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Pakistan amends agreement with China

  1. Hurdles in onion exports
  2. Debt servicing getting out of proportion
  3. Pakistan amends agreement with China
  4. Rescheduling of Pakistan's debt
  5. Foreign debts and role of economic managers
  6. Accounting profession and its development in Pakistan

Avoidance of double taxation and prevention of fiscal evasion

August 16 - 22, 1999

The Government of Pakistan has amended its agreement for avoidance of double taxation and the prevention of fiscal evasion on income with the Peoples Republic of China, sources in the Ministry of Finance told PAGE. The original Agreement between Pakistan and China for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to taxes on income was signed on November 15, 1989 at Islamabad which has been enforced since December 27, 1989.

In July 1991, the Government of China made certain amendments in their tax administration and relevant laws. In February 1999, a delegation of China's State Administration of Taxation visited Pakistan for talks on amendments that were necessary in the aforementioned treaty, because of the changes occurring in their domestic laws. After discussions, the representatives of the two countries agreed to modify the existing Agreement on Avoidance of Double Taxation. It is learnt that the Federal Cabinet has given its nod to initial the amended agreement.

Salient features

The draft convention applies to residents of the two states and to taxes on income imposed on behalf of the either state. Taxes similar on substantially similar to the existing taxes, if imposed subsequently by either state, shall also be covered by the convention. The concept of permanent establishment, which forms the basis of taxation of a foreign enterprise in the source country includes place of management, a branch, an office, a factory, a workshop, a warehouse and a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; and a permanent sales exhibition.

The term "permanent establishment" likewise encompasses a building site, a construction or assembly or installation project or supervisory activities in connection therewith, but only where such site, project or activities continue for a period of more than six months.

Income derived by a resident of a contracting state from immovable property (including income from agriculture and forestry) situated in the other contracting state may be taxed in that other contracting state. The convention provides that the source country has the right to tax income from immovable property. Business profits are taxable in the source country if the foreign enterprise has a permanent establishment therein and to the extent as are attributable to that permanent establishment. The primary right of taxation of dividends shall rest with the country of residence of the recipient. The source country shall, however, also be entitled to charge tax at the rate of 10 per cent of the gross amount of the dividends.

So far as interest is concerned the general principle is the same as in the case of dividends. The source country is entitled to levy tax at the rate of 10 per cent of the gross amount of interest. The general principle regarding taxation of royalties is the same as in the case of dividends and interest. The source country would, however, be entitled to charge tax at a maximum rate of 12.5 per cent. Gains from the alienation of immovable property shall be taxed in the country where such property is situated. Similarly, gains from alienation of moveable property belonging to a permanent establishment or a fixed base shall be taxable in the source country. Independent personal services would be taxable in the source country if the recipient is in that country for a period exceeding 183 days in the fiscal year. Nationals of a contracting state shall not be subjected in the other contracting state to any taxation or any requirement connected therewith which is higher or more burdensome than the taxation and connected requirements to which other similar enterprises of the first-mentioned state are or may be subjected. In case a person considers that the action of the contracting state is not in accordance with the terms of the convention, he may, within three years of such action, present his case to the competent authorities of the state of which he is a resident. The competent authorities of the two states, shall endeavor through mutual agreement to settle such dispute for which purpose they may communicate directly with each other.