[Code of Federal Regulations]
[Title 26, Volume 18, Parts 500 to 599]
[Revised as of April 1, 2000]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR517.1]
[Page 111-114]
TITLE 26--INTERNAL REVENUE
CHAPTER 1--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
(Continued)
PART 517--PAKISTAN--Table of Contents
Subpart--Withholding of Tax
Sec. 517.1 Introductory.
(a) Pertinent provisions of the convention. The income tax
convention between the United States and Pakistan, signed on July 1,
1957, referred to in Secs. 517.1 to 517.9 as the convention, provides in
part as follows, effective for taxable years beginning on or after
January 1, 1959:
Article I
(1) The taxes which are the subject of the present Convention are:
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(a) In the United States of America: The Federal income taxes,
including surtaxes (hereinafter referred to as United States tax)..
(b) In Pakistan: The income tax, supertax and the business profits
tax (hereinafter referred to as Pakistan tax).
(2) The present Convention shall also apply to any other taxes of a
substantially similar character (including excess profits tax) imposed
by either contracting State after the date of signature of the present
Convention, or by the Government of any territory to which the present
Convention is extended under Article XVIII.
Article II
(1) In the present Convention, unless the context otherwise
requires:
(a) The term ``United States'' means the United States of America
and when used in a geographical sense means the States thereof, the
Territories of Alaska and Hawaii and the District of Columbia;
(b) The term ``Pakistan'' means the Provinces of Pakistan and the
Capital of the Federation;
(c) The terms ``one of the contracting States'' and ``the other
contracting State'' mean the United States or Pakistan, as the context
requires;
(d) The term ``tax'' means United States tax, or Pakistan tax, as
the context requires;
(e) The term ``person'' includes any body of persons, corporate or
not corporate;
(f) The term ``company'' means any body corporate or not corporate,
assessed as a company under Pakistan law relating to Pakistan tax;
(g) The term ``United States corporation'' means a corporation,
association or other like entity created or organized in the United
States or under the law of the United States or of any State or
Territory of the United States;
(h) The term ``resident of the United States'' means any individual
or fiduciary who is resident in the United States for the purposes of
the United States tax, and not resident in Pakistan for the purposes of
the Pakistan tax, and any United States corporation or any partnership
created or organized in the United States or under the laws of the
United States, being a corporation or partnership which is not resident
in Pakistan for the purposes of Pakistan tax;
(i) The term ``resident of Pakistan'' means any person (other than a
citizen of the United States or a United States corporation) who is
resident in Pakistan for the purposes of Pakistan tax and not resident
in the United States for the purposes of the United States tax. A
company is to be regarded as a resident of Pakistan if its business is
managed and controlled in Pakistan;
(j) The terms ``resident of one of the contracting States'' and
``resident of the other contracting State'' means a person who is a
resident of the United States or a person who is a resident of Pakistan,
as the context requires;
(k) The terms ``United States enterprise'' and ``Pakistan
enterprise'' mean, respectively an industrial or commercial enterprise
or undertaking carried on in the United States by a resident of the
United States and an industrial or commercial enterprise or undertaking
carried on in Pakistan by a resident of Pakistan; and the terms
``enterprise of one of the contracting States'' and ``enterprise of the
other contracting State'' mean a United States enterprise or a Pakistan
enterprise, as the context requires;
(l) The term ``industrial or commercial profits'' does not include
rents or royalties in respect of motion picture films or of oil wells,
mines and quarries, or income in the form of dividends, interest, rents
or royalties, or fees or other remuneration derived by an enterprise
from the management, control or supervision of the trade, business, or
other activity of another enterprise or concern, or remuneration for
labor or personal services, or income from the operation of ships;
(m) The term ``permanent establishment'', when used with respect to
an enterprise of one of the contracting States, means a branch,
management, factory or other fixed place of business, but does not
include an agency unless the agent has, and habitually exercises, a
general authority to negotiate and conclude contracts on behalf of such
enterprise or has a stock of merchandise from which he regularly fills
orders on its behalf. In this connection--
(i) An enterprise of one of the contracting States shall not be
deemed to have a permanent establishment in the other contracting State
merely because it carries on business dealings in that other contracting
State through a bona fide broker or general commission agent acting in
the ordinary course of his business as such; and
(ii) The fact that a corporation or company which is a resident of
one of the contracting States has a subsidiary corporation or company
which is a resident of the other contracting State or which is engaged
in trade or business in such other contracting State (whether through a
permanent establishment or otherwise) shall not of itself constitute
that subsidiary corporation or company a permanent establishment of its
parent corporation or company;
(n) The term ``taxation authorities'' means, in the case of the
United States, the Commissioner of Internal Revenue as authorized by the
Secretary of the Treasury and, in the case of Pakistan, the Central
Board of Revenue or their authorized representatives; and, in the case
of any territory to which the present Convention is extended under
Article XVIII, the competent
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authority for the administration in such territory of the taxes to which
the present Convention applies.
(2) In the application of the provisions of the present Convention
by one of the contracting States, any term not otherwise defined shall,
unless the contest otherwise requires, have the meaning which it has
under the laws of that contracting State relating to the taxes which are
the subject of the present Convention.
* * * * *
Article VI
(1) The rate of United States tax on dividends paid by a United
States corporation to a Pakistan company--
(i) Not having a permanent establishment in the United States and
(ii) Owning shares carrying more than 50 percent of the voting power
in the corporation paying such dividends shall not exceed fifteen
percent.
* * * * *
Article VII
(1) Dividends paid by a company which is a resident of Pakistan
shall be exempt from United States tax except where the recipient
thereof is a citizen or resident or corporation of the United States.
