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GOVERNMENT OF PAKISTAN
MINISTRY OF FINANCE AND ECONOMIC COORDINATION
(Finance Division)
NOTIFICATION
Islamabad, the 8th February, 1988
S.R.O. 87 (I)/88, dated 8th February, 1988. - WHEREAS the
annexed Convention between the Government of the Islamic Republic of Pakistan and the
Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance
of double taxation and the prevention of fiscal evasion with respect to taxes on income
and capital gains 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 enter into force on the 8th day of December, 1987,
and shall have effect in Pakistan for any assessment year beginning on or after the first
day of July, 1988.
Annex
CONVENTION BETWEEN THE ISLAMIC REPUBLIC OF PAKISTAN AND THE UNITED KINGDOM OF GREAT
BRITAIN AND NORTHERN IRELAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF
FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL GAINS
The Government of the Islamic Republic of Pakistan and the United
Kingdom of Great Britain and Northern Ireland;
DESIRING to conclude a convention for the avoidance of double taxation and the prevention
of fiscal evasion with respect to taxes on income and capital gains;
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) The taxes which are the subject of this Convention are:
(a) in the United Kingdom of Great Britain and Northern Ireland:
(i) the income tax;
(ii) the corporation tax;
(iii) the capital gains tax;
(hereinafter referred to as "United Kingdom tax");
(b) in the Islamic Republic of Pakistan:
(i) the income tax;
(ii) the super tax;
(iii) the surcharge;
(hereinafter referred to as "Pakistan tax").
(2) This Convention shall also apply to any identical or substantially similar taxes which
are imposed by either Contracting State after the date of signature of this Convention in
addition to, or in place of, the taxes referred to in paragraph (1) of this Article. The
competent authorities of the Contracting States shall notify each other of any substantial
changes which are made in their respective taxation laws.
ARTICLE 3
GENERAL DEFINITIONS
(1) For the purposes of this Convention, unless the context
otherwise requires:
(a) the term United Kingdom means Great Britain and Northern Ireland, including any area
outside the territorial sea of the United Kingdom which in accordance with international
law has been or may hereafter be designated, under the laws of the United Kingdom
concerning the Continental Shelf, as an area within which the rights of the United Kingdom
with respect to the sea-bed and sub-soft and their natural resources may be exercised;
(b) the term "Pakistan" used in the geographical sense means Pakistan as defined
in the Constitution of the Islamic Republic of Pakistan and also includes any area outside
the territorial waters of Pakistan which under the laws of Pakistan and international law
is an area within Which the rights of Pakistan with respect to the sea-bed and sub-soil
and their national resources may be exercised;
(c) the term "national" means:
(i) in relation to the United Kingdom, any British citizen or any British subject not
possessing the citizenship of any other Commonwealth country or territory, provided he bas
the right of abode in the United Kingdom; and any legal person, partnership, association
or other entity deriving its status as such from the law in force in the United Kingdom;
(ii) in relation to Pakistan, any individual possessing the nationality of Pakistan; and
any legal person, Partnership or association deriving its status as such from the law in
force in Pakistan;
(d) the terms "a Contracting States" and "the other Contracting State"
mean the United Kingdom or Pakistan, as the context requires;
(e) the term "person" means an individual, a company and any other body of
persons;
(f) the term "company" means any body corporate or any entity which is treated
as a body corporate for tax purposes;
(g) 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;
(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 a Contracting
State, 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 the United Kingdom, the
Commissioners of Inland Revenue or their authorised representative, and, in the case of
Pakistan, the Central Board of Revenue or its authorised representative.
(2) As regards the application of this Convention by a Contracting State any term not
otherwise defined shall, unless the context otherwise requires, have the meaning which it
has under the laws of that Contracting State relating to the taxes which are the subject
of this Convention.
ARTICLE 4
FISCAL DOMICILE
(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 therein by reason of his domicile, residence, place of management or any other
criterion of a similar nature.
