that it has a fixed place of business in such other territory within the meaning of sub-paragraph (aa);

(ee) An enterprise of one of the territories shall be deemed to have a permanent establishment in the other territory if it has, in that other territory, an agent or employee, who

(1) has and habitually exercises a general authority to negotiate and conclude contracts on behalf of the enterprise; or

(2) has in that other territory a stock of goods or merchandise from which he regularly fills orders on behalf of the enterprise;

(ff) An enterprise of one of the territories shall not be deemed to have a permanent establishment in the other territory merely because it carries on business dealings through:

- a bona fide broker,
- a general commission agent, or
- any other agent of a genuinely independent status, where such persons are acting in the ordinary course of their business as such;

(gg) The fact that a company, which is a resident of one of the territories, has a subsidiary company, which is a resident of the other territory-or which carries on a trade or business in that other territory (whether through a permanent establishment or otherwise) shall not, of itself, constitute that subsidiary company a permanent establishment of its parent company.

(m) The term "competent authorities" means, in the case of Pakistan the Central Board of Revenue or their authorised representative and, in the case of the Federal Republic, the Federal Minister of Finance; and in the case of any territory to which the present Convention is extended under Article XXI, the competent authority for the administration of such territory of the taxes to which the present Convention applies.

(2) In the application of the provisions of this Convention by one of the contracting States any term not otherwise defined in this Convention shall, unless the context otherwise requires, have the meaning which it has under the laws in force in the territory of that State relating to the taxes which are the subject of this Convention.

ARTICLE III

(1) The industrial or commercial profits of an enterprise of one of the territories shall not be subjected to tax in the other territory unless the enterprise carries on a trade or business in the other territory through a permanent establishment situated therein. If it carries on a trade or business in that other territory through a permanent establishment situated therein, tax may be imposed on those profits in the other territory but only on so much of them as is attributable to that permanent establishment.

(2) The share of the industrial or commercial profits of an undertaking accruing to a partner therein who is a resident of one of the territories shall likewise not be subjected to tax in the other territory unless the undertaking carries on a trade or business in that other territory through a permanent establishment situated therein. If it carries on a trade or business in that other territory through a permanent establishment situated therein, tax may be imposed in that other territory on the share of the income accruing to that partner, but only on so much as represents his share of the income attributable to that permanent establishment.

(3) Where an enterprise of one of the territories carries on a trade or business in the other territory through a permanent establishment situated therein, there shall be attributed to that permanent establishment the industrial or commercial profits which it might be expected to derive in that other territory 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.

(4) In determining industrial or commercial profits of a permanent establishment there shall be allowed as deductions all expenses reasonably allocable to the permanent establishment, including executive and general administrative expenses so allocable.

(5) Paragraphs (1) and (2) shall not be construed as preventing one of the contracting States from i'mposing pursuant to this Convention a mix on income (e.g., dividends, interest, income from immovable property, etc.) derived from sources within its territory by a resident of the other territory if such income is not attributable to a permanent establishment in the first-mentioned territory.

(6) A fee or other remuneration derived by an enterprise of one of the territories from the management, control and supervision of the trade, business or other activity of an enterprise in the other territory may be taxed in the other territory, except where such payments are effected between a subsidiary and a parent company, which does not have a permanent establishment in that other territory, for such management, control or supervision.

ARTICLE IV

Where

(a) the person carrying on an enterprise of one of the territories participates directly or indirectly in the management, control or capital of an enterprise of the territory, or

(b) the same person participates directly or indirectly in the management, control or capital of an enterprise of one of the territories and an enterprise of the other territory,

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, than 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 V

(1) Profits derived by an enterprise of one of the territories from the operation of aircraft owned or chartered by that enterprise shall 'be exempt from tax in the other territory, unless the aircraft is operated wholly or mainly between places within such other territory.

(2) Paragraph (1) shall likewise apply in respect of profits derived from participation in pools enterprises engaged in air transport.

