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MINISTRY OF FINANCE AND ECONOMIC COORDINATION
(Finance Division)
Islamabad, the 12th December, 1982
S.R.O. 1245(I)/82. - WHEREAS the annexed Convention
between the Government of the Kingdom of the Netherlands 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 be given effect to in Pakistan from the day of 4th
October, 1982
Annex
CONVENTION BETWEEN THE KINGDOM OF THE NETHERLANDS AND THE ISLAMIC REPUBLIC OF PAKISTAN FOR
THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO
TAXES ON INCOME
The Government of the Kingdom of the Netherlands.
and
The Government of the Islamic Republic of Pakistan.
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 States.
ARTICLE 2
TAXES COVERED
1. This Convention shall apply to taxes on income imposed on
behalf of one of the States, 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 the Netherlands:
-- de inkomstenbelasting (income-tax),
-- de loonbelasting (wages tax),
-- de vennootschapsbelasting (company tax), de dividendbelasting (dividend tax).
(hereinafter referred to as "Netherlands tax");
(b) in the case of Pakistan:
-- the income-tax,
-- the super-tax,
-- the surcharge.
(hereinafter referred to as "Pakistan 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. The competent authorities of the States shall notify to each other any
substantial changes which have been made in their respective taxation laws.
CHAPTER II
DEFINITIONS
ARTICLE 3
GENERAL DEFINITIONS
1. For the purposes of this Convention, unless the context
otherwise requires:
(a) the term "State" means the Netherlands or Pakistan, as the context requires;
the term "States" means the Netherlands and Pakistan;
(b) the term "the Netherlands" comprises the part of the Kingdom of the
Netherlands that is situated in Europe and the part of the seabed and its subsoil under
the North Sea, over which the Kingdom of the Netherlands has sovereign rights in
accordance with international law;
(c) 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 international law and the laws of
Pakistan in an area within which the rights of Pakistan with respect to the seabed and its
subsoil and their natural resources may be exercised;
(d)the term "person" includes an individual, a company and any other body of
persons;
(e) the term "company" means any body corporate or any entity which is treated
as a body corporate for tax purposes;
(f) the terms "enterprise of one of the States" and "enterprise of the
other State" mean respectively an enterprise carried on by a resident of one of the
States and an enterprise carried on by a resident of the other State;
(g) the term "national" means -
1. any individual possessing the nationality of one of the States;
2. any legal person, partnership and association deriving its status as such from the laws
in force in one of the States;
(h) the term "international traffic" means any transport by a ship or aircraft
operated by an enterprise which has its place of effective management in one of the
States, except when the ship or aircraft is operated solely
between places in the other State;
(i) the term "competent authority" means:
1. in the Netherlands: the Minister of Finance or his duly authorized
representative;
2. in Pakistan: the Central Board of Revenue.
2. As regards the application of the Convention by one of the States any term not defined
therein shall, unless the context otherwise requires, have the meaning which it has under
the laws 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 one of the States" means any person who, 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. But this term does not include any person who is liable to
tax in that State in respect only of income from sources in that State.
2. Where by reason of the provisions of paragraph I an individual is a resident of both
States, then his status shall be determined as follows:
(a) He shall be deemed to be a resident of the 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 cannot be determined, or if
he has not a permanent home available to him in either State, he shall be deemed to be a
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 a 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 States 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 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 purpose 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;
(f) a warehouse, and
(g) a mine, an oil or gas well, a quarry or any other place of extraction of natural
resources.
3. A building site or construction, installation or assembly project or supervisory
activities in connection therewith constitute a permanent establishment only if lasting
more than six months.
4. The term "permanent establishment" shall likewise encompass the furnishing of
services including Consultancy services, by an enterprise through employees or other
personnel, engaged by the enterprise for such purpose, but only where activities of that
nature continue (for the same or a connected project) within the country for a period or
periods aggregating more than four months within any twelve months period.
5. 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 or display 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 or display;
(c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely
for the purpose of processing by an other enterprise;
(d) the maintenance of a fixed place of business solely for the purpose of purchasing
goods or merchandise or of collecting information, for the enterprise;
(e) the maintenance of a fixed place of business solely for the purpose of carrying on,
for the enterprise, any other activity of a preparatory or auxiliary character.