(2) Where by reason of the provisions of paragraph (1) of this Article an individual is a
resident of both Contracting States, then his status shall be determined in accordance
with the following rules:
(a) he shall be deemed to be a resident of the Contracting State in which he has a
permanent home available to him; if he has a permanent home available to him in both
Contracting States, he shall be deemed to be a resident of the Contracting State with
which his personal and economic relations are closer (centre of vital interests);
(b) if the Contracting State in which he has his centre of vital interests cannot be
determined, or if he has no permanent home available to him in either Contracting State,
he shall be deemed to be a resident of the Contracting State in which he has an habitual
abode;
(c) if he has an habitual abode in both Contracting States or in neither of them, he shall
be deemed to be a resident of the Contracting State of which he is a national;
(d) if he is a national of both Contracting States or of neither of them, the competent
authorities of the Contracting States shall settle the question by mutual agreement.
(3) Where by reason of the provisions of paragraph (1) of this Article 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 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;
(g) premises used for receiving or soliciting orders;
(h) a mine, an oil or gas well, a quarry, or any other place of extraction of natural
resources.
(3) A building site or construction or installation project constitutes a permanent
establishment only if it lasts for more than six months.
(4) 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 another 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;
(f) the maintenance of a fixed place of business solely for any combination of activities
mentioned in sub-paragraphs (a) to (e) of this paragraph, provided that the overall
activity of the fixed place of business resulting from this combination is of a
preparatory or auxiliary character.
(5) Notwithstanding the provisions of paragraphs (1) and (2) of this Article, where a
person - other than an agent of an independent status to whom paragraph (6) of this
Article applies - is acting in a Contracting State on behalf of an enterprise of the other
Contracting State, that enterprise shall be deemed to have a permanent establishment in
the first-mentioned Contracting State in respect of any activities which that person
undertakes for the enterprise, if such a person:
(a) has and habitually exercises in that State an authority to conclude contracts in the
name of the enterprise, unless the activities of such person are limited to those
mentioned in paragraph (4) of this Article which, if exercised through a fixed place of
business, would not make this fixed place of business a permanent establishment under the
provisions of that paragraph; or
(b) has no such authority, but habitually maintains in the first-mentioned State a stock
of goods or merchandise from which he regularly delivers goods or merchandise on behalf of
the enterprise.
(6) 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, 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, he will not be considered an agent of an independent
status within the meaning of this paragraph.
(7) 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 which 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 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) of this Article shall apply to income derived from the
direct use, letting, or use in any other form of immovable property.
(4) The provisions of paragraphs (1) and (3) of this Article 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 a Contracting State shall be
taxable only in that State unless the enterprise carries 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 directly or indirectly to that permanent
establishment.
(2) 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 determining the profits of a permanent establishment, there shall be allowed as
deductions expenses which are incurred for the purposes of the permanent establishment,
including a reasonable allocation of executive and general administrative expenses
incurred for the purposes of the enterprise as a whole, whether in the Contracting State
in which the permanent establishment is situated or elsewhere. However, no such deduction
shall be allowed in respect of amounts, if any, paid (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 royalties, fees or other similar payments in return for
the use of patents or other rights, or by way of commission, for specific services
Performed or for management, or except in the case of a banking enterprise, by way of
interest on monies lent to the permanent establishment. Likewise, no account shall be
taken in the determination of the profits of a permanent establishment of amounts 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 royalties,
fees or other similar payments in return for the use of patents or other rights, or by way
of commission, for specific services performed or for management, or, except in the case
of a banking enterprise; by way of interest on monies lent to the head office of the
enterprise or any of its other offices.
(4) 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.
(5) Where profits include items of income or capital gains 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.
(6) In so far as it bas 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) of this Article
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 contained in this Article.
(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.
ARTICLE 8
SHIPPING AND AIR TRANSPORT
(1) Profits from the operation of ships or aircraft in
international traffic shall be taxable only in the Contracting 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 Contracting State in which the home harbour of
the ship is situated, or, if there is no such home harbour, in the Contracting State of
which the operator of the ship is a resident.
* The word "abroad" has wrongly appeared as "abroad" in the
Official Gazette.
(3) The provisions of this Article shall also apply to profits derived from participation
in a pool, a joint business or an international operating agency.
ARTICLE 9
ASSOCIATED ENTERPRISES
WHERE
(a) where 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 persons participate directly or indirectly on 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 may be included by a Contracting State in the profits of
that enterprise and taxed accordingly.
ARTICLE 10
DIVIDENDS
1. Dividends paid by a company which is a resident of a
Contracting State to a resident of the other Contracting State may be taxed in that other
State.
