DTC agreement between Pakistan and Japan

8/3/2019 DTC agreement between Pakistan and Japan

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CONVENTIONBETWEEN

JAPAN AND THE ISLAMIC REPUBLIC OF PAKISTANFOR THE AVOIDANCE OFDOUBLE TAXATION

AND THE PREVENTION OFFISCAL EVASION

WITH RESPECT TO TAXES ON INCOME

The Government of Japan and the Government of theIslamic Republic of Pakistan,

Desiring to conclude a new Convention for theavoidance of double taxation and the prevention of fiscal

evasion with respect to taxes on income,

Have agreed as follows:

Article 1PERSONS COVERED

This Convention shall apply to persons who areresidents of one or both of the Contracting States.

Article 2TAXES COVERED

1. The existing taxes to which this Convention shallapply are:

(a) in the case of Japan:

(i) the income tax; and

(ii) the corporation tax

(hereinafter referred to as Japanese tax);

(b) in the case of Pakistan, the income tax

(hereinafter referred to as Pakistan tax).

2. This Convention shall apply also to any identical orsubstantially similar taxes which are imposed after thedate of signature of the Convention in addition to, or inplace of, those referred to in paragraph 1. The competentauthorities of the Contracting States shall notify eachother of any significant changes that have been made intheir respective taxation laws, within a reasonable periodof time after such changes.


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Article 3GENERAL DEFINITIONS

1. For the purposes of this Convention, unless thecontext otherwise requires:

(a) the term Japan, when used in a geographicalsense, means all the territory of Japan,including its territorial sea, in which the lawsrelating to Japanese tax are in force, and allthe area beyond its territorial sea, includingthe seabed and subsoil thereof, over which Japanhas sovereign rights in accordance withinternational law and in which the laws relatingto Japanese tax are in force;

(b) the term Pakistan, when used in a geographicalsense, means the territory of the IslamicRepublic of Pakistan and includes any areaoutside the territorial waters of Pakistan whichunder the laws of Pakistan and international lawis an area within which Pakistan exercisessovereign rights and exclusive jurisdiction withrespect to the natural resources of the seabedand subsoil and superjacent water;

(c) the terms a Contracting State and the other

Contracting State mean Japan or Pakistan, as thecontext requires;

(d) the term tax means Japanese tax or Pakistantax, as the context requires;

(e) the term person includes an individual, acompany and any other body of persons;

(f) the term company means any body corporate orany entity that is treated as a body corporatefor tax purposes;

(g) the terms enterprise of a Contracting State andenterprise of the other Contracting State meanrespectively an enterprise carried on by aresident of a Contracting State and an enterprisecarried on by a resident of the other ContractingState;


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(h) the term international traffic means anytransport by a ship or aircraft operated by an

enterprise of a Contracting State, except whenthe ship or aircraft is operated solely betweenplaces in the other Contracting State;

(i) the term national means:

(i) any individual possessing the nationality ofa Contracting State;

(ii) any juridical person created or organisedunder the laws of a Contracting State; and

(iii) any organisation without juridical

personality treated for the purposes of taxas a juridical person created or organisedunder the laws of a Contracting State; and

(j) the term competent authority means:

(i) in the case of Japan, the Minister ofFinance or his authorised representative;and

(ii) in the case of Pakistan, the Federal Boardof Revenue or its authorised representative.

2. As regards the application of this Convention at anytime by a Contracting State, any term not defined thereinshall, unless the context otherwise requires, have themeaning which it has at that time under the laws of thatContracting State for the purposes of the taxes to whichthe Convention applies, any meaning under the applicabletax laws of that Contracting State prevailing over ameaning given to the term under other laws of thatContracting State.

Article 4RESIDENT

1. For the purposes of this Convention, the termresident of a Contracting State means any person who,under the laws of that Contracting State, is liable to taxtherein by reason of his domicile, residence, place of heador main office, place of management or any other criterionof a similar nature, and also includes that ContractingState and any political subdivision or local authoritythereof. This term, however, does not include any personwho is liable to tax in that Contracting State in respectonly of income from sources in that Contracting State.


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2. Where by reason of the provisions of paragraph 1 anindividual is a resident of both Contracting States, then

his status shall be determined as follows:

(a) he shall be deemed to be a resident only of theContracting State in which he has a permanenthome available to him; if he has a permanent homeavailable to him in both Contracting States, heshall be deemed to be a resident only of theContracting State with which his personal andeconomic relations are closer (centre of vitalinterests);

(b) if the Contracting State in which he has hiscentre of vital interests cannot be determined,

or if he does not have a permanent home availableto him in either Contracting State, he shall bedeemed to be a resident only of the ContractingState in which he has an habitual abode;

(c) if he has an habitual abode in both ContractingStates or in neither of them, he shall be deemedto be a resident only of the Contracting State ofwhich he is a national;

(d) if he is a national of both Contracting States orof neither of them, the competent authorities of

the Contracting States shall settle the questionby mutual agreement.

3. Where by reason of the provisions of paragraph 1 aperson other than an individual is a resident of bothContracting States, then the competent authorities of theContracting States shall determine by mutual agreement theContracting State of which that person shall be deemed tobe a resident for the purposes of this Convention, havingregard to the place of its head or main office, its placeof effective management and any other relevant factors.

Article 5PERMANENT ESTABLISHMENT

1. For the purposes of this Convention, the termpermanent establishment means a fixed place of businessthrough which the business of an enterprise is wholly orpartly carried on.