6. Notwithstanding the provisions of paragraphs 1 and 2, where a person -- other than an
agent of an independent status to whom paragraph 7 applies - is acting in one of the
States for or on behalf of an enterprise of the other State, that enterprise shall be
deemed to have a permanent establishment in the first-mentioned State if the person:
(a) has and habitually exercises in that State an authority to conclude contracts for or
on behalf of the enterprise, unless his activities are limited to the purchase of goods or
merchandise for that enterprise; or
(b) has no such authority, but habitually maintains in that State a stock of goods or
merchandise from which he regularly delivers goods or merchandise for or on behalf of the
enterprise;
(c) habitually secures orders in that State, for the sale of goods or merchandise, wholly
or almost wholly for the enterprise itself or for the enterprise and other enterprises
which are controlled by it or have a controlling interest in it.
7. An enterprise shall not be deemed to have a permanent establishment in one of the
States 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, when the activities of such
an agent are devoted wholly or almost wholly on behalf of that enterprise itself or on
behalf of that enterprise and other enterprises which are controlled by it or have a
controlling interest in it, he shall not be considered an agent of an independent status
within the meaning of this paragraph.
8. The fact that a company which is a resident of one of the States controls or is
controlled by a company which is a resident of the other 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 resident of one of the States from immovable
property (including income from agriculture or forestry) situated in the other State may
be taxed in that other State.
2. The term "immovable r property" shall have the meaning which it has under the
laws of the 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; ships, boats and aircraft shall not be regarded as immovable
property.
3. The provisions of paragraph 1 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 one of the States shall be
taxable only in that State unless the enterprise carries on business in the other 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 so
much of them as is attributable to (a) that permanent establishment, to (b) sales in that
other State of goods or merchandise of the same or similar kind as those sold through that
permanent establishment or to (c) other business activities carried on in that other State
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 one of the States
carries on business in the other State through a permanent establishment situated therein,
there shall in each State be attributed to that permanent establishment the 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 as deductions expenses which are incurred for the purposes of the business 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.
4. Insofar as it has been customary in one of the States 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
State from determining the profits to be taxed by such an apportionment as may be
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.
* The word "there" has wrongly appeared as "their" in the Official
Gazette.
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 from the operation of ships or aircraft in
international traffic shall be taxable only in the State in which the place of effective
management of the enterprise is situated.
2. If the place of effective management of a shipping enterprise is aboard** a ship, then
it shall be deemed to be situated in the State in which the home harbour of the ship is
situated, or, if there is no such home harbour, in the State of which the operator of the
ship is a resident.
** The word "aboard" has wrongly appeared as "abroad" in the Official
Gazette.
3. The provisions of paragraph I shall also apply to profits from the participation in a
pool, a joint business or an international operating agency.
ARTICLE 9
ASSOCIATED ENTERPRISES
1. WHERE
(a) an enterprise of one of the States participates directly or indirectly in the
management, control or capital of an enterprise of the other State, or
(b) the same persons participate directly or indirectly in the management, control or
capital of an enterprise of one of the States and an enterprise of the other 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 these 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.
2. Where one of the States includes in the profits of an enterprise of that State - and
taxes accordingly - profits on which an enterprise of the other State has been charged to
tax in that other State and the profits so included are profits which would have accrued
to the enterprise of the first-mentioned State if the conditions made between independent
enterprises had been those which would have been made between independent enterprises,
then that other State shall make an appropriate adjustment to the amount of the tax
charged therein on those profits. In determining such adjustment, due regard shall be had
to the other provisions of this Convention and the competent authorities of this State
shall, if necessary, consult each other.
ARTICLE 10
DIVIDENDS
1. Dividends paid by a company which is a resident of one of the
States to a resident of the other State may be taxed in the other State.