ARTICLE VI

(1) The rate of Pakistan super-tax on dividends paid to a company, which is a resident of the Federal Republic by a company which is resident in Pakistan and is engaged in an industrial undertaking to which section 15-B of the Income-tax Act, 1922 (XI of 1922) applies, shall be reduced by 6.25 per cent provided the first-mentioned company is a public company as defined in paragraph (5) of this Article and owns not less than one-third of the voting shares of the latter company.

(2) 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 Pakistan company more than one-third shares of which are owned by a Federal Republic company, being a public company as defined in paragraph (5) of this Article, if the Pakistan 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 purposes of its industrial development and expansion in Pakistan.

(3) The rate of Federal Republic tax on dividends paid to a Pakistan company by a Federal Republic company more than one-third of the voting shares of which are owned by the former company shall not exceed 15 per cent.

(4) Where a company which is a resident of one of the territories derives profits or income from sources within the other territory, there shall not be imposed in that other territory any form of taxation on dividends paid by the company to a person not resident in that other territory, 'unless such dividend is attributable to a permanent establishment maintained in that other territory by a person not resident in that other territory, or any tax in the nature of an undistributed profits tax on undistributed profits of the company.

(5) In paragraphs (1) and (2) of this Article, the term "public company" means, in relation to any year of assessment-

(a) a company which does not restrict the right to transfer its shares, which does not prohibit the issue of its shares 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 held at any time during the previous year by not less than six persons; or

(b) a company 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;

Provided that a Federal Republic company issuing bearer shares shall be deemed to be a public company within the meaning of clause (a) of this paragraph unless it is established that shares carrying more than 50 per cent of the voting power were held by less than six persons.

(6) Paragraphs (1) and (3) shall not apply where a resident of one of the territories has a permanent establishment in the other territory and such dividends are attributable to the permanent establishment.

ARTICLE VII

(1) The State Bank of Pakistan shall be exempt from Federal Republic tax with respect to interest from sources within the Federal Republic.

(2) The Bundesbank of the Federal Republic shall be exempt from Pakistan tax with respect to interest from sources within Pakistan.

ARTICLE VIII

(1) Royalties paid as consideration for the right to use copyrights, artistic and scientific works, patents, designs, plans, secret processes and formulate, trade marks and the like (including royalties and like payments in respect of motion picture films and films for use in connection with television) derived from sources within one of the territories by a resident of the other territory shall be exempt from tax in that first-mentioned territory.

(2) Where any royalty exceeds a fair and reasonable consideration in respect of the rights for which it is paid, the exemption provided by this Article shall apply only to so much of the royalties as represents such fair and reasonable consideration.

(3) Paragraph (1) shall not apply where a resident of one of the territories has a permanent establishment in the other territory and such royalties are attributable to that permanent establishment, where such a resident has a permanent establishment in that other territory the royalty shall, unless he shows the contrary, be presumed to be attributable to that permanent establishment.

ARTICLE IX

(1) Income from immovable property may be subjected to tax in the territory in which the property is situated.

(2) Interest on debts secured by mortgages on real estate and royalties or other amount paid in respect of the operation of a mine quarry or other place of extraction or exploitation of natural resources shall, for the purposes of this Article, be regarded as income derived from immovable property.

ARTICLE X

(1) Remuneration, including pensions, paid out of public funds of one of the Contracting States or political sub-divisions thereof to any individual for present or past services to that State or political sub-division thereof shall be exempt from tax in the territory of the other State if the individual is a citizen of the first-mentioned State.

(2) The provisions of this Article shall not apply to payments in respect of services in connection with any trade or business carried on by either of the contracting States or political sub-divisions thereof for purposes of profit.

(3) The provisions of paragraph (1) of this Article shall also apply to remuneration, including pensions, paid by the Bundesbank, the Federal Railways and the Postal Administration of the Federal Republic of Germany and the corresponding organizations of Pakistan.

(4) The term "political sub-division" as used in this Article includes local authorities.

