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Japan
CONVENTION BETWEEN PAKISTAN AND JAPAN
FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION
OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME.
S.R.O. 238, dated the 4th June, 1959. - Whereas the
annexed Convention between the Government of Pakistan and the Government of Japan for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on
Income has been ratified and the instruments of ratification have been exchanged.
Now, therefore, in exercise of the powers conferred by section 49AA of the Income Tax Act,
1922 (XI of 1922), the Central Government is pleased to direct that all the provisions of
the said Convention shall be given effect to in Pakistan.
Annexure
The Government of Pakistan and the Government of Japan,
Desiring to conclude a Convention for the Avoidance of Double Taxation for the Prevention
of Fiscal Evasion with respect to Taxes on Income, Have appointed for that purpose as
their respective Plenipotentiaries.
The Government of Pakistan:
Dr. Omar Hayat Malik, Ambassador Extraordinary and Plenipotentiary Pakistan to Japan and
The Government of Japan:
Mr. Aiirchiro Fuyjiyama, Minister for Foreign Affairs of Japan,
Who, having communicated to one another their respective full powers in good and due form,
Have agreed upon the following Articles:-
ARTICLE I
(1) The taxes which are the subject of the present Convention
are:
(a) In Pakistan:
The income-tax, the super-tax and the business profits tax.
(hereinafter referred to as "Pakistan tax").
(b) In Japan:
The income-tax and the corporation tax (hereinafter referred to as "Japanese
tax").
(2) The present Convention shall also apply to any other taxes of a substantially similar
character to those referred to in the preceding paragraph which may be imposed by either
contracting State after the date of signature of the present Convention.
ARTICLE II
(1) In the present Convention, unless the context otherwise
requires:
(a) The term "Pakistan" means the Provinces of Pakistan and the Federal Capital;
(b) The term "Japan" when used in a geographical sense, means all the territory
in which the laws relating to Japanese tax are enforced;
(c) The terms "one of the Contracting States" and "the other contracting
State" mean Pakistan or Japan, as the context requires;
(d) The term "tax" means Pakistan tax or Japanese tax, as the context requires;
(e) The term "Pakistan company" means a body corporate or any other entity which
is treated as a body corporate under the tax laws of Pakistan whose business is managed
and controlled in Pakistan but does not include a Japanese corporation as defined in
clause (f) below.
A Pakistan company shall be regarded as resident in Pakistan if its business is managed
and controlled in Pakistan.
(f) The term "Japanese corporation" means a corporation or other association
having juridical personality or any association without juridical personality which has
its head (or principal) office in Japan;
(g) The term "resident of Pakistan" means an individual or any other taxable
entity, other than a Pakistan company, that is resident in Pakistan for the purposes of
Pakistan tax and not resident in Japan for the purposes of Japanese tax, and the term
"resident of Japan means an individual who is resident in Japan for the purposes of
Japanese tax and not resident in Pakistan for the purposes of Pakistan tax;
(h) The terms "resident of one of the contracting States" and "resident of
the other contracting State" mean a resident of Pakistan or a resident of Japan, as
the context requires:
(i) The terms "corporation of one of the contracting States" and
"corporation of the other contracting State" mean a Pakistan company or a
Japanese corporation, as the context requires;
(j) The term "Pakistan enterprise" means an industrial or commercial enterprise
or undertaking carried on in Pakistan by a resident of Pakistan or a Pakistan company, and
the term "Japanese enterprise" means an industrial or commercial enterprise or
undertaking carried on in Japan by a resident of Japan or a Japanese corporation;
(k) The terms "enterprise of one of the contracting States" and "enterprise
of the other contracting State" mean a Pakistan enterprise or a Japanese enterprise,
as the context requires;
(1) The term "industrial or commercial profits" includes manufacturing,
mercantile, fishing, mining, financial and insurance profits, but does not include income
in the form of dividends, interest, rents or royalties, or remuneration for personal
services;
(m) The term "permanent establishment", when used with respect to an enterprise
of one of the contracting States, means any fixed place of business, such as an office, a
branch, a factory or a warehouse, where the business of the enterprise is carried on, but
does not include the casual and temporary use of more storage facilities. It includes a
mine, a quarry or any other place of natural resources, subject to exploitation. It also
includes an agent or employee of an enterprise of one of the contracting States if such an
agent or employee has and habitually exercises a general authority to negotiate and
conclude contracts on behalf of the enterprise or has a stock of merchandise in the other
contracting State from which he regularly fills orders on its behalf.