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2. The term permanent establishment includesespecially:

(a) a place of management;

(b) a branch;

(c) an office;

(d) a factory;

(e) a workshop;

(f) a warehouse; and

(g) a mine, an oil or gas well, a quarry or any otherplace of extraction of natural resources.

3. A building site, a construction, assembly orinstallation project or supervisory activities inconnection therewith, constitute a permanent establishmentonly if it lasts more than six months.

4. Notwithstanding the preceding provisions of thisArticle, the term permanent establishment shall be deemednot to include:

(a) the use of facilities solely for the purpose ofstorage or display of goods or merchandisebelonging to the enterprise;

(b) the maintenance of a stock of goods ormerchandise belonging to the enterprise solelyfor the purpose of storage or display;

(c) the maintenance of a stock of goods ormerchandise belonging to the enterprise solelyfor the purpose of processing by anotherenterprise;

(d) the maintenance of a fixed place of businesssolely for the purpose of purchasing goods ormerchandise or of collecting information, for theenterprise;

(e) the maintenance of a fixed place of businesssolely for the purpose of carrying on, for theenterprise, any other activity of a preparatoryor auxiliary character;


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(f) the maintenance of a fixed place of businesssolely for any combination of activities

mentioned in subparagraphs (a) to (e), providedthat the overall activity of the fixed place ofbusiness resulting from this combination is of apreparatory or auxiliary character.

5. Notwithstanding the provisions of paragraphs 1 and 2,where a person - other than an agent of an independentstatus to whom the provisions of paragraph 6 apply - isacting in a Contracting State on behalf of an enterprise,that enterprise shall be deemed to have a permanentestablishment in that Contracting State in respect of anyactivities which that person undertakes for the enterprise,if such a person:

(a) has, and habitually exercises, in thatContracting State an authority to concludecontracts in the name of the enterprise, unlessthe activities of such person are limited tothose mentioned in paragraph 4 which, ifexercised through a fixed place of business,would not make this fixed place of business apermanent establishment under the provisions ofthat paragraph; or

(b) has no such authority, but habitually maintains

in that Contracting State a stock of goods ormerchandise from which he regularly deliversgoods or merchandise on behalf of the enterprise.

6. An enterprise shall not be deemed to have a permanentestablishment in a Contracting State merely because itcarries on business in that Contracting State through abroker, general commission agent or any other agent of anindependent status, provided that such persons are actingin the ordinary course of their business.

7. The fact that a company which is a resident of aContracting State controls or is controlled by a companywhich is a resident of the other Contracting State, orwhich carries on business in that other Contracting State(whether through a permanent establishment or otherwise),shall not of itself constitute either company a permanentestablishment of the other.


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Article 6INCOME FROM IMMOVABLE PROPERTY

1. Income derived by a resident of a Contracting Statefrom immovable property (including income from agricultureor forestry) situated in the other Contracting State may betaxed in that other Contracting State.

2. The term immovable property shall have the meaningwhich it has under the laws of the Contracting State inwhich the property in question is situated. The term shallin any case include property accessory to immovableproperty, livestock and equipment used in agriculture andforestry, rights to which the provisions of general lawrespecting landed property apply, usufruct of immovable

property and rights to variable or fixed payments asconsideration for the working of, or the right to work,mineral deposits, sources and other natural resources;ships and aircraft shall not be regarded as immovableproperty.

3. The provisions of paragraph 1 shall apply to incomederived from the direct use, letting, or use in any otherform of immovable property.

4. The provisions of paragraphs 1 and 3 shall also applyto the income from immovable property of an enterprise and

to income from immovable property used for the performanceof independent personal services.

Article 7BUSINESS PROFITS

1. The profits of an enterprise of a Contracting Stateshall be taxable only in that Contracting State unless theenterprise carries on business in the other ContractingState through a permanent establishment situated therein.If the enterprise carries on business as aforesaid, theprofits of the enterprise may be taxed in that otherContracting State but only so much of them as isattributable to that permanent establishment.


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2. Subject to the provisions of paragraph 3, where anenterprise of a Contracting State carries on business in

the other Contracting State through a permanentestablishment situated therein, there shall in eachContracting State be attributed to that permanentestablishment the profits which it might be expected tomake if it were a distinct and separate enterprise engagedin the same or similar activities under the same or similarconditions and dealing wholly independently with theenterprise of which it is a permanent establishment.

3. In determining the profits of a permanentestablishment, there shall be allowed as deductionsexpenses which are incurred for the purposes of thepermanent establishment, including executive and general

administrative expenses so incurred, whether in theContracting State in which the permanent establishment issituated or elsewhere.

4. Insofar as it has been customary in a ContractingState to determine the profits to be attributed to apermanent establishment on the basis of an apportionment ofthe total profits of the enterprise to its various parts,nothing in paragraph 2 shall preclude that ContractingState from determining the profits to be taxed by such anapportionment as may be customary; the method ofapportionment adopted shall, however, be such that the

result shall be in accordance with the principles containedin this Article.

5. No profits shall be attributed to a permanentestablishment by reason of the mere purchase by thatpermanent establishment of goods or merchandise for theenterprise.

6. For the purposes of the preceding paragraphs of thisArticle, the profits to be attributed to the permanentestablishment shall be determined by the same method yearby year unless there is good and sufficient reason to thecontrary.

7. Where profits include items of income which are dealtwith separately in other Articles of this Convention, thenthe provisions of those Articles shall not be affected bythe provisions of this Article.


