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CONVENTION BETWEEN THE REPUBLIC OF ITALY AND THE ISLAMIC REPUBLIC OF PAKISTAN FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME.
SRO 326(I)/92, dated 20th April, 1992. - WHEREAS the
annexed Convention between the Government of the Islamic Republic of Pakistan and the
Government of the Republic of Italy for the Avoidance of Double Taxation and Prevention of
Fiscal Evasion has been made;
2. NOW, THEREFORE, in exercise of the powers conferred by section 163 of the Income Tax
Ordinance, 1979 (XXXI of 1979), the Federal Government is pleased to direct that the
provisions of the said Convention shall enter into force on the twenty-seventh day of
February, 1992, and shall have effect in Pakistan for any income year beginning on or
after the first day of January, 1992.
ANNEX
CONVENTION BETWEEN THE REPUBLIC OF ITALY 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 Republic of Italy 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:
ARTICLE 1
PERSONAL SCOPE
This Convention shall apply to persons who are residents of one or both of The Contracting States.
ARTICLE 2
TAXES COVERED
1. This Convention shall apply to taxes on income imposed on
behalf of 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 and taxes on the total amounts of wages or salaries paid by the 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 Italy:-
(i) the personal income tax (imposta sul reddito delle persone fisiche), and
(ii) the corporate income tax (imposta sul reddito delle persone giuridiche).
Whether or not they are collected by withholding at source.
(hereinafter referred to as "Italian 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 apply also 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 by either Contracting State or by the Government of any territory to
which the present Convention is extended under Article 28 of this Convention. At the end
of each year, the competent authorities of the contracting States shall notify to each
other of significant changes which have been made in their respective taxation laws.
ARTICLE 3
DEFINITIONS
1. In this Convention, unless the context otherwise requires:-
(a) the term "Pakistan" means Pakistan as defined in the Constitution of the
Islamic Republic of Pakistan and 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;
(b) the term "Italy" means the Republic of Italy and includes any area beyond
the territorial waters of Italy which, in accordance with the laws of Italy concerning the
exploration for and the exploitation of natural resources, may be designated as an area
within which the rights of Italy with respect to the sea-bed and sub-soil and natural
resources may be exercised;
(c) the terms "a Contracting State" and the other Contracting State mean Italy
or Pakistan as the context requires;
(d) the term "company" means any body corporate or any entity which is treated
as a body corporate for tax purposes;
(e) the term "person" includes an individual, a company and other body of
persons;
(f) 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;
(g) the term "national" means :-
(i) any individual possessing the nationality of a Contracting State;
(ii) any legal person, partnership, association and any other entity deriving its status
as such from the law inforce in a Contracting State;
(h) the term "international traffic" means any transport by a ship or aircraft
operated by enterprise of one of the Contracting States, except when the ship or aircraft
is operated solely between places in the other Contracting State;
(i) the term "competent authority" means:-
- in the case of Italy, the Ministry of Finance;
- in the case of Pakistan the Central Board of Revenue.
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 law of that Contracting State relating to the taxes which are the subject of
the Convention.
ARTICLE 4
RESIDENT
1. For the purposes of this Convention, the term "resident
of a Contracting State" means any person who, under the laws of that State, is liable
to tax thereto by reason of his domicile, residence, place of management o? 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 1 an individual is a resident of both
Contracting States, then his status shall be determined as follows:-
(a) he shall be deemed to be a resident of 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 (center of vital interests);
(b) if the State in which he has his center 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 Stare 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 Contracting States shall settle the question by mutual agreement.
3. Where by reason of the provisions of paragraph 1 a person other than an individual is a
resident of both Contracting States, then it shall be deemed to be a resident of the State
in which its place of effective management is situated.
ARTICLE 5
PERMANENT ESTABLISHMENT
1. For the purposes of this Convention, the term "permanent
establishment" means a fixed place of business 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, a quarry or other place or extraction of natural resources;
(g) permanent sales exhibition;
(h) a building site or construction, installation or assembly project or supervisory
activities in connection therewith, where such site, project or activity continues for a
period of more than 6 months;
(i) the furnishing of services, including consultancy services by an enterprise through
employees of other personnel, where activities of that nature continue for the same
project or a connected project within the country for a period or periods aggregating more
than 3 months.