In this connection -
(i) An enterprise of one of the contracting States shall not be deemed to have a permanent
establishment in the other contracting State merely because it carries on business
dealings in that other contracting State through a bona fide broker, commission agent or
other independent agent acting in the ordinary course of his business as such;
(ii) The fact that a corporation of one of the Contracting States has a subsidiary
corporation which is a corporation of the other Contracting State or which carries on a
trade or business in the other Contracting State shall not of itself constitute that
subsidiary corporation a permanent establishment of its parent corporation;
(n) The term "competent authorities" means, in the case of Pakistan, the Central
Board of Revenue or their authorized representative, and, in the case of Japan, the
Minister of Finance or his authorizes representatives.
(2) In the application of the provisions of the present Convention by either contracting
State, any term not otherwise defined shall, unless the context otherwise requires, have
the meaning which it has under the laws of that contracting State relating to the tax.
ARTICLE III
(1) The industrial or commercial profits of an enterprise of one
of the contracting States shall not be subject to the tax in the other contracting State
unless the enterprise has a permanent establishment situated in that other contracting
State.
If it has such permanent establishment, the tax may be imposed by that other contracting
State upon the entire income of that enterprise from sources within that other contracting
State.
(2) Where the enterprise of one of the contracting States has a permanent establishment
situated in the other contracting State, there shall be attributed to that permanent
establishment the industrial or commercial profits which it might be expected to derive in
that other contracting State, if it were an independent enterprise engaged in the same or
similar activities under the same or similar conditions and dealing on an independent
basis with the enterprise of which it is a permanent establishment.
(3) In determining the industrial or commercial profits of a permanent establishment,
there shall be allowed as deductions all expenses wherever incurred, reasonably allocable
to such permanent establishment, including executive and general administrative expenses
so allocable.
(4) The industrial or commercial profits derived from the sale of goods other than the
goods referred to in para. graph (5) below by an enterprise in one of the contracting
States shall, for the purposes of the application of this Article, be treated -
(a) in Pakistan as derived in part from the country in which such goods are purchased and
in part from the country in which such goods are sold, and
(b) in Japan, as derived from the country in which such goods are sold.
(5) The industrial or commercial profits derived from sale by an enterprise is one of the
contracting States of goods manufactured in the other contracting State in whole or in
part by that enterprise shall, for the purposes of the application of this Article, be
treated as derived in part from the country in which the goods are manufactured and in
part from the country in which the goods are sold.
(6) The competent authorities of both the contracting States may, consistent with the
provisions of the present Convention, arrange details for the apportionment of industrial
or commercial profits.
ARTICLE IV
Where -
(a) an enterprise of one of the contracting States participates directly or indirectly in
the managerial or financial control of an enterprise of the other Contracting State, or
(b) the same individuals or corporations or other entities participate directly or
indirectly in the managerial or financial control of an enterprise of one of the
Contracting States 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 V
Notwithstanding the provisions of Article III and Article IV of
the present Convention, income which an enterprise of one of the contracting States
derives from the operation of aircraft registered-
(a) in either contracting State, or
(b) in any third country which exempts (i) that enterprise and tilt an enterprise of the
other contracting State from its tax on earnings derived from the operation of aircraft
registered in the respective States,
shall be exempt from the tax of that other contracting State, unless the aircraft is
operated wholly or mainly between places within that other contracting State.
ARTICLE VI
(1) Where a Japanese corporation or a group of Japanese
corporations, being a public company or a group of public companies, as the case may be,
owns not less than one-third of the voting shares of a Pakistan company engaged in an
industrial undertaking, the rate of Pakistan super-tax on dividends paid to the Japanese
corporation by the Pakistan company shall be reduced by one anna in the rupee (i.e., 6.25
per cent), if the recipient of the dividends has no permanent establishment in Pakistan.