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Article 8INTERNATIONAL TRAFFIC

1. Profits from the operation of ships or aircraft ininternational traffic carried on by an enterprise of aContracting State shall be taxable only in that ContractingState.

2. Notwithstanding the provisions of Article 2 andsubparagraph (d) of paragraph 1 of Article 3, provided thatno political subdivision or local authority of Pakistanlevies a tax similar to the local inhabitant taxes or theenterprise tax in Japan in respect of the operation ofships or aircraft in international traffic carried on by anenterprise of Japan, an enterprise of Pakistan shall be

exempt from the local inhabitant taxes and the enterprisetax in Japan in respect of the operation of ships oraircraft in international traffic.

3. The provisions of the preceding paragraphs of thisArticle shall also apply to profits from the participationin a pool, a joint business or an international operatingagency.

Article 9ASSOCIATED ENTERPRISES

1. Where:

(a) an enterprise of a Contracting State participatesdirectly or indirectly in the management, controlor capital of an enterprise of the otherContracting State, or

(b) the same persons participate directly orindirectly in the management, control or capitalof an enterprise of a Contracting State and anenterprise of the other Contracting State,

and in either case conditions are made or imposed betweenthe two enterprises in their commercial or financialrelations which differ from those which would be madebetween independent enterprises, then any profits whichwould, but for those conditions, have accrued to one of theenterprises, but, by reason of those conditions, have notso accrued, may be included in the profits of thatenterprise and taxed accordingly.


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2. Where a Contracting State includes, in accordance withthe provisions of paragraph 1, in the profits of an

enterprise of that Contracting State - and taxesaccordingly - profits on which an enterprise of the otherContracting State has been charged to tax in that otherContracting State and where the competent authorities ofthe Contracting States agree, upon consultation, that allor part of the profits so included are profits which wouldhave accrued to the enterprise of the first-mentionedContracting State if the conditions made between the twoenterprises had been those which would have been madebetween independent enterprises, then that otherContracting State shall make an appropriate adjustment tothe amount of the tax charged therein on those agreedprofits. In determining such adjustment, due regard shall

be had to the other provisions of this Convention.

Article 10DIVIDENDS

1. Dividends paid by a company which is a resident of aContracting State to a resident of the other ContractingState may be taxed in that other Contracting State.

2. However, such dividends may also be taxed in theContracting State of which the company paying the dividendsis a resident and according to the laws of that Contracting

State, but if the beneficial owner of the dividends is aresident of the other Contracting State, the tax so chargedshall not exceed:

(a) 5 per cent of the gross amount of the dividendsif the beneficial owner is a company that hasowned directly, for the period of six monthsending on the date on which entitlement to thedividends is determined, at least 50 per cent ofthe voting shares of the company paying thedividends;

(b) 7.5 per cent of the gross amount of the dividendsif the beneficial owner is a company that hasowned directly, for the period of six monthsending on the date on which entitlement to thedividends is determined, at least 25 per cent ofthe voting shares of the company paying thedividends;

(c) 10 per cent of the gross amount of the dividendsin all other cases.


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This paragraph shall not affect the taxation of thecompany in respect of the profits out of which the

dividends are paid.

3. The provisions of subparagraphs (a) and (b) ofparagraph 2 shall not apply in the case of dividends paidby a company which is entitled to a deduction for dividendspaid to its beneficiaries in computing its taxable incomein Japan.

4. The term dividends as used in this Article meansincome from shares or other rights (not being debt-claims),participating in profits, as well as income which issubjected to the same taxation treatment as income fromshares by the tax laws of the Contracting State of which

the company making the distribution is a resident.

5. The provisions of paragraphs 1 and 2 shall not applyif the beneficial owner of the dividends, being a residentof a Contracting State, carries on business in the otherContracting State of which the company paying the dividendsis a resident, through a permanent establishment situatedtherein, or performs in that other Contracting Stateindependent personal services from a fixed base situatedtherein, and the holding in respect of which the dividendsare paid is effectively connected with such permanentestablishment or fixed base. In such case the provisions

of Article 7 or 15, as the case may be, shall apply.

6. Where a company which is a resident of a ContractingState derives profits or income from the other ContractingState, that other Contracting State may not impose any taxon the dividends paid by the company, except insofar assuch dividends are paid to a resident of that otherContracting State or insofar as the holding in respect ofwhich the dividends are paid is effectively connected witha permanent establishment or a fixed base situated in thatother Contracting State, nor subject the companysundistributed profits to a tax on the companysundistributed profits, even if the dividends paid or theundistributed profits consist wholly or partly of profitsor income arising in such other Contracting State.

Article 11INTEREST

1. Interest arising in a Contracting State and paid to aresident of the other Contracting State may be taxed inthat other Contracting State.


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2. However, such interest may also be taxed in theContracting State in which it arises and according to the

laws of that Contracting State, but if the beneficial ownerof the interest is a resident of the other ContractingState, the tax so charged shall not exceed 10 per cent ofthe gross amount of the interest.

3. Notwithstanding the provisions of paragraph 2,interest arising in a Contracting State shall be taxableonly in the other Contracting State if:

(a) the interest is beneficially owned by theGovernment of that other Contracting State, apolitical subdivision or local authority thereof,or the central bank of that other Contracting

State or any institution wholly owned by theGovernment of that other Contracting State; or

(b) the interest is beneficially owned by a residentof that other Contracting State with respect todebt-claims guaranteed or insured by anyinstitution wholly owned by the Government ofthat other Contracting State.

