Convention Signed at Washington July 1, 1957; 　　Ratification Advised by the Senate of the United States of America, With a Reservation, July 9, 1958; 　　Ratified by the President of the United States of America, Subject to Said Reservation, November 6, 1958; 　　Ratified by Pakistan May 2, 1959; 　　Ratifications Exchanged at Karachi May 21, 1959; 　　Proclaimed by the President of the United States of America May 28, 1959; 　　Entered into Force May 21, 1959 GENERAL EFFECTIVE DATE UNDER ARTICLE XX: 1 JANUARY 1959 TABLE OF ARTICLES Article I----------------------------------Taxes Covered Article II---------------------------------General Definitions Article III--------------------------------Permanent Establishment Article IV--------------------------------Associated Enterprises Article V---------------------------------Shipping and Aircraft Income Article VI--------------------------------Dividends Article VII-------------------------------Exemption of Dividends Article VIII------------------------------Royalties Article IX--------------------------------Government Employees Article X---------------------------------Pensions and Annuities Article XI--------------------------------Personal Services Article XII-------------------------------Professors or Teachers Article XIII------------------------------Students or Trainees Article XIV------------------------------Government Banks Article XV-------------------------------Avoidance of Double Taxation Article XVI------------------------------Mutual Assistance Article XVII-----------------------------Limitations on Effect of Treaty Article XVIII----------------------------Territorial Extension Article XIX------------------------------Entry into Force Article XX-------------------------------Termination Letter of Submittal----------------------of 8 July, 1957 Letter of Transmittal--------------------of 12 July, 1957 Protocol of Exchange-------------------of 21 May, 1959 　　　　　　　　　　　　　　MESSAGE 　　　　　　　　　　　　　　FROM 　　　　　　THE PRESIDENT OF THE UNITED STATES 　　　　　　　　　　　　TRANSMITTING 　　A CONVENTION BETWEEN THE UNITED STATES OF AMERICA AND PAKISTAN FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME, SIGNED AT WASHINGTON ON JULY 1, 1957 LETTER OF SUBMITTAL DEPARTMENT OP STATE, Washington, July 8, 1957. The PRESIDENT, The White House: 　　The undersigned, the Secretary of State, has the honor to submit to the President, with a view to its transmission to the Senate to receive the advice and consent of that body to ratification, if the President approve thereof, a convention between the United States of America and Pakistan for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, signed at Washington on July 1, 1957. 　　The convention was formulated as a result of technical discussions between representatives of this Government and representatives of the Pakistan Government, in the course of which an effort was made to determine the bases upon which agreement might be reached for the purpose of avoiding double taxation, and establishing certain procedures for mutual administrative assistance, in regard to income taxation. Elimination of such double taxation is an important step toward removing one of the impediments to international trade and investment. 　　The convention with Pakistan follows in general the pattern of income-tax conventions presently in force between the United States and a number of foreign countries, namely, Australia, Belgium, Canada, Denmark, Finland, France, the Federal Republic of Germany, Greece, Honduras, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Sweden, Switzerland, the Union of South Africa, and the United Kingdom. 　　As in the cases of similar conventions, the one with Pakistan is designed to eliminate obstacles to the international flow of trade and investment. It contains provisions relating to business income, investment income, personal service (including professional) income, official salaries, pensions and annuities, remuneration received by teachers, remittances or grants to students and apprentices, and interest received by the State Bank of Pakistan and the Federal Reserve banks of the United States from sources in the other country. The convention also contains, as is customary, provisions regarding administrative procedures, including exchange of information, for giving effect to the convention. 　　The convention contains certain provisions, unlike those in income-tax conventions with other countries, under which the United State would take an important step toward avoiding nullification of the efforts of a foreign country to encourage industrial development through its tax law. Pakistan tax law, in order to attract capital and encourage investment for the development of Pakistan's economy and natural resources, offers an incentive for establishment of approved new enterprises. Pakistan accords certain tax exemptions as to profits of such enterprises and also as to dividends paid out of such profits. More specifically, under the incometax law of Pakistan a business qualifying as a new enterprise may obtain tax exemption for a 5- year period on profits up to 5 percent of invested capital, and dividends paid from such profits may be tax exempt. At present an American corporation qualifying for such treatment under Pakistan law may find that United States taxes will be increased and thus offset the effects of the Pakistan tax law. The concession by Pakistan, therefore, is no special attraction to the United States investor. Under article XV (1) of the proposed convention this situation would be remedied within limits and on certain conditions by treating, as though paid for foreign-tax-credit purposes, the amount of income tax and supertax by which the American taxpayer's Pakistan tax is reduced. 　　It is understood that the Department of the Treasury is prepared to make such further explanations as may be found desirable regarding the technical aspects and application of the proposed convention. 　　