(2) The provisions of section 23A of the Pakistan Income Tax Act relating to the
compulsory distribution of profits shall not apply to the income of a Pakistan company
more than one-third 'voting shares of which are owned by a Japanese corporation or a group
of Japanese corporations, being a public company or a group of public companies, as the
case may be, if the Pakistan company is engaged in an industrial undertaking and its
profits are retained in Pakistan for its industrial development and expansion in Pakistan.
(3) Where a Pakistan company or a group of Pakistan companies owns not less than one-third
of the voting shares of a Japanese corporation, the rate of Japanese tax on dividends paid
to the Pakistan company by the Japanese corporation shall not exceed 15 per cent, if the
recipient of the dividends has no permanent establishment in Japan.
(4) Where a corporation of one of the contracting States derives profits or income from
sources within the other contracting State, there shall not be imposed in that other
contracting State any form of taxation on dividends, paid by the corporation, unless paid
to a resident or corporation of that other contracting State or any tax in the nature of
undistributed profits tax on any undistributed profits of the corporation whether or not
these dividends or undistributed profits represent, in whole or in part, profits or income
so derived.
(5) Dividends paid by a Pakistan company shall be treated as income derived from sources
within Pakistan and dividends paid by a Japanese corporation will be treated as income
derived from sources within Japan.
(6) The term 'public company' as used in paragraphs (l) and (2) of the present Article,
means in relation to any year of assessment -
(a) company which does not restrict the right to transfer its shares which does not
prohibit the issue of its shares to the public or the sale of its shares on a stock
exchange and of which shares carrying more than 50 per cent of the voting power were held
at any time during the previous year by not less than six persons; or
(b) a company all of whose shares were held at the end of the previous year by one or more
public companies as defined in clause (a) of this paragraph; or
(c) a company more than 50 per cent of whose shares were held at the end of the previous
year by either of the contracting Governments.
(7) The term "industrial undertaking", as used in the present Article, means an
undertaking falling under any of the classes mentioned below which is set up or commenced
after the present Convention comes into force or the shares of which are required by an
enterprise of the other contracting State after that date:-
(a) the manufacture of goods or materials or the subjection of goods or materials to any
process which results in substantially changing their original condition;
(b) ship-building;
(c) electricity, hydraulic power, gas and water supply;
(d) mining including the working of an oil-well or any other source of mineral deposits;
(e) printing;
(f) any other undertaking which may be declared to be an "industrial
undertaking" by the competent authorities for the purposes of the present Article.
ARTICLE VII
(1) Royalties paid as consideration for using, or for the right
to use, copyrights, patents, designs, secret processes and formulae, trade-marks or other
like property and royalties or rentals in respect of motion picture films and films for
use in connection with television in one of the contracting States shall be treated as
income from sources within that contracting State and shall be taxable by that contracting
State
(2) Notwithstanding the provisions of paragraph (1) of the present Article, royalties or
rentals mentioned therein derived from sources within one of the contracting States by a
resident or a corporation of the other contracting State, not having a permanent
establishment in the former contracting State shall be exempt from the tax of the former
contracting State.
(3) Where any royalty or rental exceeds a fair and reasonable consideration in respect of
the rights for which it is paid, the exemption provided by the present Article shall apply
only to so much of the royalty or rental as represents such fair and reasonable
consideration.
(1) Inserted on -
(a) bonds or debentures issued by one of the Contracting States, including local
Governments thereof, or by a corporation or other entity of one of the Contracting States,
or
(b) deposits made in one of the contracting States, or
(c) loans (including loans in the form of deferred payments) in connection with trade,
business or other transactions carried on in one of the Contracting States,
shall be treated as income from sources within that Contracting State and shall be taxable
by that Contracting State.
(2) The rate of tax imposed by one of the Contracting States on any interest derived from
sources within that Contracting State by a resident or corporation of the other
contracting State shall not exceed 30 per cent unless such interest arises in connection
with trade or business carried on by that resident or corporation through a permanent
establishment situated in the former Contracting State.