4. For the purposes of paragraph 3, the terms thecentral bank and institution wholly owned by theGovernment mean:

(a) in the case of Japan:

(i) the Bank of Japan;

(ii) the Japan Bank for InternationalCooperation;

(iii) the Japan International Cooperation Agency;

(iv) the Nippon Export and Investment Insurance;and

(v) any other institution the capital of whichis wholly owned by the Government of Japanas may be agreed upon from time to timebetween the Governments of the ContractingStates through an exchange of diplomaticnotes.


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(b) in the case of Pakistan:

(i) the State Bank of Pakistan; and

(ii) any other institution the capital of whichis wholly owned by the Government ofPakistan as may be agreed upon from time totime between the Governments of theContracting States through an exchange ofdiplomatic notes.

5. The term interest as used in this Article meansincome from debt-claims of every kind, whether or notsecured by mortgage and whether or not carrying a right toparticipate in the debtors profits, and in particular,

income from government securities and income from bonds ordebentures, including premiums and prizes attaching to suchsecurities, bonds or debentures, and all other income thatis subjected to the same taxation treatment as income frommoney lent by the tax laws of the Contracting State inwhich the income arises.

6. The provisions of paragraphs 1 and 2 shall not applyif the beneficial owner of the interest, being a residentof a Contracting State, carries on business in the otherContracting State in which the interest arises, through apermanent establishment situated therein, or performs in

that other Contracting State independent personal servicesfrom a fixed base situated therein, and the debt-claim inrespect of which the interest is paid is effectivelyconnected with such permanent establishment or fixed base.In such case the provisions of Article 7 or 15, as the casemay be, shall apply.

7. Interest shall be deemed to arise in a ContractingState when the payer is a resident of that ContractingState. Where, however, the person paying the interest,whether he is a resident of a Contracting State or not, hasin a Contracting State a permanent establishment or a fixedbase in connection with which the indebtedness on which theinterest is paid was incurred, and such interest is borneby such permanent establishment or fixed base, then suchinterest shall be deemed to arise in that Contracting Statein which the permanent establishment or fixed base issituated.


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8. Where, by reason of a special relationship between thepayer and the beneficial owner or between both of them and

some other person, the amount of the interest, havingregard to the debt-claim for which it is paid, exceeds theamount which would have been agreed upon by the payer andthe beneficial owner in the absence of such relationship,the provisions of this Article shall apply only to thelast-mentioned amount. In such case, the excess part ofthe payments shall remain taxable according to the laws ofeach Contracting State, due regard being had to the otherprovisions of this Convention.

Article 12ROYALTIES

1. Royalties arising in a Contracting State and paid to aresident of the other Contracting State may be taxed inthat other Contracting State.

2. However, such royalties may also be taxed in theContracting State in which they arise and according to thelaws of that Contracting State, but if the beneficial ownerof the royalties is a resident of the other ContractingState, the tax so charged shall not exceed 10 per cent ofthe gross amount of the royalties.

3. The term royalties as used in this Article means

payments of any kind received as a consideration for theuse of, or the right to use, any copyright of literary,artistic or scientific work including cinematograph filmsand films or tapes for radio or television broadcasting,any patent, trademark, design or model, plan, secretformula or process, or for the use of, or the right to use,industrial, commercial or scientific equipment, or forinformation concerning industrial, commercial or scientificexperience.

4. The provisions of paragraphs 1 and 2 shall not applyif the beneficial owner of the royalties, being a residentof a Contracting State, carries on business in the otherContracting State in which the royalties arise, through apermanent establishment situated therein, or performs inthat other Contracting State independent personal servicesfrom a fixed base situated therein, and the right orproperty in respect of which the royalties are paid iseffectively connected with such permanent establishment orfixed base. In such case the provisions of Article 7 or15, as the case may be, shall apply.


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5. Royalties shall be deemed to arise in a ContractingState when the payer is a resident of that Contracting

State. Where, however, the person paying the royalties,whether he is a resident of a Contracting State or not, hasin a Contracting State a permanent establishment or a fixedbase in connection with which the liability to pay theroyalties was incurred, and such royalties are borne bysuch permanent establishment or fixed base, then suchroyalties shall be deemed to arise in the Contracting Statein which the permanent establishment or fixed base issituated.

6. Where, by reason of a special relationship between thepayer and the beneficial owner or between both of them andsome other person, the amount of the royalties, having

regard to the use, right or information for which they arepaid, exceeds the amount which would have been agreed uponby the payer and the beneficial owner in the absence ofsuch relationship, the provisions of this Article shallapply only to the last-mentioned amount. In such case, theexcess part of the payments shall remain taxable accordingto the laws of each Contracting State, due regard being hadto the other provisions of this Convention.

Article 13FEES FOR TECHNICAL SERVICES

1. Fees for technical services arising in a ContractingState and paid to a resident of the other Contracting Statemay be taxed in that other Contracting State.

2. However, such fees for technical services may also betaxed in the Contracting State in which they arise andaccording to the laws of that Contracting State, but if thebeneficial owner of the fees for technical services is aresident of the other Contracting State, the tax so chargedshall not exceed 10 per cent of the gross amount of thefees for technical services.

3. The term fees for technical services as used in thisArticle means payments of any kind received as aconsideration for the rendering of any managerial,technical or consultancy services including the services oftechnical or other personnel, but does not include paymentsof any kind received as:


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(a) a consideration for any construction, assembly,installation or any other similar project, or

supervisory activities in connection therewith;

(b) a consideration for the rendering of independentpersonal services referred to in Article 15; or

(c) a consideration of an employment referred to inArticle 16.