2. However, such dividends may also be taxed in the Contracting State of which the company
paying the dividends is a resident and according to the laws of that State, but where the
beneficial owner of the dividends is a resident of the other Contracting State the tax so
charged shall not exceed:
(a) 15% of the gross amount of the dividends, if the: beneficial owner is a company;
(b) 20% of the gross amount of the dividends in all other cases.
3. Notwithstanding the provisions of paragraph (2) of this Article, where the dividends
are paid to a company which is a resident of the Untied Kingdom by a company which is a
resident of Pakistan and which is engaged in an industrial undertaking in Pakistan, the
Pakistan tax shall not exceed 10 per cent of the gross amount of the dividends if the
company which is a resident of the United Kingdom:
(a) controls more than 25 per cent of the voting power of the company paying the dividends
and the industrial undertaking is set up in Pakistan after the date on which this
Convention enters into force; or
(b) controls more than 50 per cent of the voting power of the company paying the dividends
in all other cases.
(4) For the purposes of this Article:
(a) the term "dividends" means income from shares, 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 laws of
the State of which the company making the distribution is a resident and also includes any
other item which, under the laws of the Contracting State of which the company paying the
dividend is a resident, is treated as a dividend or distribution of a company,
(b) the term industrial undertaking" means:
(i) an undertaking engaged in:
(aa) the manufacture of goods or materials or the subjection of goods or materials to any
process which results in substantially changing their original condition; or
(bb) ship-building, or
(cc) electricity, hydraulic power, gas or water supply, or
(dd) mining including the working of an oil-well or the source of any mineral deposit; or
(ii) any other undertaking which is declared by the competent authority in Pakistan to be
an industrial undertaking for the purposes of Pakistan tax laws.
5. The provisions of paragraphs 1, 2 and 3 of this Article shall not apply if the
beneficial owner 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 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 a case, the provisions of Article 7 or Article 15 of
this Convention, as the case may be shall apply.
6. 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 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 undistributed profits, even if the
dividends paid or the undistributed profits consist wholly or partly of profits or income
arising in that other State.
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 also be taxed in the Contracting State in which it arises
and according to the laws of that State, but where the beneficial owner of the interest is
a resident of the other Contracting State the tax so charged shall not exceed 15 per cent
of the gross amount of the interest.
3. Notwithstanding the provisions of paragraph (2) of this Article interest arising in a
Contracting State shall be exempt from tax in that State if it is derived and beneficially
owned by the Government of the other Contracting State or a local authority thereof or,
subject to the agreement of the competent authorities of the Contracting State, any agency
or instrumentality of that Government or local authority.
4. The term "interest" as used in this Article means income from debt-claims of
very 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. The term "interest" shall not include any
item which is treated as a distribution under the provisions of Article 10 of this
Convention.
5. The provisions of paragraphs (1) and (2) of this Article shall not apply if the
beneficial owner 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 independent personal
services from a fixed based 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 15, of this Convention as the case may
be, shall apply.
6. Interest shall be deemed to arise in a Contracting State when the payer is that State
itself, a political sub-division, a local authority or a resident of that State. Where,
.however, the person paying the interest whether he is a resident of a Contracting State
or not, has in a Contracting State a permanent establishment or a fixed base in connection
with which the indebtedness on which the interest is paid was incurred and such interest
is borne by such permanent establishment or 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, paid exceeds
for whatever reason 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 of interest. In such case, the excess part of the
payments shall remain taxable according to the laws of each Contracting State, due regard
being had to the other provisions of this Convention.
ARTICLE 12
ROYALTIES
(1) Royalties 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 royalties may also be taxed in the Contracting State in which they arise
and according to the laws of that State, but where the beneficial owner of the royalties
is a resident of the other Contracting State the tax so charged shall not exceed 12-1/2
per cent of the gross amount of the royalties.
(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 copyright of
literary, artistic or scientific work including cinematograph films and films or tapes for
radio or television broadcasting, any patent, trade mark, design or model, plan, secret
formula or process, or for the use oil or the right to use, industrial, commercial, or
scientific equipment, or for information (know-how) concerning industrial, commercial or
scientific experience.
(4) The provisions of paragraphs (1) and (2) of this Article shall not apply if the
beneficial owner 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 independent personal seal,
ices 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 cases the provisions of Article 7 or 15 of this Convention, as the case may
be, shall apply.