(3) Notwithstanding the provisions of paragraphs (1) and (2) of the present Article,
(a) interest on bonds issued by one of the Contracting States, including local Governments
thereof, payable to a resident or corporation of the other contracting State shall be
exempt. from the tax of the former contracting State, or
(b) interest payable to a resident of Japan or a Japanese corporation on debentures issued
by, or on loans (including loans in the form of deferred payments) made to, a Pakistan
enterprise engaged in an industrial undertaking falling under any of the classes mentioned
in clauses (a) to (f) inclusive of paragraph (7) of Article VI shall be exempt from
Pakistan tax, or
(c) interest payable to a resident of Pakistan or a Pakistan company on debentures issued
by, or on loans (including loans in the form of deferred payments) made to, a Japanese
enterprise shall be exempt from Japanese tax,
unless such interest arises from sources within one of the contracting States in
connection with a trade or business carried on by a resident or corporation of the other
contracting State through a permanent establishment situated in the former contracting
State.
(4) The term "interest" means interest on bonds, securities, notes, debentures
or any other form of indebtedness including mortgages or bonds secured by real
property".]
ARTICLE VIII
(1) The Government of one of the contracting States shall be
exempt from the tax of the other contracting State with respect to interest on loans or
dividends received by that Government from sources within that other contracting State.
(2) The State Bank of Pakistan and the Export and Import Bank of Japan shall be exempt
from the tax of the other contracting State with respect to interest on loans or dividends
from sources within Japan and Pakistan respectively.
(3) Any financial institution owned by one of the contracting States shall be exempt from
the tax of the other contracting State with respect to interest on loans or dividends
received by that institution from sources within that other contracting State.
ARTICLE IX
(1) Salaries, wages, pensions or similar remuneration paid by one
of the contracting States in respect of services rendered to that Contracting State in the
discharge of governmental functions to any individual who is a national of that
contracting State (other than an individual who has been admitted to the other contracting
State for permanent resident therein) shall be exempt from the tax of the other
contracting State.
(2) The provisions of the present Article shall not apply to salaries, wages, pensions or
similar remuneration paid in respect of services rendered in connection with any trade or
business carried on by either of the contracting States for the purposes of profit.
ARTICLE X
(1) Salaries, wages and similar remuneration for personal
(including professional) services shall be treated as income from sources within the State
in which such services are rendered and shall 'be taxable by that State.
(2) Notwithstanding the provisions of paragraph (1) of the present Article, a resident of
one of the contracting States shall be exempt from the tax of the other contracting State
on such remuneration in either of the following two cases:-
(a) If (i) he is present within the other contracting State for a period or periods not
exceeding in the aggregate 183 days during a taxable year, and
(ii) the services performed for, or on behalf of, a resident or a corporation of that
contracting State of which he is a resident, or
(b) If (i) he is present within the other contracting State for a period or periods not
exceeding in the aggregate 90 days during a taxable year, and
(ii) the services are performed in the exercise of a liberal profession, and
(iii) the remuneration received for such services does not exceed 750,000 Yen or its
equivalent sum in Pakistani rupees at the official rate of exchange.
(3) The provisions of paragraph (2) of the present Article shall not apply to the profits
or remuneration of public entertainers such as theatre, motion picture, radio or
television artists, musicians and professional athletes.
ARTICLE XI
A professor or teacher from one of the contracting States who visits the other contracting State for a period not exceeding two years for the purposes of teaching at university, college, school or other educational restitution shall be exempt from the tax of the other contracting State in respect of remuneration for that teaching.
ARTICLE XII
(1) A resident of one of the contracting States who is
temporarily present in the other contracting State solely -
(a) as a student at a recognised university, college or school in that other contracting
State, or
(b) as a recipient of a grant, allowance or award for the primary purchase of study or
research from a Governmental, religious, charitable, scientific, literary or educational
organization shall be exempt from the tax of that other contracting State with respect to
-
(i) remittances from abroad for the purposes of his maintenance, education, study or
research;
(ii) the grant. allowance or award; and
(iii) remuneration for personal services in that other contracting State not exceeding. m
any taxable year, 360,000 Yen or its equivalent sum in Pakistani Rupees at the official
rate of exchange.