2. However, such dividends may also be taxed in the State of which the company paying the
dividends is a resident and according to the laws of that State, but if the recipient is
the beneficial owner of the dividends the tax so charged shall not exceed ·
(a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company
(other than partnership) which holds directly at least 25 per cent of the capital of the
company paying the dividends;
(b) 20 per cent of the gross amount of the dividends in all other cases.
3. The "provisions of paragraph 2 shall not affect the taxation of the company in
respect of the profits out of which the dividends are paid.
4. The term "dividends" as used in this Article means income from shares,
"jouissance" shares or 'jouissance" rights, mining shares, founders' shares
or other rights participating in profits, as well as income from profit sharing bonds and
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.
5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the
dividends, being a resident of one of the States, carries on business in the other 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 one of the States derives profits or income from
the other State, that other State may not impose any tax on the dividends paid by the
company, except insofar as such dividends are paid to a resident of that other State or
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.
ARTICLE 11
INTEREST
1. Interest arising in one of the States and paid to a resident
of the other State may be taxed in that other State.
2. However, such interest may also be taxed in the State in which it arises and according
to the laws of that State, but if the recipient is the beneficial owner of the interest
the tax so charged shall not exceed:
(a) 10 per cent of the gross amount of the interest if the interest is received by a bank
or other financial institution;
(b) 15 per cent of the gross amount of the interest if the interest is paid by a company
to a company (other than a partnership) which holds directly at least 25 per cent of the
capital of the paying company;
(c) 10 per cent of the gross amount of the interest if the interest is received in virtue
of a contract of financing or of delay in payment relating to the sale of industrial,
commercial or scientific equipment or to the construction of industrial, commercial or
scientific installations as well as of public works;
(d) 20 per cent of the gross amount of the interest in all other cases.
3. Notwithstanding the provisions of paragraph 2:
(a)the State Bank of Pakistan shall be exempt from Netherlands tax with respect to
interest arising in the Netherlands;
(b)the Central Bank of the Netherlands shall be exempt from Pakistan tax with respect to
interest arising in Pakistan;
(c) the Government of one of the State shall be exempt from the tax of the other State
with respect to interest arising in that other State, if such interest is derived from
loans;
(d) any financial institution owned or controlled by the Government of one of the States
shall be exempt from tax of the other State with respect to interest arising in that other
State, if such interest is derived from loans.
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, this term does not include income dealt with in
Article 10. Penalty charges for late payment shall not be regarded as interest for the
purpose of this Article.
5. The provisions of paragraphs I and 2 shall not apply if the beneficial owner of the
interest, being a resident of one of the States, carries on business in the other State in
which the interest arises, through a permanent establishment situated therein, or reforms
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 or 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 one of the States 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 one of the States or
not, has in one of the States 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 of 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 shall remain taxable according to the laws of each State,
due regard being had to the other provisions of this Convention.
ARTICLE 12
ROYALTIES
1. Royalties arising in one of the States and paid to a resident
of the other State may be taxed in that other State.
2. However, such royalties may also be taxed in the State in which they advise and
according to the laws of that State, but if the recipient is the beneficial owner of the
royalties the tax so charged shall not exceed ·
(a) 15 per cent of the gross amount of the payments referred to in paragraph 3, (a);
(b) 15 per cent of the gross amount of the payments referred to in paragraph 3, (b);
(c) 5 per cent of the gross amount of the payments referred to in paragraph 3, (c).
3. The term "royalties" as used in this Article means payments of any kind
received as a consideration for the use of, or the right to use:
(a) a patent, trademark or trade name, secret formula or process, design or model, or
information concerning industrial, commercial or scientific experience;
(b) industrial, commercial or scientific equipment, cinematograph films and tapes for
television and broadcasting;
(c) a copyright of a literary, artistic or scientific work, but excluding cinematograph
films and tapes for television or broadcasting.
4. The provisions of paragraphs I and 2 shall not apply if the beneficial owner of the
royalties, being a resident of one of the States, carries on business in the other State
in which the royalties arise, through a permanent establishment situated therein, or
performs in that other State independent personal services from a fixed base situated
therein, 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 case the
provisions of Article 7 or Article 14 as the case may be, shall apply.