3. The term "permanent establishment" shall not be deemed 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 another enterprise;
(d) the maintenance of a fixed place of business solely for the purpose of purchasing
goods or merchandise, or for collecting information, for the enterprise;
(e) the maintenance of 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 for or on behalf of an enterprise of the other
Contracting State other than an agent of independent status to whom paragraph 5 applies
shall be deemed to be a permanent establishment in the first mentioned State if:-
(a) he 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 the enterprise; or
(b) he habitually maintains in the first mentioned State a stock of goods or merchandise
for which he regularly delivers goods or merchandise for or 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, where the activities of such an agent are devoted wholly, or almost
wholly on behalf of that enterprise, or a group of centrally controlled enterprises he
would not be considered an agent of an independent status within the meaning of this
paragraph.
6. The fact that a company which is a resident of a Contracting State controls or is
controlled by a company which is a resident of the other Contracting State, or which
carries on business in that other State (whether through a permanent establishment or
otherwise), shall not of itself constitute either company a permanent establishment of the
other.
ARTICLE 6
INCOME FROM IMMOVABLE PROPERTY
1. Income derived by a resident of a Contracting State from
immovable property (including income from agriculture or forestry) situated in the other
Contracting State may be taxed in that other State.
2. The term "immovable property" shall have the meaning as it has under the law
of the Contracting State in which the property in question is situated. The term shall in
any case include property accessory to immovable property, livestock and equipment used in
agriculture and forestry and right to which the provisions of general law respecting
landed property apply. Usufruct of immovable property and rights to variable or fixed
payments as considerations for the working of, or the right to work, mineral deposits,
sources and other natural resources shall also be considered as "immovable
property" 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 paragraph 1 and apply to the income from immovable property of an
enterprise and to income from immovable property used for the performance of independent
personal services.
ARTICLE 7
BUSINESS PROFITS
1. The profits of an enterprise of a Contracting State shall be
taxable only in that State unless the enterprise carries on or has carried on business in
the other Contracting State through a permanent establishment situated therein. If the
enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in
the other State, but only 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 provision of paragraph 3, where an enterprise of a Contracting State
carries on business in the other Contracting State through a permanent establishment
situated therein, there shall in each Contracting State be attributed to that permanent
establishment the profits which it might be expected to make if it were a distinct 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 deduction expenses which are incurred for the purposes of the permanent
establishment, including executive and general administrative expenses so incurred,
whether in the State in which the permanent establishment is situated or elsewhere.
4. Notwithstanding the provisions of paragraph 3, no deduction shall be allowed in respect
of amounts paid or charged (otherwise than towards reimbursement of actual expenses) by
the permanent establishment to the head office of the enterprise or any of its other
offices, by way of:-
(a) royalties, fees or other similar payments in return for the use of patents or other
rights;
(b) commission for specific services performed or for management; and
(c) interest or money lent to the permanent establishment except in case of banking
institution.
5. 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 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 embodied in this Article.
6. 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.
7. 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.
8. 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. Income derived by an enterprise of a Contracting State from
the operation in international traffic of ships or aircraft shall be taxable in that
State.
2. Notwithstanding the provisions of paragraph 1, income derived by an enterprise of a
Contracting State from operation of ships or aircraft in the other State may be taxed in
that other State. but the tax so charged shall be reduced by 50 per cent.
3. The provisions of paragraphs I and 2 shall also apply to income derived by an
enterprise of a Contracting State from its participation in a pool, a joint business or in
an international agency.
ARTICLE 9
ASSOCIATED ENTERPRISES
WHERE:
(a) an enterprise of a Contracting State participates directly or indirectly in the
management, control or capital of an enterprise of the other Contracting State, or
(b) the same person 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 10
DIVIDENDS
1. Dividends paid by a company which is a resident of Contracting
State to a resident of the other Contracting State may be taxed in that other State.
2. However, such dividends may be taxed in the Contracting State of which the company
paying the dividends is a resident, and according to the law of that State, but if the
recipient is the beneficial owner of the dividends the tax so charged shall not exceed:-
(a) 15 per cent of the gross amount of the dividends, if the recipient company holds
directly at least 25 per cent of the capital of the company paying the dividends and the
latter company is engaged in an industrial undertaking;
(b) 25 per cent of the gross amount of the dividends in all other cases.
3. The term "dividends" as used in this article means income from shares,
"jouissance" shares or "jouissance" rights, mining shares, founder's
share or other rights, not being debt-claims, participating in profits as well as income
from other corporate rights which is subjected to the same taxation treatment as income
from shares by the taxation law of the State in which the company making the distribution
is a resident.
4. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the dividends
being a resident of a Contracting State, carries on business in the other Contracting
State of which the company paying the dividends is a resident, through a permanent
establishment situated therein or performs in that other State professional services from
a fixed base situated therein and the holding m respect of which the dividends are paid is
effectively connected with such permanent establishment or fixed base. In such a case the
dividends are taxable in that other State according to its own law.
5. Where a company which is a resident of a Contracting State derives profits or income
from the other Contracting State, that other State may not impose any lax on the Dividends
paid by the company, except in so far as such dividends are paid to a resident of that
other State or insofar as the recipient maintains a permanent establishment or a fixed
based in that other State, or subject the company's undistributed profits 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.
6. The provisions of this article shall not affect the taxation of the company in respect
of the profits out of which the dividends are paid.
ARTICLE 11
INTEREST
1. Interest arising in a Contracting State and paid to a resident
of the other Contracting State may be taxed in that other State.
2. However, such interest may be taxed in the Contracting State in which it arises, and
according to the law of that State, but if the recipient is the beneficial owner of the
interest, the tax so charged shall not exceed 30 per cent of the gross amount of the
interest.
3. The term "interest" as used in this Article means income from Government
securities, bonds or debentures, whether or not secured by mortgage and whether or not
carrying a right to participate in profits, and debt-claims of every kind as well as all
other income assimilated to income from money lent by the taxation law of the State in
which the income arises.
4. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the interest,
being a resident of a Contracting State, carries on business in the other Contracting
State in which the interest arises, through a permanent establishment situated therein, or
performs in that other State professional 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 a case, the interest is taxable in that
other State according to its own law.
5. Interest shall be deemed to arise in a Contracting State when the payer is that State
itself, a political or an administrative 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 in
connection with which the indebtedness on which the interest is paid was incurred, and
such interest is borne by such permanent establishment, then such interest shall be deemed
to arise in the Contracting State in which the permanent establishment 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 the
payer and the recipient in the absence of such relationship, the provisions of this
Article shall apply 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 the other provisions of this Convention.
7. Notwithstanding the provisions of paragraphs 1 and 2, interest arising in a Contracting
State shall be exempt from tax in that State if:-
a) the payer of the interest is the Government of that Contracting State; or
b) the interest is paid to the Government of the other Contracting State or any agency or
instrumentality (including a financial institution) wholly owned by that other Contracting
State.
ARTICLE 12
ROYALTIES
1. Royalties arising in a Contracting State and paid to resident
of the other Contracting State. may be taxed in that other State.
2. However, such royalties may be taxed in the Contracting State in which they arise, and
according to the law of that State but if the recipient is the beneficial owner of the
royalties the tax so charged shall not exceed 30 per cent of gross amount of royalties as
defined in paragraph 3.
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, any copy-right of
literary, artistic or scientific work including films or tapes for television or
broadcasting any 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 or for
information concerning industrial, commercial or scientific experience.
4. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the royalties,
being a resident of a Contracting State, carries on business in the other Contracting
State in which the royalties arise, through a permanent establishment situated therein, or
performs in that other State professional 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 a case, the royalties are taxable
in that other Contracting State according to its own law.
5. Royalties shall be deemed to arise in a Contracting State when the payer is that State
itself, a political or an administrative sub-division, a local authority or a resident of
that State. Where, however, the person paying the royalties, whether he is a resident of a
Contracting State or not, has in a Contracting State a permanent establishment in
connection with which the liability to pay the royalties was incurred and such royalties
are borne by such permanent establishment, then such royalties shall be deemed to arise in
the Contracting State in which the permanent establishment 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 royalties paid, having regard to
the use, right or information for which these 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 the other provisions of this Convention.
ARTICLE 13
CAPITAL GAINS
1. Gains from the alienation of immovable property, as defined in
paragraph 2 of Article 6, may be taxed in the Contracting state in which such property is
situated.
2. Gains from the alienation of movable property, forming part of the business property;
of a permanent establishment which an enterprise of a Contracting State has in the other
Contracting State or of movable property pertaining to a fixed base available to a
resident of a Contracting State for the purpose of performing professional services,
including such gains from the alienation of such a permanent establishment (alone or
together with the whole enterprise) or of such a fixed base, may be taxed in the other
State. However, gains from the alienation of ships and aircraft operated by an enterprise
of a Contracting State in international traffic and movable property pertaining to the
operation of such ships or aircraft, shall be taxable only in that Contracting State.