* * * * *
Article VIII
(1) Any royalty (other than royalties or rentals from motion picture
films) paid as consideration for the use of, or for the privilege of
using, any copyright, patent, design, secret process or formula,
trademark, or other like property, and derived from sources in one of
the contracting States by a resident of the other contracting State not
having a permanent establishment in the former State shall be exempt
from tax by such former State.
(2) Where any royalty exceeds a fair and reasonable consideration in
respect of the rights for which it is paid, the exemption provided by
the present Article shall apply only to so much of the royalty as
represents such fair and reasonable consideration.
Article IX
(1) Remuneration, including pensions and annuities, paid by or on
behalf of the Government of the United States or its political
subdivisions to an individual who is a citizen of the United States, not
ordinarily resident in Pakistan, for services rendered to that
Government in the discharge of governmental functions shall be exempt
from Pakistan tax.
(2) Remuneration, including pensions and annuities, paid by or on
behalf of the Government of Pakistan or the Government of a Province in
Pakistan or any local authority thereof to any individual who is a
citizen of Pakistan not having immigrant status in the United States,
for services rendered in the discharge of functions of that Government
or of local authority, as the case may be, shall be exempt from United
States tax.
(3) The provisions of this Article shall not apply to payments in
respect of services rendered in connection with any trade or business
carried on for purposes of profit.
Article X
(1) A pension or annuity (other than a pension or annuity of the
kind referred to in paragraphs (1) and (2) of Article IX) derived from
sources within one of the contracting States by a resident of the other
contracting State shall be exempted from tax by the former State.
(2) The term ``annuity,'' for the purposes of this Article, means a
stated sum payable periodically at stated times during life or during a
specified or ascertainable period of time, under an obligation to make
the payments in return for adequate and full consideration in money or
money's worth.
(3) This Article shall not apply to a pension or annuity payable
from a superannuation fund approved or recognized under the tax law of
Pakistan nor to a pension or annuity from a fund, under an employees'
pension or annuity plan, contributions to which under the tax law of the
United States are deductible in determining the taxable income of the
employer.
* * * * *
Article XIV
(1) Effective January 1, 1956 the State Bank of Pakistan shall be
exempted from United States tax with respect to interest from sources
within the United States.
* * * * *
Article XVI
(1) The taxation authorities of the contracting States shall
exchange such information (being information which is available under
their respective taxation laws in the normal course of administration)
as is necessary for carrying out the provisions of the present
Convention or for the prevention of fraud or for the administration of
statutory provisions in relation to the taxes which are the subject of
the present Convention. Any information so exchanged shall be treated as
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secret and shall not be disclosed to any persons other than those
concerned with the assessment and collection of the taxes which are the
subject of the present Convention. No information shall be exchanged
which would disclose any trade, business, industrial or professional
secret or trade process.
* * * * *
(3) The taxation authorities of both contracting States may
prescribe regulations necessary to interpret and carry out the
provisions of the present Convention and may communicate with each other
directly for the purpose of giving effect to the provisions of the
present Convention.
(4) The provisions of the present Convention shall not be construed
to restrict in any manner any exemption, deduction, credit or other
allowance now or hereafter accorded by the laws of either contracting
State in determining the tax of such State.
Article XVII
(1) The citizens or nationals of one of the contracting States shall
not, while resident in the other contracting State, be subjected in such
other State to taxes or any requirement connected therewith which is
other, higher or more burdensome than the taxes and connected
requirements to which the citizens or nationals of such other State
resident therein are or may be subjected.
(2) The term ``citizens'' or ``nationals'', as used in this Article,
includes all legal persons, partnerships and associations deriving their
status from, or created or organized under, the laws in force in the
respective contracting States.
(3) Nothing contained in this Article shall be construed--
(a) as obliging either of the contracting States to grant to persons
not resident in its territory those personal allowances, reliefs and
reductions for tax purposes which are by law available only to persons
who are so resident; or
(b) as affecting any provisions of the law of Pakistan regarding the
imposition of tax on a non-resident or the grant of rebate of tax to
companies fulfilling specified requirements regarding the declaration
and payment of dividends, unless those requirements are fulfilled.
* * * * *
Article XIX
The present Convention shall come into force on the date when the
last of all such things shall have been done in the United States and
Pakistan as are necessary to give the Convention the force of law in the
United States and Pakistan, respectively, and shall thereupon have
effect--
(a) In the United States, for the taxable years beginning on or
after the first day of January of the year in which the instruments of
ratification are exchanged;
(b) In Pakistan, in respect of the ``previous years'' or the
``chargeable accounting periods'' (as defined by the tax laws of
Pakistan) beginning on or after the first day of January of the year in
which the instruments of ratification are exchanged.
Article XX
The present Convention shall continue in effect indefinitely but
either of the contracting States may, on or before the 30th day of June
in any calendar year not earlier than three years from the date of
signature of the present Convention, give to the other contracting State
written notice of termination and, in such event the present Convention
shall cease to be effective--
(a) in the United States, for the taxable years beginning on or
after the first day of January next following such written notice of
termination; and
(b) in Pakistan, in respect of the ``previous years'' or the
``chargeable accounting periods'' (as defined by the tax laws of
Pakistan) beginning on or after the first day of January next following
such written notice of termination.
(b) Meaning of terms. As used in Secs. 517.1 to 517.9, any term
defined in the convention shall have the meaning so assigned to it; any
term not so defined shall, unless the context otherwise requires, have
the meaning which such term has under the internal revenue laws of the
United States.