5. Royalties shall be deemed to arise in one of the States 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 one of the States or
not, has in one of the States a permanent establishment or a fixed base in connection with
which the contract under which the royalties are paid was concluded, and such royalties
are borne by such permanent establishment or fixed base, then such royalties shall be
deemed to arise in the State in which the permanent establishment or fixed base is
situated.
6. 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 royalties, 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 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 shall remain taxable according to
the laws of each State, due regard being had to the other provisions of this Convention.
ARTICLE 13
CAPITAL GAINS
1. Gains derived by a resident of one of the States from the
alienation of immovable property referred to in Article 6 and situated in the other State
may be taxed in that other State.
2. Gains from the alienation of movable property forming part of the business property of
a permanent establishment which an enterprise of one of the State has in the other State
or of movable property pertaining to a fixed base available to a resident of one of the
States in the other State for the purpose of performing independent personal services,
including such gains from the alienation of such a permanent establishment (alone or with
the whole enterprise) or of such fixed base, may be taxed in that other State.
3. Gains from the alienation of ships or aircraft operated in international traffic or
movable property pertaining to the operation of such ships or aircraft, shall be taxable
only in the State in which the place of effective management of the enterprise is
situated. For the purposes of this paragraph the provisions of paragraph 2 of Article 8
shall apply.
4. Gains from the alienation of any property other than that referred to in paragraphs 1,
2 and 3, shall be taxable only in the State of which the alienator is a resident.
5. Notwithstanding the provisions of paragraph 4, where a person owns 25 per cent or more
of the capital of a company dealing wholly or mainly with immovable property, the gains
from the alienation of some or all of such shares may be taxed in the State where such
immovable property is situated.
6. Unless otherwise provided in paragraph 5, the provisions of paragraph 4 shall not
affect the right of each of the States to levy according to its own law a tax on gains
from the alienation of shares or "jouissance" rights in a company the capital of
which is wholly or partly divided into shares and which is a resident of that State,
derived by an individual who is a resident of the other State and has been a resident of
the first-mentioned State in the course of the last five years preceding the alienation of
the shares or "jouissance" rights.
ARTICLE 14
INDEPENDENT PERSONAL SERVICES
1. Income derived by a resident of one of the States in respect
of professional services or other activities of an independent character shall be taxable
only in that State except in the following circumstances, when such income may also be
taxed in the other State:
(a) if he has a fixed base regularly available to him in the other State for the purpose
of performing his activities; in that case, only so much of the income as is attributable
to that fixed base may be taxed in that other State; or
(b) if his stay in the other State is for a period or periods amounting or exceeding in
the aggregate 183 days in the fiscal year concerned; in that case only so much of the
income as is derived from his activities Performed in that other State may be taxed in
that other State; or
(c) if the remuneration for his activities in the other State is paid by a resident of
that State or is borne by a permanent establishment or a fixed base situated in that State
and exceeds in the fiscal year Rs. 75,000 or its equivalent in Dutch currency.
2. The term "professional services" includes especially independent scientific
literary, artistic, educational or teaching activities as well as the independent
activities of physicians, lawyers, engineers, architects, dentists and accountants.
ARTICLE 15
DEPENDENT PERSONAL SERVICES
1. Subject to the provisions of Articles 16, 18, :19, 20 and 21,
salaries, wages and other similar remuneration derived by a resident of one of the States
in respect of an employment shall be taxable only in that State unless the employment is
exercised in the other State. If the employment is so exercised, such remuneration as is
derived therefrom may be taxed in that other State.
2. Notwithstanding the provisions of paragraph :1, remuneration derived by a resident of
one of the States in respect of an employment exercised in the other State shall be
taxable only in the first-mentioned State if:
(a) the recipient is present in the other State for a period or periods not exceeding in
the aggregate 183 days in the fiscal year of that State, and
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the
other State, and
(c) the remuneration is not borne by a permanent establishment or a fixed base which the
employer has in the other State.
3. Notwithstanding the preceding provisions of this Article, remuneration derived by a
resident of one of the States in respect of an employment exercised aboard* a ship or
aircraft operated in international traffic, shall be taxable only in that State.