3. Gains from the alienation of shares of the capital stock of a company the property of
which consists directly or indirectly principally of immovable property situated in a
Contracting State may be taxed in that State.
4. Gains from the alienation of shares other than those mentioned in paragraph 3
representing a substantial participation in a company which is a resident of a State may
be taxed by that State.
5. Gains from the alienation of any property other than that referred to in paragraphs 1,
2, 3 and 4, shall be taxable only in the Contracting State of which the alienator is a
resident.
ARTICLE 14
INDEPENDENT PERSONAL SERVICES
1. Income derived by a resident of a Contracting State in respect
of professional services or other independent activities of a similar character shall be
taxable only in the State. However, in the following circumstances such income may be
taxed in the other Contracting State i.e.:-
(a) if he has a fixed base regularly available to him in the other Contracting State for
the purpose of performing his activities in that case, only so much of the income as
attributable to that fixed base may be taxed in the other Contracting State; or
(b)if his stay in the other Contracting State is for a period or periods amounting to or
exceeding in the aggregate 183 days in the fiscal year; or
(c) if the remuneration for his services in the other Contracting State derived from
residents of that Contracting State exceeds 75,000 rupees or its equivalent, in Italian
currency in the fiscal year, notwithstanding that his stay in that State is for a period
or periods amounting to less than 183 days during the fiscal year.
2. The term "professional service" 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 Contracting State
in respect of an employment shall be taxable in that State unless the employment is
exercised in the other Contracting State. If the employment is so exercised, such
remuneration as derived therefrom may be taxed in that other State.
2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a
Contracting State in respect of an employment exercised in the other Contracting 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 concerned, and either.
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the
other State, or
(c) the remuneration is not borne by a permanent establishment or a fixed base which the
employer bas in the other State.
3. Notwithstanding the preceding provisions of this Article, remuneration derived in
respect of an employment exercised aboard a ship or aircraft operated in international
traffic may be taxed in the Contracting State in which the place of effective management
of the enterprise is situated.
ARTICLE 16
DIRECTORS' FEES
1. Directors' fees and similar payments derived by a resident of
a Contracting State in his capacity as a member of the board of directors or a similar
organ of a company which is a resident of the other Contracting State, shall be taxable
only in that other State.
2. The provisions of paragraph I shall likewise apply to payments received by an official
of a company in a top level managerial position who carries out functions, which are of a
nature similar to those performed by a person referred to in paragraph 1.
ARTICLE 17
ARTISTS AND ATHLETES
1. Notwithstanding the provisions of Articles 14 and 15, income
derived by a resident of a Contracting State as an entertainer, such as theater, motion
picture, radio or television artiste, or a musician or as an athlete including a boxer or
a wrestler, from his personal activities as such exercised in the other Contracting 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 but to
another person, that income may, notwithstanding; the provisions of Article 7, 14 and 15,
be taxed in the Contracting State in which the activities of the entertainer or athlete
are exercised.
ARTICLE 18
PENSIONS
Subject to the provisions of paragraph 2 of Article 19, pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment shall be taxable only in that State.
ARTICLE 19
GOVERNMENT SERVICE
1. (a) Remuneration, other than persons, paid by a Contracting
State or a political or administrative sub-division or a local authority thereof to any
individual in respect of services rendered to that State or sub-division or local
authority thereof shall be taxable only in that State.
(b) However, such remuneration shall be taxable only in the other Contracting State if the
services are rendered in that State and the recipient is a resident of that other
Contracting State, who:
(i) is a national of that State; or
(ii) did not become a resident of that State solely for the purpose of performing the
services
2. (a) Any pension paid by, or out of funds created by, a Contracting State or a political
or administrative sub-division or a local authority thereof to any individual in respect
of services rendered to that State or sub-division or local authority thereof shall be
taxable only in that State.
However, such pension shall be taxable only in the other Contracting State if the
recipient is a national of and a resident of that State.
3. The provisions of Articles 15, 16 and 18 shall not. apply to remuneration and pensions
in respect of services rendered in connection with any trade or business carried on by one
of the Contracting States or a political or administrative subdivision or a local
authority thereof.