(5) Royalties shall be deemed to arise in a Contracting State when the payer is that State
itself, a political sub-division, a local authority or a resident of that State. Where,
however, the person paying the royalties, whether he is a resident of a Contracting State
or not, has in a Contracting State a permanent establishment or a fixed base in connection
with which the obligation to pay the royalties was incurred, and such royalties are borne
by such permanent establishment or fixed base, then such royalties shall be deemed to
arise in the Contracting State in which the permanent establishment or fixed base is
situated.
(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 paid exceeds,
for whatever reason, 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 Contracting State, due regard being had
to the other provisions of this Convention.
ARTICLE 13
TECHNICAL FEES
1. Technical fees arising in a Contracting State which are
derived by a resident of the other Contracting State may be taxed in that other State.
2. However, such technical fees may also be taxed in the Contracting State in which they
arise, and according to the laws of that State, but where the beneficial owner of such
technical fees is a resident of the other Contracting State the tax so charged shall not
exceed 12-1/2 per cent of the gross amount of the technical fees.
3. The term "technical fees" as used in this article means payments of any kind
to any person, other than to an employee of the person making the payments in
consideration for any services of a technical, managerial or consultancy nature.
4. The provisions of paragraphs 1 and 2 of this Article shall not apply if the beneficial
owner of the technical fees, being resident of a Contracting State, carries on business in
the other Contracting State in which the technical fees arise, through a permanent
establishment situated therein, or performs in that other State independent personal
services from a fixed base situated therein and the technical fees are effectively
connected with such permanent establishment or fixed base. In such ease, the provisions of
Article 7 or Article 15, as the case may be, shall apply.
5. Technical fees shall be deemed to arise in a Contracting State when the payer is that
State itself, a political sub-division, a local authority or a resident of that State.
Where, however, the person paying the technical fees, whether he is a resident of a
Contracting State or not, has in a Contracting State a permanent establishment or a fixed
base in connection with which the obligation to pay technical fees was incurred, and such
technical fees are borne by that permanent establishment or fixed base, then such
technical fees 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 technical fees paid
exceeds, for whatever reason, 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 to the last-mentioned amount. In such ease, the excess part of the
payments shall remain taxable according to the laws of each Contracting State, due regard
being had to the other provisions of this Convention.
ARTICLE 14
CAPITAL GAINS
1. Subject to the provisions of paragraph (2) of this Article,
capital gains which arise in a Contracting State may be taxed by that State in accordance
with the provisions of its domestic law.
2. Gains from the alienation of ships or aircraft operated in international traffic and
any property, other than immovable property, pertaining to the operation of such ships or
aircraft shall be taxable only in the Contracting State in which the place of effective
management of the enterprise is situated.
ARTICLE 15
INDEPENDENT PERSONAL SERVICES
1. Subject to the provisions of Article 13, income derived by a
resident of a Contracting State 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 Contracting State:
(a) if he has 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 is
attributable to that fixed base may be taxed in that 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 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.
2. The term "professional services" includes especially independent scientific,
literary and artistic educational or teaching activities, as well as the independent
activities of physicians, lawyers, engineers, architects, dentists and accountants.
ARTICLE 16
DEPENDENT PERSONAL SERVICES
1. Subject to the provisions of Articles 17, 19, 20, 21 and 22,
salaries, wages and other similar remuneration derived by a resident of a Contracting
State in respect of an employment shall be taxable only in that State unless the
employment is exercised in the other Contracting 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, of this Article 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 any period of 12 months; 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 in
respect of an employment exercised aboard* a ship or aircraft operated in international
tragic may be taxed the Contracting State in which the place of effective management of
the enterprise is situated.
* The word "abroad" has wrongly appeared as "abroad" in the
Official Gazette.
ARTICLE 17
DIRECTORS' FEES
Directors’ fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.
ARTICLE 18
ARTISTS AND ATHLETES
1. Notwithstanding the provisions of articles 15 and 16 of this
Convention, income derived by a resident of a Contracting State as an entertainer such as
a theatre, motion picture, radio or television artist or a musician or as an athlete, 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 articles 7, 15 and
16, of this Convention, be taxed in the Contracting State in which the activities of the
entertainer or athlete are exercised.