The convention applies, so far as United States taxes are concerned, only to the Federal income taxes, including surtaxes. It does not apply to the imposition or collection of taxes by the several States, the District of Columbia, or the Territories or possessions of the United States, although it contains a broad national-treatment provision similar to a provision customarily found in treaties of friendship, commerce, and navigation. In Pakistan the convention would be applicable to the income tax, super-tax, and business-profits tax. 　　It is believed that the convention with Pakistan, if brought into force, would be beneficial to both countries and to their respective citizens and enterprises. It has the approval of the Department of State and the Department of the Treasury. 　　Article XIX provides for ratification and for exchange of instruments of ratification. It prescribes that, upon such exchange, the convention shall have effect in the United States for taxable years beginning on or after January 1 of the year in which the exchange takes place and shall have effect in Pakistan for "previous years" or "chargeable accounting periods," as defined in Pakistan law, beginning on or after January 1 of the year in which the exchange takes place. 　　It is provided in Article XX that the convention shall continue in effect indefinitely, but may be terminated at the end of a period of 3 years or thereafter by the giving of a notice by one of the parties to the other party on or before June 30 of any year, in which event the convention would cease to be effective (a) in the United States, for the taxable years beginning on or after January 1 next following the notice of termination, and (b) in Pakistan, in respect of the "previous years" or the "chargeable accounting periods," as defined in Pakistan law, beginning on or after January 1 next following the notice of termination. Respectfully submitted, JOHN FOSTER DULLES. (Enclosure: Income-tax convention with Pakistan.) LETTER OF TRANSMITTAL THE WHITE HOUSE, July 12, 1957. To the Senate of the United States: 　　With a view to receiving the advice and consent of the Senate to ratification, I transmit herewith a convention between the United States of America and Pakistan for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, signed at Washington on July 1, 1957. 　　I transmit also for the information of the Senate the report by the Secretary of State with respect to the proposed convention. 　　The convention has the approval of the Department of State and the Department of the Treasury. DWIGHT D. EISENHOWER. (Enclosures: (1) Report by the Secretary of State; (2) income-tax convention with Pakistan.) BY THE PRESIDENT OF THE UNITED STATES OF AMERICA A PROCLAMATION 　　WHEREAS a convention between the United States of America and Pakistan for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income was signed at Washington on July 1, 1957 by their respective Plenipotentiaries, the original of which convention is word for word as follows: 　　The Government of the United States of America and the Government of Pakistan, desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, have appointed for that purpose as their respective Plenipotentiaries: 　　The Government of the United States of America: 　　　　John Foster Dulles, Secretary of State of the United States of America, and 　　The Government of Pakistan: 　　　　Mohammed Ali, Ambassador Extraordinary and Plenipotentiary of Pakistan to the United States of America, and Syed Amjad Ali, Minister of Finance of Pakistan, who, having communicated to one another their full powers, found in good and due form, have agreed as follows: ARTICLE I (Taxes Covered) 　　(1) The taxes which are the subject of the present Convention are: 　　(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, super-tax 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 (General Definitions) 　　(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 a resident in Pakistan for the purposes of Pakistan tax and not resident in the United Slates 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" mean a person who is a resident of the United States or 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; 　　(1) 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 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 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 the present Convention. ARTICLE III (Permanent Establishment) 　　(1) A United States enterprise shall not be subject to Pakistan tax in respect of its industrial or commercial profits unless it is engaged in trade or business in Pakistan through a permanent establishment situated therein. If it is so engaged, Pakistan tax may be imposed upon the entire income of such enterprise from sources within Pakistan. 　　(2) A Pakistan enterprise shall not be subject to United States tax in respect of its industrial or commercial profits unless it is engaged in trade or business in the United States through a permanent establishment situated therein. If it is so engaged, United States tax may be imposed upon the entire income of such enterprise from sources within the United States. 　　(3) Where an enterprise of one of the contracting States is engaged in trade or business in the other contracting State through a permanent establishment situated therein, there shall be attributed to such permanent establishment the industrial or commercial profits which it might be expected to derive in such other contracting State if it were an independent enterprise engaged in the same or similar activities under the same or similar conditions and dealing at arm's length with the enterprise of which it is a permanent establishment, and the profits so attributed shall be deemed to be income of that permanent establishment and shall be taxed accordingly. ARTICLE IV (Associated Enterprises) Where - 　　(a) an enterprise of one of the contracting States 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 in the management, control or capital of an enterprise of one of the contracting States and an enterprise of the other contracting State, and 　　(c) 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, any profits, which would but for those conditions have accrued to one of the enterprises but by reason of those conditions have not so accrued, may be included in the profits of that enterprise and taxed accordingly. ARTICLE V (Shipping and Aircraft Income) 　　Profits derived by an enterprise of one of the contracting States from the operation of aircraft registered in such State shall be exempted from tax by the other contracting State, unless the aircraft is operated wholly or mainly between places within such other contracting State. ARTICLE VI (Dividends) 　　(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. 　　