ARTICLE 20
STUDENTS AND TRAINEES
1. An individual who was a resident of a Contracting State
immediately before visiting the other Contracting State and is temporarily present in that
Contracting State solely a. a student at a university, college or other similar
educational institution or as a business apprentice shall, from the date of his first
arrival in that Contracting State in connection with that visit, be exempt from tax in
that Contracting State:
(a) on all remittances from abroad for purpose of his maintenance education or training,
and
(b) for a period not exceeding in the aggregate of five years on any remuneration for
personal services rendered in that Contracting State with a view to supplementing the
resources available to him for such purposes.
2. An individual who was a resident of a Contracting State immediately before visiting the
other Contracting State and is temporarily present in that Contracting State solely for
the purpose of study, research or training 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 the Government of a Contracting State shall for a
period not exceeding two years from the date of his first arrival in that Contracting
State in connection with that visit be exempt from tax in that Contracting State on:
(a) the amount of such grant, allowance or award;
(b) all remittance from abroad for the purposes of this maintenance, education or
training; and any remuneration for personal services in that other contracting State
provided that such services are in connection with his study research, training.
3. An individual who was a resident of a Contracting State immediately before visiting the
other Contracting State and is temporarily present in that Contracting State solely as a
trainee for the purpose of acquiring technical, professional or business experience, shall
for a period not exceeding two years from the date of his first arrival in that
Contracting State in connection with that visit be exempt from tax in that Contracting
State on:
(a) all remittances from abroad for purposes of his maintenance, education or training,
and
(b) for a period not exceeding in the aggregate of 5 years, any remuneration for personal
services rendered in that Contracting State, provided such services are in connection with
his studies or training.
ARTICLE 21
PROFESSORS AND TEACHERS
1. The remuneration derived by a professor or a teacher who is a
resident of a Contracting State at the beginning of a visit to the other Contracting State
and is temporarily present in that other State for the purpose of teaching or carrying out
advanced study or research, during a period not exceeding two years, at a university,
college, school or other educational institution in that other Contracting State, shall be
exempt from tax in that other State.
2. For the purposes of paragraph 1 of this Article, the term remuneration shall include
remittances from sources outside the other State sent to enable the professor or teacher
to carry out the purposes referred to in paragraph 1.
ARTICLE 22
INCOME NOT EXPRESSLY MENTIONED
Items of income of a resident of a Contracting State arising in the other Contracting State, not dealt within the foregoing Articles of this Convention, may be taxed in both Contracting States.
ARTICLE 23
ELIMINATION OF DOUBLE TAXATION
1. In the case of Pakistan:
Where a resident of Pakistan owns items of income which are taxable in Italy, Pakistan, in
determining its income taxes specified in Article 2 of this Convention, may include unless
specific provisions of this Convention otherwise provide, such items of income in its
total income upon which such taxes are imposed.
In such cases Pakistan shall deduct from the taxes so calculated Italian tax paid on the
income, but in an amount not exceeding the amount which would be arrived at by applying
the average rate of such tax to the doubly taxed income.
2. In the case of Italy:
Where a resident of Italy owns items of income which are taxable in Pakistan, Italy, in
determining its income taxes specified in Article 2 of this Convention, may include,
unless specific provisions of this Convention otherwise provide, such items of income in
the base upon which such taxes are imposed.
In such a case, Italy shall deduct from the taxes so calculated Pakistan tax paid on the
income, but in an amount not exceeding that proportion of the aforesaid Italian tax which
such items of income bear to the entire income. However, no deduction will be granted if
the item of income is subjected in Italy to a final withholding tax by request of the
recipient of the said income in accordance with the Italian law.
3. For the purposes of paragraphs I and 2 of this Article, where tax on business profits,
dividends and interest arising in a Contracting State is exempted or reduced for a limited
period of time to promote the economic development of that State, such tax which has been
exempted or reduced shall be deemed to have been paid at an amount not exceeding 25 per
cent.
ARTICLE 24
NON-DISCRIMINATION
1. The nationals of a Contracting State shall not be subjected in
the other Contracting 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
provisions shall, notwithstanding the provisions of Article 1, also apply to persons who
are not residents of one or both of the Contracting States.
2. The taxation on a permanent establishment which an enterprise of a Contracting State
has in the other Contracting 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 a Contracting State to grant
to residents of the other Contracting State any personal 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 Article 9, paragraph. 6 of Article 11, or paragraph 6 of
Article 12, apply, interest, royalties and other disbursements paid by an enterprise of a
Contracting State to a resident of the other Contracting State shall, for the purposes of
determining the taxable profits of such enterprise, be deductible under the same
conditions as if they had paid to a resident of the first mentioned State.