ARTICLE 19
PENSIONS
(1) Subject to the provisions of paragraph (2) of Article 20,
pensions and other similar remuneration paid in consideration of past employment to a
resident of a Contracting State and any annuity paid to such a resident shall be taxable
only in that State.
(2) The term "annuity" means a stated sum payable periodically at stared times,
during life or during a specified or ascertainable period of time under any obligation to
make the payments in return for adequate and full consideration in money or money's worth.
ARTICLE 20
GOVERNMENT SERVICE
1. (a) Remuneration, other than a pension. paid by a Contracting
State 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 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 other Contracting state and the individual is a resident of
that other State who:
(i) is a national of that State; or
(ii) did not become a resident of that State solely for the purpose of rendering the
services.
2. (a) Any pension paid by, or out of funds created by, a Contracting State 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 thereof shall be taxable only in that State.
(b) However, such pension shall be taxable only in the other Contracting State if the
individual is a resident and a national of, that state.
3. The provisions of Articles 16, 17, and 19 of this Convention shall apply to
remuneration and pensions in respect of services rendered in connection with a business
carried on by a Contracting State or a political sub-division or a local authority
thereof.
ARTICLE 21
STUDENTS AND TRAINEES
1. An individual who was a resident of a Contracting State or was
a resident of that State immediately before making a visit to the other Contracting State
and who is temporarily present in that other State for the primary purpose of:
(a) studying at a university or other recognised educational institution in that other
Contracting State; or
(b) securing training required to qualify him to practise a profession or a professional
speciality;
(c) studying or doing research as a recipient of a grant, allowance or award from a
governmental, religious, char/table, scientific, literary or educational organisation;
shall not be subject to tax by that other Contracting State with respect to:
(i) the amount of such grant, allowance or award:
(ii) remittances from abroad for the purposes of his maintenance, education, study,
research or training; and
(iii) income from personal services rendered in that other Contracting State (other than
any rendered by an articled clerk or other person undergoing professional training to the
person or partnership to whom he is articled or who is providing the training) not
exceeding the sum of 750 pounds sterling, or its equivalent in Pakistan rupees as the case
may be, during any year of assessment or taxable year.
2. The benefits under paragraph (1) of this Article shall apply only for such period of
tithe as may be reasonably or customarily required for the purpose of the individual's
visit, but in no event shall any individual have the benefit of that paragraph for more
than five years from the date of his first arrival in the other Contracting State.
3. An individual who was a resident of a Contracting State or was a resident of that State
immediately before making a visit to the other Contracting State and who is present in
that other State for a period not exceeding twelve months from the date of his first
arrival in that other Contracting State in connection with that visit, as a Participant in
a programme sponsored by the Government of that other Contracting State for the purposes
of training, research or study, or as an employee of or under contract with the Government
or an enterprise of the first-mentioned Contracting State for the purpose of acquiring
technical, professional or business experience from a person other than that Government or
that enterprise, shall not be subject to tax by that other Contracting State with respect
to:
(a) all remittances from abroad for purposes of his maintenance, training, research or
study; and
(b) any remuneration so far as it does not exceed the sum of 1,500 pounds sterling, or its
equivalent in Pakistan rupees as the case may be, during any year of assessment or taxable
year for personal services in that other Contracting State in connection with his studies
or training.
ARTICLE 22
TEACHERS
(1) An individual who visits one of the Contracting States for a
period not exceeding two years for the purpose of teaching or engaging in research at a
university, college or other recognised educational institution in that Contracting State,
and who was immediately before that visit a resident of the other Contracting State, shall
be exempted from tax by the first-mentioned Contracting State on any remuneration for such
teaching or research for a period not exceeding two years from the date he first visits
that State for such purpose.
(2) This Article shall not apply to income from research unless such research is
undertaken by the individual in the public interest and not primarily for the benefit of
some other private person or persons.