4. The provisions of paragraphs 1 and 2 shall not applyif the beneficial owner of the fees for technical services,being a resident of a Contracting State, carries onbusiness in the other Contracting State in which the feesfor technical services arise through a permanent

establishment situated therein and the contracts in respectof which the fees for technical services are paid iseffectively connected with such permanent establishment.In such case the provisions of Article 7 shall apply.

5. Fees for technical services shall be deemed to arisein a Contracting State when the payer is a resident of thatContracting State. Where, however, the person paying thefees for technical services, whether he is a resident of aContracting State or not, has in a Contracting State apermanent establishment or a fixed base in connection withwhich the liability to pay the fees for technical services

was incurred, and such fees for technical services areborne by such permanent establishment or fixed base, thensuch fees for technical services shall be deemed to arisein the Contracting State in which the permanentestablishment or fixed base is situated.

6. Where, by reason of a special relationship between thepayer and the beneficial owner or between both of them andsome other person, the amount of the fees for technicalservices, having regard to the contracts for which they arepaid, exceeds the amount which would have been agreed uponby the payer and the beneficial owner in the absence ofsuch relationship, the provisions of this Article shallapply only to the last-mentioned amount. In such case, theexcess part of the payments shall remain taxable accordingto the laws of each Contracting State, due regard being hadto the other provisions of this Convention.


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Article 14CAPITAL GAINS

1. Gains derived by a resident of a Contracting Statefrom the alienation of immovable property referred to inArticle 6 and situated in the other Contracting State maybe taxed in that other Contracting State.

2. Gains derived by a resident of a Contracting Statefrom the alienation of shares in a company or of interestsin a partnership or trust may be taxed in the otherContracting State where the shares or the interests deriveat least 50 per cent of their value directly or indirectlyfrom immovable property referred to in Article 6 andsituated in that other Contracting State.

3. Unless the provisions of paragraph 2 are applicable,gains derived by a resident of a Contracting State from thealienation of shares issued by a company being a residentof the other Contracting State may be taxed in that otherContracting State, if shares owned by the alienator(together with such shares owned by any other related orconnected persons as may be aggregated therewith) amount toat least 25 per cent of the total issued shares of suchcompany at any time during the tax year or taxable year inwhich the alienation takes place.

4. Gains from the alienation of movable property formingpart of the business property of a permanent establishmentwhich an enterprise of a Contracting State has in the otherContracting State or of movable property pertaining to afixed base available to a resident of a Contracting Statein the other Contracting State for the purpose ofperforming independent personal services, including suchgains from the alienation of such a permanent establishment(alone or with the whole enterprise) or of such a fixedbase, may be taxed in that other Contracting State.

5. Gains derived by an enterprise of a Contracting Statefrom the alienation of ships or aircraft operated by thatenterprise in international traffic or movable propertypertaining to the operation of such ships or aircraft shallbe taxable only in that Contracting State.

6. Gains from the alienation of any property other thanthat referred to in the preceding paragraphs of thisArticle shall be taxable only in the Contracting State ofwhich the alienator is a resident.


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Article 15INDEPENDENT PERSONAL SERVICES

1. Income derived by a resident of a Contracting State inrespect of professional services or other activities of anindependent character shall be taxable only in thatContracting State unless:

(a) he has a fixed base regularly available to him inthe other Contracting State for the purpose ofperforming his activities; or

(b) he is present in that other Contracting State fora period or periods amounting to or exceeding inthe aggregate 183 days in any twelve month period

commencing or ending in the tax year or taxableyear concerned.

If he has such a fixed base or remains in that otherContracting State for the aforesaid period or periods, theincome may be taxed in that other Contracting State butonly so much of it as is attributable to that fixed base oris derived in that other Contracting State during theaforesaid period or periods.

2. The term professional services includes especiallyindependent scientific, literary, artistic, educational or

teaching activities as well as the independent activitiesof physicians, lawyers, engineers, architects, dentists andaccountants.

Article 16DEPENDENT PERSONAL SERVICES

1. Subject to the provisions of Articles 17, 19, 20 and21, salaries, wages and other similar remuneration derivedby a resident of a Contracting State in respect of anemployment shall be taxable only in that Contracting Stateunless the employment is exercised in the other ContractingState. If the employment is so exercised, suchremuneration as is derived therefrom may be taxed in thatother Contracting State.

2. Notwithstanding the provisions of paragraph 1,remuneration derived by a resident of a Contracting Statein respect of an employment exercised in the otherContracting State shall be taxable only in the first-mentioned Contracting State if:


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(a) the recipient is present in that otherContracting State for a period or periods not

exceeding in the aggregate 183 days in any twelvemonth period commencing or ending in the tax yearor taxable year concerned;

(b) the remuneration is paid by, or on behalf of, anemployer who is not a resident of that otherContracting State; and

(c) the remuneration is not borne by a permanentestablishment or a fixed base which the employerhas in that other Contracting State.

3. Notwithstanding the preceding provisions of this

Article, remuneration derived in respect of an employmentexercised aboard a ship or aircraft operated ininternational traffic by an enterprise of a ContractingState may be taxed in that Contracting State.

Article 17DIRECTORS FEES

Directors fees and other similar payments derived bya resident of a Contracting State in his capacity as amember of the board of directors of a company which is aresident of the other Contracting State may be taxed in

that other Contracting State.