4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or
controlled directly or indirectly by one or more residents of the other Contracting State,
shall not be subjected in the first-mentioned State to any taxation or any requirement
connected therewith 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.
5. In this Article, the term "taxation" means taxes which are the subject of
this Convention.
ARTICLE 25
MUTUAL AGREEMENT PROCEDURE
1. Where a person considers that the actions of one or both of
the Contracting States result or will result for him in taxation not in accordance with
this Convention, he may, irrespective of the remedies provided by the national laws of
those States, present his case to the competent authority of the Contracting State of
which he is a resident or, if his case comes under paragraph 1 of Article 24, to that of
the Contracting State of which he is a national. This case must be presented within three
years from the first notification of the action giving rise to taxation not in accordance
with the Convention.
2. The competent authorities shall endeavor, if the objection appears to it to be
justified and if is not itself able to arrive at an appropriate solution, to resolve the
case by mutual agreement with the competent authority of the other Contracting State, with
a view to the avoidance of taxation which is not in accordance with the Convention.
3. The competent authorities of the Contracting States shall endeavor to resolve by mutual
agreement any difficulties or doubts arising as to the interpretation or application of
the convention.
4. The competent authorities of the Contracting States may communicate with each other
directly for the purposes of reaching an agreement in the sense of the preceding
paragraphs or for giving effect to the provisions of the Convention.
ARTICLE 26
EXCHANGE OF INFORMATION
1. The competent authorities of the Contracting States shall
exchange such information as is necessary for the carrying out of the Convention and of
the domestic laws of the Contracting States concerning taxes covered by this convention in
so far as the taxation thereunder is not contrary to this Convention and in particular for
the prevention of fiscal evasion. The exchange of information is not restricted by Article
1. Any information so exchanged 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, collection, enforcement or prosecution in respect oh or the determination of
appeals in relation to, the taxes covered by the Convention Such persons or authorities
may disclose the information in public court proceeding or in judicial decisions.
2. In no case shall the provisions of paragraph 1 be construed so as to impose on one of
the Contracting States the obligation:
(a) to carry out administrative measures at variance with the laws or the administrative
practice of that or of the other Contracting 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 Contracting State;
(c) to supply information which would disclose any trade, business, industrial, commercial
or professional secret or trade process, or information, the disclosure of which would be
contrary to public policy (order public).
ARTICLE 27
DIPLOMATIC AGENTS AND CONSULAR OFFICERS
1. Nothing in this Convention shall affect the fiscal privileges of diplomatic or consular officials under the general rules of international law or under the provisions of special agreements.
ARTICLE 28
TERRITORIAL EXTENSION
1. This Convention may be extended either in its entirety or with
any necessary modifications to any State or territory for whose international relations
either of the Contracting States is responsible and which imposes, taxes substantially
similar in character to those to which the 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 between the contracting
States in notes to be exchanged through diplomatic channels or in any other manner in
accordance with their constitutional procedure.
2. Unless otherwise agreed by both Contracting States the denunciation of the convention
by one of them under Article 30 shall terminate, in the manner provided for in that
Article, the application of the Convention to any State or territory to which it has been
extended under this Article.
ARTICLE 29
REFUNDS
1. Taxes withheld at the source in a Contracting State shall be
refunded by request of the tax payer or of the State of which he is a resident if the
right, to collect the said taxes is affected by the provisions of this convention.
2. Claims for refund, that shall be produced within the time limit fixed by the law of the
Contracting State which is obliged to carry out the refund, shall be accompanied by an
official certificate of the Contracting State of which the tax-payer is a resident
certifying the existence of the conditions required for being entitled to the application
of the allowances provided for by this Convention.
3. The competent authorities of the Contracting States shall by mutual agreement settle
the mode of application of this Article, in accordance with the provisions of Article 25
of this Convention.
ARTICLE 30
ENTRY INTO FORCE
1. This Convention shall be ratified and the instruments of
ratification shall be exchanged at Islamabad as soon as possible.
2. The Convention shall enter into force upon the exchange of instruments of ratification
and its provisions shall have effect:
(a) in Italy:
in respect of Italian tax for the taxable periods beginning on or after the 1st day of
January in the calendar year in which the exchange of instruments of ratification takes
place:
(b) in Pakistan
in respect of Pakistan tax for the income years beginning on or after the first day of
January in the calendar year in which the exchange of instruments of ratification takes
place.