(2) Where a United States corporation 　　(i) has no permanent establishment In Pakistan, and 　　(ii) is a public company as defined in paragraph (4) of this Article, and 　　(iii) owns shares carrying more than 50 percent of the voting power of a company which is a resident of Pakistan and is engaged in an industrial undertaking of the classes specified in section 15 B of the Income Tax Act, 1922 (XI of 1922), the rate of Pakistan super-tax otherwise payable with respect to dividends paid by such company to such corporation shall be reduced by 1 anna in the rupee. 　　(3) The provisions of section 23 A of the Income Tax Act, 1922 (XI of 1922) (relating to the distribution of company profits) shall not apply to the income of a company in which shares carrying more than 50 percent of the voting power are owned by a United States corporation constituting a public company, as defined in paragraph (4) of this Article, if the company is engaged in an industrial undertaking of the classes specified in section 15 B of the Income Tax Act, 1922 (XI of 1922) and its profits are retained for the purpose of its industrial development and expansion in Pakistan. 　　(4) In paragraphs (2) and (3) of this Article, the term "public company" means, in relation to any year of assessment- 　　(a) A corporation which does not restrict the right to transfer its shares, which does not prohibit the issue of its shares or debentures to the public or the sale of its shares on a stock exchange and of which shares carrying more than 50 percent of the voting power were not at any time during the previous year held by less than six persons; or 　　(b) A corporation all of whose shares were held at the end of the previous year by one or more public companies as defined in clause (a) of this paragraph. ARTICLE VII (Exemption of Dividends) 　　(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. 　　(2) Dividends paid by a United States corporation shall be exempt from Pakistan tax except where the recipient thereof is resident in Pakistan. ARTICLE VIII (Royalties) 　　(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 (Government Employees) 　　(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 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 (Pensions and Annuities) 　　(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 exempt 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 as 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 XI (Personal Services) 　　(1) An individual, who is a resident of the United States, shall be exempt from Pakistan tax on profits or remuneration in respect of personal (including professional) services performed within Pakistan in any financial year if- 　　(a) he is present within Pakistan on a temporary visit for a period or periods not exceeding in the aggregate 183 days during that year, and 　　(b) the services are performed for or on behalf of a resident of the United States, and 　　(c) the profits or remuneration are subject to United States tax. 　　(2) An individual, who is a resident of Pakistan, shall be exempt from United States tax on profits or remuneration in respect of personal (including professional) services performed within the United States in any taxable year if- 　　(a) he is present within the United States on a temporary visit for a period or periods not exceeding in the aggregate 183 days during that year, and 　　(b) the services are performed for or on behalf of a resident of Pakistan, and 　　(c) the profits or remuneration are subject to Pakistan tax. 　　　　　　　　　　　　　　ARTICLE XII 　　　　　　　　　　　(Professors or Teachers) 　　A professor or teacher, resident in one of the contracting States, who temporarily visits the other contracting State for the purpose of teaching for a period not exceeding two years at a university, college, school or other educational institution in the other contracting State, shall be exempted from tax by such other contracting State in respect of remuneration for such teaching. ARTICLE XIII (Students or Trainees) 　　(1) A resident of one of the contracting States, who is temporarily present in the other contracting State solely 　　(a) as a student at a recognized university, college or school in such other State, or 　　(b) as the recipient of a grant, allowance or award for the primary purpose of study or research from a religious, charitable, scientific or educational organization of the former State shall be exempted from tax by such other State (i) on all remittances from abroad for the purposes of his maintenance, education or training, and (ii) with respect to an amount not in excess of 5,000 United States dollars for any taxable year, representing compensation for personal services. 　　(2) A resident of one of the contracting States who is temporarily present in the other contracting State for a period not exceeding one year, as an employee of, or under contract with, an enterprise of the former State or an organization referred to in paragraph (1), solely to acquire technical, professional or business experience from a person other than such enterprise or organization, shall be exempted from tax by such other State on compensation for such period in an amount not in excess of 6,000 United States dollars ( including remuneration from such person in the other contracting State). 　　(3) A resident of one of the contracting States temporarily present in the other contracting State under arrangements with such other State or any agency or instrumentality thereof solely for the purpose of training, study or orientation shall be exempted from tax by such other State with respect to compensation not exceeding 10,000 United States dollars for the rendition of services directly related to such training, study or orientation (including emoluments and remuneration, if any, from the employer abroad of such resident).