ARTICLE XI

(1) Profits or remuneration from a profession (including services as a director) or employment derived by an individual who is a resident of one of the territories may be subjected to tax in the other territory only if the activities are performed in that other territory.

(2) An individual who is a resident of Pakistan shall be exempt from the Federal Republic tax on profits or remuneration referred to in paragraph (1) if-

(a) he is temporarily present in the Federal Republic for a period or periods not exceeding a total of 183 days during a taxable year,

(b) the services are performed for or on behalf of a resident of Pakistan, and

(c) the profits or remuneration are borne by a resident of Pakistan.

(3) An individual who is a resident of the Federal Republic shall be exempt from Pakistan tax on the profits or remuneration referred to in paragraph (1) if-

(a) he is temporarily present in Pakistan for a period or periods not exceeding a total of 183 days during a taxable year;

(b) the services are performed for or on behalf of a resident of the Federal Republic, and the profit or remuneration are borne by a resident of the Federal Republic.

(4) Where an individual permanently or predominantly performs services on ships or aircraft operated by an enterprise managed or controlled in one of the territories such services shall be deemed to be performed in that territory.

ARTICLE XII

(1) Any pension [other than pension to which paragraph (1) of Article X applies] and any annuity, derived from sources within one of the territories by an individual who is a resident of the other territory shall be exempt from tax in the first-mentioned territory, provided, that a pension or annuity payable from a superannuation fund approved or recognised under the tax laws of Pakistan may be subjected to tax in Pakistan.

(2) The term "pension", as used in this Article, means periodic payments made in consideration for services rendered or by way of compensation for injuries received.

(3) The term "annuity" 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.

ARTICLE XIII

(1) A resident of one of the territories who is temporarily present in the other territory solely:

(a) as a student at a recognised university, college or school in such other territory,

(b) as a business apprentice (including in the Federal Republic a Volunteer or a Praktikant), or

(c) as the recipient of a grant, allowance or award for the primary purpose of study or research from a religious, charitable, scientific or educational organisation of the former territory,

shall be exempt from tax by such other territory (i) on all remittances from abroad for the purposes of his maintenance, education or training, and (ii) with respect to any amount, representing remuneration for an employment in that other territory.

(2) A resident of one of the territories who is temporarily present in the other territory for a period not exceeding one year, as an employee of, or under contract with, an enterprise of the former territory or an organisation referred to in paragraph (1), solely to acquire technical, professional or business experience from a person other than such enterprise or organisation, shall be exempt from tax by such other territory of remuneration for such period in an amount not in excess of 15,000 DM (including remuneration from such person in the other territory).

(3) A resident of one of the territories temporarily present in the other territory under arrangements with the Government of such other territory or any agency or instrumentality thereof solely for the purpose of training, study or orientation shall be exempt from tax by such other territory with respect to remuneration not exceeding 25,000 DM for the rendition of services directly related to such training, study or orientation (including remunerations, if any, from the employer abroad of such resident).

ARTICLE XIV

(1) Subject to the provisions of Pakistan income-tax law (as in force on the date of signature of the present Convention), Federal Republic tax payable, whether directly or by deduction, by a person resident in Pakistan, in respect of income from sources within the Federal Republic (including income accruing or arising in the Federal Republic 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.

(2) In determining its taxes specified in Article I of this Convention the Federal Republic shall exclude, in the case of residents of the Federal Republic, from the basis upon which its taxes are imposed such items of income from sources within Pakistan which according to this Convention are not exempt from Pakistan tax. The Federal Republic, however, retains the right to take into account in the determination of its rate of tax the items of income excluded in accordance with the provisions of this paragraph. In the case of income from dividends the above provisions shall apply to such dividends only as are paid to a company which is a resident of the Federal Republic by a company resident in Pakistan more than 25 per cent of the voting shares of which are owned by the former company, the Pakistan super-tax collected on all other dividends shall, however, on application, be allowed as a credit against the Federal Republic tax payable in respect of these dividends computed on the basis of an average rate of tax. In the case of interest [other than interest referred in paragraph (2) of Article (IX)I, Pakistan tax payable thereon shall be allowed as a credit against the Federal Republic tax.