3. On entry into force of this Convention, the Agreement for avoidance of double taxation
of income of air and maritime enterprise between Pakistan and Italy, signed on June 8,
1978, shall cease to be effective.
ARTICLE 31
TERMINATION
This Convention shall remain in force indefinitely but either of
the Contracting States may, on or before the thirtieth day of June in any calendar year
beginning after the expiration of a period of three years from the date of its entry into
force, give to the other Contracting State, through diplomatic channels, written notice of
termination and, in such event the Convention shall cease to be effective:
(a) In Italy:
in respect of Italian tax for the taxable periods beginning on or after the first day of
January in the calendar year next following that in which notice of termination is given.
(B) In Pakistan.
in respect of Pakistan tax for the income years beginning on or after the first day of
January in the calendar year next following that in which notice of termination is given.
DONE in duplicate at Rome the 22nd day of June, 1984 in the English and Italian languages,
both the texts being equally authentic. In case of divergence of interpretation the
English text shall prevail.
| FOR THE GOVERNMENT OF THE ISLAMIC REPUBLIC OF PAKISTAN. |
FOR THE GOVERNMENT OF THE REPUBLIC OF ITALY. |
ADDITIONAL PROTOCOL
To the Convention between the Islamic Republic of Pakistan
and the Republic of Italy for the avoidance of double taxation and the prevention of
fiscal evasion with respect to taxes on income.
At the signing of the Convention concluded today between the Islamic Republic of Pakistan
and the Republic of Italy for the avoidance of double taxation and the prevention of
fiscal evasion with respect of taxes on income the undersigned have agreed upon the
following additional provisions which shall form an integral part of the said Convention.
It is understood:
(a) that, with reference to Article 5, paragraph 2, if a warehouse is used for-the purpose
of delivery of goods, it would be treated as a permanent establishment:
(b) that, with reference to Article 7, paragraph 3, the expression "expenses which
are incurred for the purposes of the permanent establishment" means the expenses
directly connected with the activity of the permanent establishment;
(c) that with reference to Article 8, in determining its income tax each Contracting State
shall include any local tax on income imposed under its internal law;
(d) that with further reference to Article & Pakistan has indicated that the source
principle of taxation of income derived by an enterprise from operation in international
traffic of ships or aircraft shall be adhered to in its future negotiations with other
countries;
(e) that, with reference to Article 10, paragraph 2, the term "industrial
undertaking" means:
(i) the manufacture of goods or materials or the subjection of goods or materials to any
process which results in substantially changing their original condition;
(ii) ship-building;
(iii) electricity, hydraulic power, gas and water supply;
(iv) mining including 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 the said Article;
(f) that, with reference to Articles 11 and 12, if Pakistan in future agrees to a lower
rate of tax on interest and on royalties of a third State which is member of OECD, then
this lower rate shall likewise be applied to residents of Italy;
(g) that, with reference to paragraph 3 of Article 13, a company whose investments in
immovable property are equal to or more than 51 per cent of its capital employed shall be
deemed to be a company having investments principally in immovable property;
(h) that, with reference to paragraph 4 of Article 13, a holding of 25 per cent or more of
equity capital shall be deemed to be a substantial participation in a company;
(i) that, with reference to paragraph 1 of Article 25, the expression "irrespective
of the remedies provided by the national laws" means that the mutual agreement
procedure is not alternative with the national contentious proceeding which shall be in
any case, preventively initiated, when the claim is related with an assessment of taxes in
accordance with this convention;
(j) that the provision of paragraph 3 of Article 29 shall not prevent the competent
authorities of the Contracting States from the carrying out, by mutual agreement, other
practices for the allowance of the reductions for taxation purposes provided for in this
Convention.
DONE in duplicate at Rome the 22nd day of, June, 1984, in the English and Italian
languages, both the taxes being equally authentic. In case of divergence of interpretation
the English text shall prevail.
| FOR THE GOVERNMENT OF THE ISLAMIC REPUBLIC OF PAKISTAN. | FOR THE GOVERNMENT OF THE REPUBLIC OF ITALY. |
-Sd-
M. IQBAL FARID,
Additional Secretary
[C. No. 2(14) IT-2/60.]
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