Article 18ARTISTES AND SPORTSPERSONS

1. Notwithstanding the provisions of Articles 15 and 16,income derived by an individual who is a resident of aContracting State as an entertainer, such as a theatre,motion picture, radio or television artiste, or a musician,or as a sportsperson, from his personal activities as suchexercised in the other Contracting State, may be taxed inthat other Contracting State.

2. Where income in respect of personal activitiesexercised in a Contracting State by an individual in hiscapacity as an entertainer or a sportsperson accrues not tothe individual himself but to another person who is aresident of the other Contracting State, that income may,notwithstanding the provisions of Articles 7, 15 and 16, betaxed in the Contracting State in which the activities ofthe individual are exercised.


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Article 19PENSIONS

Subject to the provisions of paragraph 2 of Article20, pensions and other similar remuneration paid to aresident of a Contracting State shall be taxable only inthat Contracting State.

Article 20GOVERNMENT SERVICE

1. (a) Salaries, wages and other similar remunerationpaid by a Contracting State or a politicalsubdivision or local authority thereof to anindividual in respect of services rendered to

that Contracting State or political subdivisionor local authority, in the discharge of functionsof a governmental nature, shall be taxable onlyin that Contracting State.

(b) However, such salaries, wages and other similarremuneration shall be taxable only in the otherContracting State if the services are rendered inthat other Contracting State and the individualis a resident of that other Contracting Statewho:

(i) is a national of that other ContractingState; or

(ii) did not become a resident of that otherContracting State solely for the purpose ofrendering the services.

2. (a) Notwithstanding the provisions of paragraph 1,pensions and other similar remuneration paid by,or out of funds to which contributions are madeor created by, a Contracting State or a politicalsubdivision or local authority thereof to anindividual in respect of services rendered tothat Contracting State or political subdivisionor local authority shall be taxable only in thatContracting State.

(b) However, such pensions and other similarremuneration shall be taxable only in the otherContracting State if the individual is a residentof, and a national of, that other ContractingState.


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3. The provisions of Articles 16, 17, 18 and 19 shallapply to salaries, wages, pensions, and other similar

remuneration in respect of services rendered in connectionwith a business carried on by a Contracting State or apolitical subdivision or local authority thereof.

Article 21STUDENTS

1. (a) Payments which a student who is or wasimmediately before visiting a Contracting State aresident of the other Contracting State and whois present in the first-mentioned ContractingState solely for the purpose of his educationreceives for the purpose of his maintenance,

education, study or research shall not be taxedin that Contracting State, provided that:

(i) such payments arise from sources outsidethat Contracting State; or

(ii) such payments are made as grants,scholarships, allowances or awards to him bya governmental entity of that ContractingState or any other entity which is operatedfor a religious, charitable, educational,scientific, artistic, cultural or public

purpose and all or part of whose income isexempt from tax under the domestic laws ofthat Contracting State.

(b) Remuneration which a student described insubparagraph (a) derives in respect of anemployment which he exercises in that ContractingState shall not be taxed in that ContractingState if the total of such remuneration does notexceed 1,500,000 Japanese Yen or its equivalentin Pakistan Rupees for a calendar year concerned.

(c) The provisions of subparagraph (b) shall apply tothat student only for a period not exceedingthree years from the date he first begins hiseducation in that Contracting State.


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2. (a) Payments which a business apprentice who is orwas immediately before visiting a Contracting

State a resident of the other Contracting Stateand who is present in the first-mentionedContracting State solely for the purpose of histraining receives for the purpose of hismaintenance or training shall not be taxed inthat Contracting State, provided that suchpayments arise from sources outside thatContracting State.

(b) Remuneration which a business apprenticedescribed in subparagraph (a) derives in respectof an employment which he exercises in thatContracting State shall not be taxed in that

Contracting State if the total of suchremuneration does not exceed 1,500,000 JapaneseYen or its equivalent in Pakistan Rupees for acalendar year concerned.

(c) The provisions of subparagraph (a) or (b) shallapply to that business apprentice only for aperiod not exceeding one year from the date hefirst begins his training in that ContractingState.

Article 22

OTHER INCOME

1. Items of income of a resident of a Contracting State,wherever arising, not dealt with in the foregoing Articlesof this Convention (hereinafter referred to as otherincome) shall be taxable only in that Contracting State.

2. The provisions of paragraph 1 shall not apply to otherincome, other than income from immovable property asdefined in paragraph 2 of Article 6, if the recipient ofsuch other income, being a resident of a Contracting State,carries on business in the other Contracting State througha permanent establishment situated therein, or performs inthat other Contracting State independent personal servicesfrom a fixed base situated therein, and the right orproperty in respect of which the other income is paid iseffectively connected with such permanent establishment orfixed base. In such case the provisions of Article 7 or15, as the case may be, shall apply.


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3. Notwithstanding the provisions of paragraphs 1 and 2,items of income of a resident of a Contracting State not

dealt with in the foregoing Articles of this Convention andarising in the other Contracting State may also be taxed inthat other Contracting State in accordance with itsdomestic laws.

Article 23ELIMINATION OF DOUBLE TAXATION

1. Subject to the provisions of the laws of Japanregarding the allowance as a credit against Japanese tax oftax payable in any country other than Japan:

(a) Where a resident of Japan derives income from

Pakistan which may be taxed in Pakistan inaccordance with the provisions of thisConvention, the amount of Pakistan tax payable inrespect of that income shall be allowed as acredit against the Japanese tax imposed on thatresident. The amount of credit, however, shallnot exceed that part of the Japanese tax which isappropriate to that income.