*The word "aboard" has wrongly appeared as "abroad" in the Official
Gazette.
ARTICLE 16
DIRECTORS' FEES
1. Director's fees or other remuneration derived by a resident of
one of the States in his capacity as ~. member of the board of directors, a
"bestuuder" or a "commissaris" of a company which is a resident of the
other State may be taxed in that other State.
2. Where the remuneration mentioned in paragraph I is derived by a person who exercises
activities of a regular and substantial character in a permanent establishment situated in
the State other than the State of which the company is a resident and the remuneration is
deductible in determining the taxable profits of that permanent establishment, then,
notwithstanding the provisions of paragraph I of this Article, the remuneration, to the
extent to which it is so deductible, may be taxed in the State in which the permanent
establishment is situated.
ARTICLE 17
ARTISTES AND ATHLETES
1. Notwithstanding the provisions of Articles 14 and 15, income
derived by a resident of one of the States as an entertainer, such as a theatre, motion
picture, radio or television artiste, or a musician, or as an athlete, from his personal
activities as such exercise in the other State, may be taxed in that other State.
2. Where income in respect of personal activities exercised by an entertainer or an
athlete in his capacity as such accrues not to the entertainer or athlete himself if but
to another person, that income may, notwithstanding the provisions of Articles 7, 14 and
15, be taxed 'in the State in which the activities of the entertainer or athlete are
exercised.
ARTICLE 18
PENSIONS AND ANNUITIES
1. Subject to the provisions of paragraph 2 of Article 19, any
pension or other similar remuneration in consideration of past employment and any annuity
paid to a resident of one of the States shall be taxable only in the State.
2. However, where such remuneration is not of a periodical nature and it is paid in
consideration of past employment in the other State, it may be taxed in that other State.
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 19
GOVERNMENT SERVICE
1. (a) Remuneration, other than a pension, paid by one of the
States or a political sub-division or a local authority thereof to an individual in
respect of services rendered to that State or sub-division or authority may be taxed in
that State.
(b) However, such remuneration shall be taxable only in the other State if the services
are rendered in that State and the individual is a resident of that State who:
1. is a national of that State; or
2. did not become a resident of that State solely for the purposes of rendering the
services.
2. (a) Any pension paid by, or out of funds created by, one of the States or a political
sub-division or a local authority thereof to an individual in respect of services rendered
to that State or sub-division or authority may be taxed in that State.
(b) However, such pension shall be taxable in only the other State if the individual is a
resident of, and a national of, that State.
3. The provisions of Articles 15, 16 and 18 shall apply to remuneration and pensions in
respect of services rendered in connection with a business carried on by one of the States
or a political sub-division or a local authority thereof.
ARTICLE 20
PROFESSORS AND TEACHERS
1. Payments which a professor or teacher who is a resident of one
of the States and who is present in the other State for the purpose of teaching or
scientific research for a maximum period of two years in a university, college or other
establishment for teaching or scientific research in that other State, receives for such
teaching or research, shall be taxable only in the first-mentioned State.
2. This Article shall not apply to income from research if such research is undertaken not
in the public interest but primarily for the private benefit of a specific person or
persons.
ARTICLE 21
STUDENTS
1. An individual who immediately before visiting one of the
States is a resident of the other State and is temporarily present in the first-mentioned
State for the primary purpose of:
(a) studying at a recognised university, college or school in that first-mentioned State;
or
(b) securing training as a business apprentice, shall be exempt from in the
first-mentioned State in respect of.
(i) all remittances from abroad for the purpose of his maintenance, education or training,
and
(ii) any remuneration for personal services performed in the first-mentioned State in an
amount that does not exceed 5,000 Netherlands guilders or its equivalent in Pakistan
currency for any fiscal year.
The benefits under this paragraph shall only extend for such period of time as may be
reasonable or customarily required to effectuate the purpose of the visit.