ARTICLE 23
ELIMINATION OF DOUBLE TAXATION
(1) Subject to the provisions of the law of the United Kingdom
regarding the allowance as a credit against United Kingdom tax or tax payable in a
territory outside the United Kingdom (which shall not affect the general principle
hereof):
(a) Pakistan tax payable under the laws of Pakistan and in accordance with this
Convention, whether directly or by deduction, on profits, income or chargeable gains from
sources within Pakistan (excluding in the case of a dividend, tax payable in respect of
the profits out of which the dividend is paid) shall be allowed as a credit against any
United Kingdom tax computed .by reference to the same profits, income or chargeable gains
by reference to which the Pakistan tax is computed;
(b) in the case of a dividend paid by a company which is a resident of Pakistan to a
company which is a resident of the United Kingdom and which controls directly or
indirectly at least 10 per cent of the voting power in the company paying dividend, the
credit shall take into account (in addition to any Pakistan tax for which credit may be
allowed under the provisions of sub-paragraph (a) of this paragraph) the Pakistan tax
payable by the company in respect of the profits out of which such dividend is paid.
(2) In Pakistan double taxation shall be eliminated as follows:
subject to the provisions of the laws of Pakistan regarding the allowance as a credit
against Pakistan tax, the amount of United Kingdom tax payable under the laws of the
United Kingdom and in accordance with the provisions of this Convention, whether directly
or by deduction, by a resident of Pakistan, in respect of income from sources within the
United Kingdom which has been subjected to a tax both in Pakistan and the United Kingdom
shall be allowed as 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
(3) For the purpose of paragraph (1) of this Article, the term "Pakistan tax
payable" shall be deemed to include any amount which would have been payable as
Pakistan tax for any year but for an exemption from, or reduction of, tax granted for that
year or any part thereof under any of the following provisions of Pakistan law:
(a) section 48 of the Income Tax Ordinance, 1979 (XXXI of 1979), (as amended), Clauses
7,8, 75, 76, 80(c) and (cc), 81, 95B, 96, 98, 99, 100, 101, 102, 119, 120, 121, 121A,
12lB, 122, 122A, 123, 124, 125 and 125A of Part I and Clause i of Part II of the Second
Schedule to that Ordinance; so far as they were in force on, and have not been modified
since the date of signature of this Convention, or have been modified only in minor
respects so as not to affect their general character; or
(b) any other provision which may subsequently be made granting an exemption from; or
reduction of, tax which is agreed by the competent authorities of the Contracting State to
be of a substantially' similar character, if it has not been modified thereafter or has
been modified only in minor respects so as not to affect its general character:
Provided that relief from United Kingdom tax shall not be given by virtue of this
paragraph in respect of income from any source if the income arises in a period starting
more than ten years after the exemption from, or reduction of, Pakistan tax was first
granted in respect of that source.
(4) For the purposes of paragraphs (1) and (2) of this Article, profits, income and
capital gains owned by a resident of a Contracting State which may be taxed in the other
Contracting State in accordance with this Convention shall be deemed to arise from sources
in that other Contracting State.
(5) Where profits on which an enterprise of a Contracting State has been charged to tax in
that State are also included in the profits of an enterprise of the other State and the
profits so included are profits which would have accrued to that enterprise of the other
State if the conditions made between the enterprises had been those which would have been
made between independent enterprises dealing at arm's length, the amount included in the
profits of both enterprises shall be treated for the purposes of this Article as income
from a source in the other State of the enterprise of the first-mentioned State and relief
shall be given accordingly under the provisions of paragraph (1) of paragraph (2) or this
Article.
ARTICLE 24
NON-DISCRIMINATION
(1) 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.
(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.
(3) Except where the provisions of Article 9, paragraph (7) of Article 11, paragraph (6)
of Article 12, or paragraph (6) of Article 13, of this Convention 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 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 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) Nothing contained in this Article shall be construed:
(a) as obliging either Contracting State to grant to individuals not resident in that
State any of the personal allowances, reliefs and reductions for tax purposes which are
granted to individuals so resident; or
(b) as affecting the provisions of the Pakistan law providing for a higher allowance or
rebate of super-tax to those companies which make the prescribed arrangement for the
declaration and payment of dividends.
(6) In this Article the term "taxation" means taxes to which this Convention
applies.
ARTICLE 25
MUTUAL AGREEMENT PROCEDURE
(1) Where a resident of a Contracting State considers that the
actions of one or both of the Contracting States result or will result for him in taxation
or 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 Contracting State of which he is resident.
(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 competent authority of the other Contracting State, with
a view to avoidance of taxation not in accordance with the Convention.
(3) The competent authorities of the Contracting States shall endeavour 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 purpose of reaching an agreement in the sense of the preceding
paragraphs.