(b) Where the income derived from Pakistan isdividends paid by a company which is a residentof Pakistan to a company which is a resident of

Japan and which has owned at least 25 per centeither of the voting shares or of the totalissued shares of the company paying the dividendsduring the period of six months immediatelybefore the day when the obligation to paydividends is confirmed, the credit shall takeinto account Pakistan tax payable by the companypaying the dividends in respect of its income.

2. In the case of Pakistan double taxation shall beavoided as follows:

(a) Where a resident of Pakistan derives incomewhich, in accordance with the provisions of thisConvention, may be taxed in Japan whetherdirectly or by deduction, Pakistan shall allow asa deduction from the tax on the income of thatresident an amount equal to the income tax paidin Japan. The amount of the tax to be deductedpursuant to the above provision shall not exceedthe lesser of the tax which would have beencharged on the same income in Pakistan under therates applicable therein.


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(b) Where a resident of Pakistan derives incomewhich, in accordance with the provisions of this

Convention, shall be taxable only in Japan,Pakistan may include this income in the tax basebut only for purposes of determining the rate oftax on such other income as is taxable inPakistan.

Article 24NON-DISCRIMINATION

1. Nationals of a Contracting State shall not besubjected in the other Contracting State to any taxation orany requirement connected therewith, which is other or moreburdensome than the taxation and connected requirements to

which nationals of that other Contracting State in the samecircumstances, in particular with respect to residence, areor may be subjected. The provisions of this paragraphshall, notwithstanding the provisions of Article 1, alsoapply to persons who are not residents of one or both ofthe Contracting States.

2. The taxation on a permanent establishment which anenterprise of a Contracting State has in the otherContracting State shall not be less favourably levied inthat other Contracting State than the taxation levied onenterprises of that other Contracting State carrying on the

same activities. The provisions of this paragraph shallnot be construed as obliging a Contracting State to grantto residents of the other Contracting State any personalallowances, reliefs and reductions for taxation purposes onaccount of civil status or family responsibilities which itgrants to its own residents.

3. Except where the provisions of paragraph 1 of Article9, paragraph 8 of Article 11, paragraph 6 of Article 12 orparagraph 6 of Article 13 apply, interest, royalties, feesfor technical services and other disbursements paid by aresident of a Contracting State to a resident of the otherContracting State shall, for the purposes of determiningthe taxable profits of the first-mentioned resident, bedeductible under the same conditions as if they had beenpaid to a resident of the first-mentioned ContractingState.


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4. Enterprises of a Contracting State, the capital ofwhich is wholly or partly owned or controlled, directly or

indirectly, by one or more residents of the otherContracting State, shall not be subjected in the first-mentioned Contracting State to any taxation or anyrequirement connected therewith which is other or moreburdensome than the taxation and connected requirements towhich other similar enterprises of the first-mentionedContracting State are or may be subjected.

Article 25MUTUAL AGREEMENT PROCEDURE

1. Where a person considers that the actions of one orboth of the Contracting States result or will result for

him in taxation not in accordance with the provisions ofthis Convention, he may, irrespective of the remediesprovided by the domestic law of those Contracting States,present his case to the competent authority of theContracting State of which he is a resident or, if his casecomes under paragraph 1 of Article 24 to that of theContracting State of which he is a national. The case mustbe presented within three years from the first notificationof the action resulting in taxation not in accordance withthe provisions of the Convention.

2. The competent authority shall endeavour, if the

objection appears to it to be justified and if it is notitself able to arrive at a satisfactory solution, toresolve the case by mutual agreement with the competentauthority of the other Contracting State, with a view tothe avoidance of taxation which is not in accordance withthe provisions of this Convention. Any agreement reachedshall be implemented notwithstanding any time limits in thedomestic law of the Contracting States.

3. The competent authorities of the Contracting Statesshall endeavour to resolve by mutual agreement anydifficulties or doubts arising as to the interpretation orapplication of this Convention. They may also consulttogether for the elimination of double taxation in casesnot provided for in the Convention.

4. The competent authorities of the Contracting Statesmay communicate with each other directly for the purpose ofreaching an agreement in the sense of the precedingparagraphs of this Article.


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Article 26EXCHANGE OF INFORMATION

1. The competent authorities of the Contracting Statesshall exchange such information as is relevant for carryingout the provisions of this Convention or of the domesticlaws of the Contracting States concerning taxes covered bythe Convention, insofar as the taxation thereunder is notcontrary to the provisions of the Convention. The exchangeof information is not restricted by Article 1.

2. Any information received under paragraph 1 by aContracting State shall be treated as secret in the samemanner as information obtained under the domestic laws ofthat Contracting State and shall be disclosed only to

persons or authorities (including courts and administrativebodies) concerned with the assessment or collection of, theenforcement or prosecution in respect of, or thedetermination of appeals in relation to the taxes referredto in paragraph 1. Such persons or authorities shall usethe information only for such purposes. They may disclosethe information in public court proceedings or in judicialdecisions.

3. In no case shall the provisions of paragraphs 1 and 2be construed so as to impose on a Contracting State theobligation:

(a) to carry out administrative measures at variancewith the laws and administrative practice of thator of the other Contracting State;

(b) to supply information which is not obtainableunder the laws or in the normal course of theadministration of that or of the otherContracting State;

(c) to supply information which would disclose anytrade, business, industrial, commercial orprofessional secret or trade process, orinformation, the disclosure of which would becontrary to public policy.