2. An individual who immediately before visiting one of the States is a resident of the
other State and is temporarily present in the first-mentioned State for a period not
exceeding three years for the purpose of study, research or training solely as a recipient
of a grant, allowance or award from a scientific, educational, religious or charitable
organization or under a technical assistance programme entered into by one of the States,
a political sub-division or a local authority thereof shall be exempted from tax in the
first-mentioned State on:
(a) the amount of such grant, allowance or award; and
(b) any remuneration for personal services performed in the first-mentioned State provided
such services are in connection with his study, research or training or are incidental
thereto, in an amount that does not exceed 5,000 Netherlands guilders or its equivalent in
Pakistan currency for any fiscal year.
3. An individual who immediately before visiting one of the States is a resident of the
other State and is temporarily present in the first-mentioned State for a period not
exceeding twelve months as an employee of, or under contract with the last-mentioned
State, a political sub-division or a local authority thereof, or an enterprise of' the
last-mentioned State, for the purpose of acquiring technical, professional or business
experience, shall be exempted from tax in the first-mentioned State on ·
(a) all remittances from the last-mentioned State for the purpose of his maintenance,
education or training, and
(b) any remuneration for personal services performed in the first-mentioned State,
provided such services are in connection with his study or training or are incidental
thereto, in an amount that does not exceed 15,000 Netherlands guild-ers or its equivalent
in Pakistan currency.
However, the benefits under this paragraph shall not be granted if the technical,
professional or business experience is acquired either from a company 50 per cent or more
of the voting stock of which is owned by the enterprise having sent the employee or the
person working under contract or from a company which owns 50 per cent or more of the
voting stock of the enterprise having sent to employee or the person working under
contract.
CHAPTER IV
ELIMINATION OF DOUBLE TAXATION
ARTICLE 22
ELIMINATION OF DOUBLE TAXATION
1. The Netherlands, when imposing tax on its residents, may
include in the basis upon which such taxes are imposed on* the items of income which,
according to the provisions of this Convention, may be taxed in Pakistan.
2. However, where a resident of the Netherlands derives items of income which according to
Article 6, Article 7, paragraph 5 of Article 10, paragraph 5 of Article 11, paragraph 4 of
Article 12, paragraphs 1, 2 and 5 of Article 13, Article 14, paragraph 1 of Article 15,
Article 16 and Article 19 of this Convention may be taxed in Pakistan and are included in
the basis referred to in paragraph 1, the Netherlands shall exempt such items by allowing
a reduction of its tax. This reduction shall be computed in conformity with the provisions
of Netherlands law for the avoidance of double taxation. For that purpose the said items
of income shall be deemed to be included in the total amount of the items of income which
are exempt from Netherlands tax under those provisions.
3. Further, the Netherlands shall allow a deduction from the Netherlands tax so computed
for the items of income which according to paragraph 2 of Article 10, paragraph 2 of
Article 11, paragraph 2 of Article 12, Article 17 and paragraph 2 of Article 18 of
this Convention may be taxed in Pakistan to the extent that these items are included in
the basis referred to in paragraph 1. The amount of this deduction shall be equal
to the tax paid in Pakistan on these items of income, but shall not exceed the amount of
the reduction which would be allowed if the items of income so included were the sole
items of income which are exempt from Netherlands tax under the provisions of Netherlands
law for the avoidance of double taxation.
4. Where, by reason of special incentive measures designed to promote economic development
in Pakistan, the Pakistan tax actually levied on interest arising in Pakistan, which may be
taxed in Pakistan in accordance to sub-paragraphs (a) and (b) of paragraph 2 of
Article 11 or on royalties arising in Pakistan, which may be taxed in Pakistan according
to sub-paragraph (a) of paragraph 2 of Article 12, is lower than the tax Pakistan may levy
according to those provisions, then, for the purposes of paragraph 3, the tax paid in
Pakistan on these items of income shall be deemed to be.
(a) with respect to interest to which sub-paragraph (a) of paragraph 2 of Article 11
applies: an amount equal to the amount of tax which Pakistan actually has levied thereon
increased by twice the difference between this amount and 10 per cent of the gross amount
of such interest;
(b) with respect to interest to which sub-paragraph (b) of paragraph 2 of Article 11
applies or royalties to Which sub-paragraph (a) of paragraph 2 of Article 12 applies: 15
per cent of the gross amount of such interest or royalties.