(2) A resident of one of the contracting States who is an employee of, or under contract
with, an enterprise of that contracting State or an organization referred to in paragraph
(1) (b) of the present Article and who is temporarily present in the other contracting
State for a period not exceeding one year solely to acquire technical, professional or
business experience from a person other than that enterprise or organization, shall be
exempt from the tax of that other contracting State or remuneration for his services
directly related to the acquisition of such experience (including remuneration received
from abroad) if the amount thereof does not exceed, in any taxable year, 1,000,000 Yen or
its equivalent sum in Pakistani rupees at the official rate of exchange.
(3) A resident of one of the contracting States who is temporarily present in the other
contracting State under arrangements with the Government of that other contracting State
or any agency or instrumentality thereof solely for the purpose of training, study or
orientation shall be exempt from the tax of that other contracting State on remuneration
for his services directly related to such training, study or orientation (including
remuneration, if any received from abroad) if the amount thereof does not exceed, in any
taxable year, 1,000,000 Yen or its equivalent sum in Pakistani rupees at the official rate
of exchanged.
(4) The benefits of paragraph (1), (2) or (3) shall not be cumulative.
(1) Income derived from real property situated in one of the
contracting States by a resident or corporation of the other contracting State shall be
treated as income derived from sources within the former contracting State and shall be
taxable by that contracting State.
(2) The term "income derived from real property" mans income of whatever nature
derived from real property (including royalties in respect o the operation of mines,
quarries or other natural resources)."]
ARTICLE XIV
(1) Pakistan, in determining Pakistan tax on its residents
(including an individual, who is resident in Pakistan for the purposes of Pakistan tax and
also resident in Japan for the purposes of Japanese tax) or Pakistan companies may include
in the basis upon which that tax is imposed all items of income taxable under the laws of
Pakistan. The amount of Japanese tax payable under the laws of Japan and in accordance
with the provisions of the present Convention, whether directly or by deduction, in
respect of income from sources within Japan and subject to the taxes of both contracting
States shall, however, be allowed as a credit against Pakistan tax payable in respect of
that income, but in an amount not exceeding that proportion of Pakistan tax which that
income bears to the entire income subject to Pakistan tax.
(12) Japan, in determining Japanese tax on its residents (including an individual who is
resident in Japan for the purposes of Japanese tax and also resident in Pakistan for the
purposes of Pakistan tax) or Japanese corporations may include in the basis upon which
that tax is imposed all items of income taxable under the laws of Japan. The amount of
Pakistan tax payable under the laws of Pakistan and in accordance with the provisions of
the present Convention, whether directly or by deduction in respect of income from sources
within Pakistan and subject to taxes of both contracting States, shall, however, be
allowed as a credit against Japanese tax payable in respect of that income but in an
amount not exceeding that proportion of Japanese tax which that income bears to the entire
income subject to Japanese tax.
(3) For the purposes of the credit referred to in paragraph (2) of
this Article, there shall be deemed to have been paid the amount of Pakistan tax exempted
under the provisions of paragraph (3) of Article VIIA.]
ARTICLE XV
(1) The competent authorities of the contracting States shall
exchange such information available under their respective tax laws in the normal course
of administration as is necessary for carrying out the provisions of the present
Convention or for the provisions of fraud or for the administration of the statutory
provisions against tax avoidance in relation to the tax. Any information so exchanged
shall be treated as secret and shall not be disclosed to any persons other than those
concerned with the assessment and collection of the tax or the determination of appeal in
relation thereto or a court of law, in accordance with the law of the respective
contracting States. No information, shall be exchanged which would disclose any trade,
business, industrial or professional secret or any trade process.
(2) Each of the contracting States may collect the tax imposed by the other contracting
State (as though such tax were the tax of the former State) as will ensure that the
exemptions, reduced rates of tax or any other benefit granted under the present Convention
by that other contracting State shall not be enjoyed by persons not entitled to such
benefits.