Article 27MEMBERS OF DIPLOMATIC MISSIONS AND CONSULAR POSTS

Nothing in this Convention shall affect the fiscalprivileges of members of diplomatic missions or consularposts under the general rules of international law or underthe provisions of special agreements.


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Article 28HEADINGS

The headings of the Articles of this Convention areinserted for convenience of reference only and shall notaffect the interpretation of the Convention.

Article 29ENTRY INTO FORCE

1. This Convention shall be approved in accordance withthe legal procedures of each of the Contracting States andshall enter into force on the thirtieth day after the dateof exchange of diplomatic notes indicating such approval.

2. This Convention shall be applicable:

(a) in Japan:

(i) with respect to taxes withheld at source,for amounts taxable on or after 1st Januaryof the calendar year next following that inwhich the Convention enters into force; and

(ii) with respect to taxes on income which arenot withheld at source and the enterprisetax, as regards income for any taxable year

beginning on or after 1st January of thecalendar year next following that in whichthe Convention enters into force; and

(b) in Pakistan:

(i) with respect to taxes withheld at source,for amounts taxable on or after 1st Januaryof the calendar year next following that inwhich the Convention enters into force; and

(ii) with respect to all other taxes, for the taxyear beginning on or after 1st July of thecalendar year next following that in whichthe Convention enters into force.

3. The Convention between Japan and Pakistan for theAvoidance of Double Taxation and the Prevention of FiscalEvasion with respect to Taxes on Income signed at Tokyo on17th February, 1959 (hereinafter referred to as the priorConvention) shall cease to be effective from the date uponwhich this Convention has effect in respect of the taxes towhich the Convention applies in accordance with theprovisions of paragraph 2 of this Article.


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4. The prior Convention shall terminate on the last dateon which it has effect in accordance with this Article.

5. Notwithstanding the entry into force of thisConvention, an individual who is entitled to the benefitsof Article 11 of the prior Convention at the time of theentry into force of the Convention shall continue to beentitled to such benefits until such time as the individualwould have ceased to be entitled to such benefits if theprior Convention had remained in force.

Article 30TERMINATION

This Convention shall remain in force until terminated

by a Contracting State. Either Contracting State mayterminate the Convention, through diplomatic channels, bygiving notice of termination at least six months before theend of any calendar year beginning after the expiry of fiveyears from the date of entry into force of the Convention.In such event, the Convention shall cease to have effect:

(a) in Japan:

(i) with respect to taxes withheld at source,for amounts taxable on or after 1st Januaryof the calendar year next following that in

which the notice is given; and

(ii) with respect to taxes on income which arenot withheld at source and the enterprisetax, as regards income for any taxable yearbeginning on or after 1st January of thecalendar year next following that in whichthe notice is given; and

(b) in Pakistan:

(i) with respect to taxes withheld at source,for amounts taxable on or after 1st Januaryof the calendar year next following that inwhich the notice is given; and

(ii) with respect to all other taxes, for the taxyear beginning on or after 1st July of thecalendar year next following that in whichthe notice is given.


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IN WITNESS WHEREOF the undersigned, being dulyauthorised thereto by their respective Governments, have

signed this Convention.

DONE in duplicate at Islamabad this twenty-third dayof January, 2008, in the English language.

For the Government For the Governmentof Japan : of the Islamic Republic

of Pakistan:

Seiji Kojima Abdullah Yusuf


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Protocol

At the signing of the Convention between Japan and theIslamic Republic of Pakistan for the Avoidance of DoubleTaxation and the Prevention of Fiscal Evasion with respectto Taxes on Income (hereinafter referred to as theConvention), the Government of Japan and the Government ofthe Islamic Republic of Pakistan have agreed upon thefollowing provisions, which shall form an integral part ofthe Convention.

1. With reference to paragraph 3 of Article 7 of theConvention:

It is understood that no deduction shall be allowed in

respect of amounts paid or charged (other thanreimbursement of actual expenses) by a permanentestablishment of an enterprise to the head office of theenterprise or any other offices thereof, by way of:

(a) royalties, fees or other similar payments inreturn for the use of patents or other rights;

(b) commission, for specific services performed orfor management; and

(c) interest on money lent to the permanent

establishment; except where the enterprise is abanking institution.

2. With reference to paragraph 2 of Article 8 of theConvention:

It is understood that the provisions of the paragraphshall not be interpreted as restricting the powers oftaxation of the Provincial Governments in Pakistan.

3. Where, pursuant to any provision of the Convention, aContracting State reduces the rate of tax on, or exemptsfrom tax, income of an individual who is a resident of theother Contracting State and under the laws in force in thatother Contracting State that individual is subjected to taxby that other Contracting State only on that part of suchincome which is remitted to or received in that otherContracting State, then the reduction or exemption shallapply only to so much of such income as is remitted to orreceived in that other Contracting State.


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4. Nothing in the Convention shall prevent Japan fromimposing tax at source, in accordance with its domestic

law, on any income and gains derived by a person pursuantto a sleeping partnership (Tokumei Kumiai) contract orother similar contract.

IN WITNESS WHEREOF the undersigned, being dulyauthorised thereto by their respective Governments, havesigned this Protocol.

DONE in duplicate at Islamabad this twenty-third dayof January, 2008, in the English language.

For the Government For the Governmentof Japan: of the Islamic Republic

of Pakistan:

Seiji Kojima Abdullah Yusuf

DTC agreement between Pakistan and Japan

Documents

Transcript of DTC agreement between Pakistan and Japan