5. In the case of Pakistan, subject to the provision of the laws of Pakistan regarding the
allowance of a credit against Pakistan tax (which shall not affect* the general principle
hereof), the amount of Netherlands tax payable under laws of the Netherlands and in
accordance with the provisions of this Convention, whether directly or by deduction, by a
resident of Pakistan, in respect of income which is subject to tax both in Pakistan and
the Netherlands, shall, except in the case referred to in paragraph 6 of Article 13, be
allowed as a credit against the Pakistan tax payable in respect of such income but in an
amount not exceeding that proportion of Pakistan tax which such income bears to the entire
income chargeable to Pakistan tax.
*The word "affect" is wrongly appeared as "effect" in the Official
Gazette.
6. Where a resident of one of the States derives gains Which may be taxed in the other
State in accordance with paragraph 6 of Article 13, that other State shall allow a
deduction from its tax on such gains to an amount equal to the tax levied in the
first-mentioned State on the said gains.
CHAPTER V
SPECIAL PROVISIONS
ARTICLE 23
NON-DISCRIMINATION
1. Nationals of one of the States shall not be subjected in the
other State to any taxation or any requirement connected therewith, which is other or more
burdensome than the taxation and connected requirements to which nationals of that other
State in the same circumstances are or may be subjected. This provision shall
notwithstanding the provisions of Article 1, also apply to persons who are not residents
of one or both of the States.
2. The taxation on a permanent establishment which an enterprise of one of the States has
in the other State shall not be less favourably levied in that other State than the
taxation levied on enterprises of that other State carrying on the same activities. This
provision shall not be construed as obliging one of the States to grant to residents of
the other State any persona] allowances, reliefs and reductions for taxation purposes on
account of civil status or family responsibilities which it grants to its own residents.
3. Except where the provisions of paragraph 1 of Article 9, paragraph 7 of Article 11, or
paragraph 6 of Article 12, apply, interest, royalties and other disbursements paid by an
enterprise of one of the States to a resident of the other State shall, for the purpose of
determining the taxable profits of such enterprise, be deductible under the same
conditions as if they had been paid to a resident of the first-mentioned State.
4. Enterprises of one of the States, the capita] of which is wholly or partly owned or
controlled, directly or indirectly, by one or more residents of the other State, shall not
be subjected in the first-mentioned States to any taxation or any requirement connected
herewith which is other or more burdensome than the taxation and connected requirements to
which other similar enterprises of the first-mentioned State are or may be subjected.
ARTICLE 24
MUTUAL AGREEMENT PROCEDURE
1. Where a person considers that the actions of one or both of
the States result or will result for* him in taxation not in accordance with the
provisions of this Convention, he may, irrespective of the remedies provided by the
domestic law of those States, present his case to the competent authority of the State of
which he is a resident or, if his case comes under paragraph I of Article 23, to that of
the State of which he is a national. The case must be presented within three years from
the first notification of the action resulting in taxation not in accordance with the
provisions of the Convention.
*The appropriate word should have been "for" instead of "or" as
appeared in the Official Gazette.
2. The competent authority shall endeavour, if the objection appears to it to be justified
and if it is not itself able to arrive at a satisfactory solution, to resolve the case by
mutual agreement with the competent authority of the other State, with a view to the
avoidance of taxation which is not in accordance with the Convention. Any agreement
reached shall be implemented notwithstanding any time limits in the domestic law of the
States.
3. The competent authorities of the States shall endeavour to resolve by mutual agreement
any difficulties or doubts arising as to the interpretation or application of the
Convention. They may also consult together for the elimination of double taxation in cases
not provided for in the Convention.
4. The competent authorities of the States may communicate with each other directly for
the purpose of reaching an agreement in the sense of the preceding paragraphs.