ARTICLE XVI
Any taxpayer, who shows that the action of the taxation authorities of either contracting State has resulted or will result in double taxation contrary to the provisions of the present Convention, may lodge a claim with the competent authorities of the contracting State of which the taxpayer is a resident or a corporation should be the claim be deemed justified, such competent authorities shall undertake to come to an agreement with the competent authorities of the other contracting State with a view to avoidance of the double taxation in question.
ARTICLE XVII
Should any difficulty or doubt arise as to the interpretation or application of the present Convention, or its relationship to Conventions between one of the contracting States and any third country, the competent authorities of the contracting States may settle the question by mutual agreement; it being understood however, that this provision shall not be construed to preclude the contracting States from settling by negotiations through diplomatic channels any dispute arising under the present Convention.
ARTICLE XVIII
(1) The provisions of the present Convention shall not affect the
right to benefit by any more extensive exemptions which have been conferred, or which may
hereafter be conferred, on diplomatic and consular officials by virtue of the general
rules of international law.
(2) The provisions of the present Convention shall not be construed to restrict in any
manner any exemption, deduction, credit or other allowance now or hereafter accorded by
the laws of one of the contracting States in determining the tax of that contracting
State.
(3) The competent authorities of either contracting State may prescribe regulations
necessary to interpret and carry out the provisions of the present Convention and may
communicate with each other directly for the purpose of giving effect to the provisions of
the present Convention.
ARTICLE XIX
(1) The nationals of one of the contracting States shall not be
subjected in the other contracting State to the tax or any requirement connected therewith
which is higher or more burdensome than the tax and connected requirements to which
nationals of that other contracting State in the same circumstances are or may be
subjected and, in the case of individuals, shall be allowed such personal allowances as
are admissible to the nationals [as defined in paragraph (2) (a) of the present Article]
of the other contracting State in similar circumstances.
(2) The term "nationals" as used in the present Article, means:
(a) all individuals possessing the nationality of the respective contracting States; and
(b) all corporations and other legal entities deriving their status as such from the laws
in force in the respective contracting States.
ARTICLE XX
(1) The present Convention may be extended, either in its
entirety or with modifications, to any territory for whose international relations either
contracting State is responsible and which imposes taxes substantially similar in
character to those which are the subject of the present Convention and any such extension
shall take effect from such date and subject to such modifications and conditions
(including conditions as to termination) as may be specified and agreed between the
contracting Governments in notes to be exchanged for this purpose.
(2) The termination in respect of Pakistan or Japan of the present Convention under
Article XXII shall, unless otherwise expressly agreed by both contracting Governments,
terminate the application of the present Convention to any territory to which the
Convention has been extended under this article.
ARTICLE XXI
(1) The present Convention shall be ratified and the instruments
of ratification shall be exchanged at Karachi as soon as possible.
(2) The present Convention shall enter into force on the date of exchange of instruments
of ratification and shall be applicable-
(a) In Pakistan, in respect of the "previous years" or the "chargeable
accounting periods" (as defined by the tax laws of Pakistan) beginning on or after
the first day of January in the calendar year in which the exchange of instruments of
ratification takes place.
(b) In Japan, in respect of the taxable years beginning on or after the first day of
January, in the calendar year in which the exchange of instruments of ratification takes
place.
ARTICLE XXII
The present Convention shall continue in effect indefinitely but
either of the contracting States may, on or before the 30th day of June in any calendar
year not earlier than five years from the date on which the present Convention enters into
force, give to the other contracting State written notice of termination and, in such
event, the present Convention shall cease to be effective-
(a) In Pakistan, in respect of the "previous years" or the "chargeable
accounting periods" (as defined by the tax laws of Pakistan) beginning on or after
the first day of January in the calendar year next following that in which the notice is
given.
(b) In Japan, in respect of the taxable years beginning on or after the first day of
January in the calendar year next following that in which the notice is given.
IN WITNESS WHEREOF the undersigned Plenipotentiaries have signed the present Convention.
DONE at Tokyo in duplicate in the English language on the Seventeenth day of February, one
thousand nine hundred and fifty-nine.
FOR PAKISTAN |
FOR JAPAN |
C. No. 25(5)-ITP/58
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