ARTICLE 26
EXCHANGE OF INFORMATION
(1) The competent authorities of the Contracting States shall
exchange such information as is necessary for carrying out the provisions of this
Convention or for the prevention of fraud or the administration of statutory provisions
against legal avoidance in relation to the taxes covered by this Convention, insofar as
the taxation thereunder is not contrary to this Convention. Any information received by a
contracting State shall be treated as secret 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 which covered by this 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 decision.
(2) In no case shall the provisions of paragraph (1) of this Article be construed so as to
impose on the competent authorities of either Contracting State the obligation:
(a) to carry out administrative measures at variance with the laws and administrative
practice prevailing in either Contracting State;
(b) to supply information which is not obtainable under the laws or in the normal course
of the administration of either 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
MEMBERS OF DIPLOMATIC OR PERMANENT MISSIONS AND CONSULAR POSTS
(1) Nothing in this Convention shall affect any fiscal privileges
accorded to members of diplomatic or permanent missions or consular posts under the
general rules of international. law, or under the provisions of special agreements.
(2) Notwithstanding the provisions of paragraph (1) of Article 4 of this Convention, an
individual who is member of a diplomatic or permanent mission or consular posts of a
Contracting State or of any third State which is situated in the other Contracting State
or who is an official of an international organisation, and any member of the family of
such an individual, shall not be deemed to be a resident of the other State if he is
subject to tax on income or capital gains in that other State only if he derives income or
capital gains from sources therein.
ARTICLE 28
ENTRY INTO FORCE
(1) Each of the Contracting State shall notify to the other the
completion of the Procedures required by its law for the bringing into force of this
Convention. This Convention shall enter into force on the date of the later of these
notifications and shall thereupon have effect:
(a) in relation to payments referred to in Article 13 of this Convention to amounts paid
on or after 1st July, 1985;
(b) in relation to all other provisions of this Convention:
(i) in the United Kingdom:
(aa) in respect of income tax and capital gains tax, any year of assessment beginning on
or after 6 April in the calendar year next following that in which the Convention enters
into force;
(bb) in respect of corporation tax, for any financial year beginning on or after 1st April
in the calendar year next following that in which the Convention enters into force;
(ii) in Pakistan;
for any year of assessment beginning on or after 1st July in the calendar year next
following that in which the Convention enters into force.
(2) Subject to the provisions of paragraph (3) of this Article, the Agreement between the
Government of the United Kingdom of Great Britain and Northern Ireland and the Government
of Pakistan for the Avoidance of Double Taxation and the prevention of Fiscal Evasion with
respect to Taxes on Income signed at London on 24th April, 1961 (hereinafter referred to
as "the 1961 Agreement") shall terminate and cease to be effective from the date
upon which this Convention has effect in respect of the taxes to which this Convention
applies in accordance with the
provisions of paragraph (1) of this Article.
(3) Where any provision of the 1961 Agreement would have afforded any greater relief from
tax than is due under this Convention, any such provision as aforesaid shall continue to
have effect:
(a) in the United Kingdom, for any year of assessment of financial year; and
(b) in Pakistan, for any year of assessment; beginning, in either case, before the entry
into force of this Convention.
ARTICLE 29
TERMINATION
This Convention shall remain in force until terminated by one of
the Contracting States. Either Contracting State may terminate the Convention, through
diplomatic channels, by giving notice of termination at least six months before the end of
any calendar year after the year 1992. In such event, the Convention shall cease to have
effect:
(a) in the United Kingdom:
(i) in respect of income tax and capital gains tax, for any year of assessment beginning
on or after 6th April in the calendar year next following that in which the notice is
given;
(ii) in respect of corporation tax, for any financial year beginning on or after 1st April
in the calendar year next following that in which the notice is given;
(b) in Pakistan, for any year of assessment beginning on or after 1st July in the calendar
year next following that in which the notice is given.
IN WITNESS WHEREOF the undersigned, duly authorised thereto by their respective
Governments, have signed this Convention.
DONE in duplicate at Islamabad this 24th day of November, 1986.
| for the Government of the Islamic Republic of Pakistan | for the Government of the United Kingdom of Great Britain and Northern Ireland. |
AHADULLAH AKMAL,
Additional Secretary
[C. No. 2960IT/66.]
Published in the Gazette of Pakistan, Extraordinary, Pages 125-145 (II), dated 10-02-1988.
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