ARTICLE 25
EXCHANGE OF INFORMATION
1. The competent authorities of the States shall exchange such
information as is necessary for carrying out the provisions of this Convention or of the
domestic laws of the States concerning taxes covered by the Convention insofar as the
taxation thereunder is not contrary to the Convention. The exchange of information is not
restricted by Article 1. Any information received by one of the States shall be treated as
secret in the same manner as information obtained under the domestic laws of that State
and shall be disclosed only to persons or authorities (including courts and administrative
bodies) involved in the assessment or collection of, the enforcement or prosecution in
respect of, or the determination of appeals in relation to, the taxes covered by the
Convention. Such persons or authorities shall use the information only for such purposes.
They may disclose the information in public court proceedings or in judicial decisions.
2. In no case shall the provision of paragraph i be construed so as to impose on one of
the States the obligation:
(a) to carry out administrative measures at variance with the laws and administrative
practice of that or of the other State;
(b) to supply information which is not obtainable under the laws or in the normal course
of the administration of that or of the other State;
(c) to supply information which would disclose any trade, business, industrial,
commercial, or professional secret or trade process, or policy (order public).
ARTICLE 26
DIPLOMATIC AGENTS AND CONSULAR OFFICERS
1. Nothing in this Convention shall affect the fiscal privileges
of diplomatic agents or consular officers under the general rules of international law or
under the provisions of special agreements.
2. Notwithstanding the provisions of Article 4, an individual who is a member of a
diplomatic or consular mission of one of the States in the other State or in a third State
shall be deemed for the purposes of the Convention to be a resident of the sending State
if:
(a) in accordance with international law he is not liable to tax in the receiving State in
respect of income from sources outside that State, and
(b) he is liable in the sending State to the same obligations in relation to tax on his
total income as are residents of that State.
3. The Convention shall not apply to international organizations, organs and officials
thereof and members of a diplomatic or consular mission of a third State, being present in
one of the States, if they are not liable therein to the same obligations in respect of
taxes on income as are residents of that State.
ARTICLE 27
REGULATIONS
1. The competent authorities of the States shall by mutual
agreement settle the mode of application of paragraph 2 of Article 10, of paragraphs 2 and
3 of Article 11 and paragraph 2 of Article 12.
2. The competent authorities of each of the' States, in accordance with the practices of
that State, may prescribe regulations necessary to carry out the other provisions of this
Convention.
ARTICLE 28
TERRITORIAL EXTENSION
1. This Convention may be extended, either in its entirety or
with any necessary modifications, to the Netherlands Antilles as well as to any territory
for whose international relations Pakistan is responsible, of the territory or country
concerned imposes taxes substantially similar in character to those to which this
Convention applies. 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 in notes to be exchanged through diplomatic channels.
2. Unless otherwise agreed the termination of this Convention shall not also terminate the
application of this Convention to any territory or country to which it has been extended
under this Article.
CHAPTER VI
FINAL PROVISIONS
ARTICLE 29
ENTRY INTO FORCE
1. This Convention shall enter into force on the later of the
dates on which the respective Governments have notified each other in writing that the
formalities constitutionally required in their respective States have been complied with,
and its provisions shall have effect for taxable years and periods beginning on or after
the first day of January of the year in which the Convention enters into force.
2. Notwithstanding the provisions of paragraph 1, the provisions of Article 8 shall have
effect for taxable years and periods beginning on or after the first day of January, 1970.
ARTICLE 30
TERMINATION
This Convention shall remain in force until terminated by one of
the Contracting Parties. Either Party may terminate the Convention, through diplomatic
channels, by giving notice of termination at least six months before the end of any
calendar year after a period of five years from the date of entry into force of this
Convention. In such event the Convention shall cease to have effect for taxable years and
periods beginning after the end of the calendar year in which the notice of termination
has been given.
IN WITNESS WHEREOF the undersigned, duly authorized thereto, have signed this Convention.
DONE at ................ this ......... day of. ............ in duplicate, in the
Netherlands and English languages, both taxes being equally authentic.
| For THE GOVERNMENT OF THE KINGDOM OF THE NETHERLANDS | ABDUL WAHEED, Joint Secretary. |
For THE GOVERNMENT OF THE ISLAMIC REPUBLIC OF PAKISTAN |
[C. No.2(9)/TL/60.]
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