ARTICLE XV

The provisions of this Convention shall not be construed to deny or affect in any manner the right of diplomatic and consular officers to other or additional exemptions which may be granted to such officers.

ARTICLE XVI

(1) The competent authorities of the contracting States shall, upon request, exchange such information (being information available under the respective taxation laws of the contracting States) as is necessary for carrying out the provisions of this Convention or for the prevention of fraud or the like in relation to the taxes which are the subject of this Convention. Any information so exchanged shall be treated as secret and shall not be disclosed to any persons other than those concerned with the assessment and collection of the taxes which are the subject of this Convention. No information shall be exchanged which would disclose any trade, business, industrial or professional secret or any trade process.

(2) In no case shall the provisions of paragraph (1) be construed so as to impose upon either of the Contracting States the obligation to carry out administrative measures at variance with the regulations and practice of either contracting State or which would be contrary to its sovereignty, security or public policy or to supply particulars which are not procurable under the legislation of either State.

ARTICLE XVII

(1) Where a resident of one of the territories shows proof that the action of the tax authorities of the Contracting States has resulted or will result in double taxation contrary to the provisions of this Convention, he shall be entitled to present his case to the State of which he is a resident. Should his claim be deemed worthy of consideration, the competent authority of the State to which the claim is made shall endeavor to come to an agreement with the competent authority of the other State with a view to avoidance of double taxation.

(2) For the settlement of difficulties or doubts in the interpretation or application of this Convention or in respect of its relation to Convention of the contracting States with third States the competent authorities of the contracting States shall reach a mutual agreement as quickly as possible.

ARTICLE XVIII

The competent authorities of the two contracting States may consult together as may be necessary and communicate with each other directly for the purpose of giving effect to the provisions of this Convention.

ARTICLE XIX

The competent authorities of the two contracting States may prescribe regulations necessary to carry into effect this Convention within the respective States.

ARTICLE XX

(1) The provisions of this 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 of the contracting States in the determination of the tax imposed by such State, or by any other Convention between the contracting States.

(2) The citizens of one of the contracting States shall not, while resident in the other contracting State, be subjected therein to other or more burdensome taxes than are the citizens of such other contracting State, who are resident in its territory.

ARTICLE XXI

(1) The present Convention may be extended, either in its entirety or with modifications, to any territory for whose international relations, Pakistan is responsible and which imposes tax 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 Federal Republic of the present Convention under Article XXIV 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 XXII

The provisions of this Convention shall not apply to income derived from the operation of ships which would continue to be taxable according to the respective tax laws of the two contracting States. Where, however, income is derived from the operation of ships, Pakistan tax payable on that income shall be allowed as a credit against any Federal Republic tax payable on such income.

ARTICLE XXIII

(1) This Convention shall be ratified and the instruments of ratification shall be exchanged as soon as possible in Karachi.

(2) This Convention shall come into force after the expiration of one month following the date on which the instruments of ratification are exchanged and shall thereupon have effect:

(a) 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 April, 1957; and

(b) in the Federal Republic, for the calendar years beginning on or after the first day of January, 1957.

ARTICLE XXIV

This 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 after 1960, give to the other contracting State notice of termination; and in such event this Convention shall cease to be effective ·

(a) in Pakistan, in respects 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 April next following such written notice of termination; and

(b) in the Federal Republic for the calendar years beginning on or after the first day of January next following such written notice of termination.

IN WITNESS WHEREOF, the undersigned duly authorised thereto have signed this Convention and have affixed thereto their seals.

DONE in duplicate at Bonn on the seventh day of August, 1958 in the English and German languages, both texts being equally authoritative.

MUHAMMAD HUSAIN,
For Joint Secretary.

C.NO. 25(5)-ITP/53

Published in the Gazette of Pakistan, Extraordinary, page 1465, dated 05-10-1960.

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