Germany - Pakistan

Income Tax Treaties

1994 Income Tax Agreement and Final Protocol

Signatories: Germany; Pakistan

Signed: June 14, 1994

In Force: December 30, 1995

Effective: In the F.R.G., from January 1, 1995. In Pakistan, from

July 1, 1995. See Article 28.

Status: In Force

Pakistan, desiring to conclude a new Agreement for the avoidance of double taxation and

the prevention of fiscal evasion with respect to taxes on income, have agreed as follows:

Article 1

Personal Scope

This Agreement shall apply to persons who are residents of one or both of the

Contracting States.

Article 2

2. There shall be regarded as taxes on income all taxes imposed on total income or on

elements of income, including taxes on gains from the alienation of movable or

immovable property, taxes on capital appreciation and taxes on the total amounts of

wages or salaries paid by enterprises.

3. The existing taxes to which this Agreement shall apply are in particular:

a) in the Federal Republic of Germany:

the Einkommensteuer (income tax),

the Koerperschaftsteuer (corporation tax) and

the Income tax;,

the Super tax,

the Surcharge tax

(hereinafter referred to as "Pakistan tax").

4. The Agreement shall also apply to any identical or substantially similar taxes which

are imposed after the date of signature of the Agreement in addition to, or in place of

the existing taxes by either Contracting State or by the Government of any territory to

which the present Agreement is extended under Article 27 of this Agreement. At the

end of each year, the competent authorities of the Contracting States shall notify each

1. For the purposes of this Agreement, unless the context otherwise requires:

a) The term "Federal Republic of Germany" means the Federal Republic of Germany

and, if for the purposes of this Agreement used in a geographical sense, the area in

which the tax law of the Federal Republic of Germany is in force, as welt as the

continental shelf adjacent to the territorial sea, insofar as the Federal Republic of

Germany may exercises there in conformity with international law sovereign rights to

explore the continental shelf and exploit its natural resources;

b) the term "Islamic Republic of Pakistan" used in the geographical sense means Islamic

c) the terms "a Contracting State" and "the other Contracting State" mean the Federal

Republic of Germany or the Islamic Republic of Pakistan, as the context requires;

d) the term "person" includes an individual, a company and any other body of persons;

e) the term "company" means any body corporate or any entity which is treated as a

body corporate or any entity which is treated as a body corporate for tax purposes;

f) the terms "enterprise of a Contracting State" and "enterprise of the other Contracting

State" mean respectively, an enterprise carried on by a resident of a Contracting State

2. As regards the application of the Agreement by a Contracting State any term not

1. For the purposes of this Agreement, the term "resident of a Contracting State" means

any person who, under the laws of that State, is liable to tax therein by reason of his

domicile, residence, place of management or any other criterion of a similar nature.

But this term does not include any person who is liable to tax in that State in respect

only of income from sources in that State.

2. Where by reason of the provisions of paragraph 1, an individual is a resident of both

Contracting States, then his status shall be determined as follows:

relations are closer (centre of vital interests);

b) if the State in which he has his centre of vital interests cannot be determined, or if he

has not a permanent home available to him in either State, he shall be deemed to be a

resident of the State in which he has an habitual abode;

c) if he has an habitual abode in both States or in neither of them, he shall be deemed to

be a resident of the State in which he is a national;

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

Permanent Establishment

1. For the purposes of this Convention, the term "permanent establishment" means a

fixed place of business through which the business of the enterprise is wholly or

partly carried on.

2. The term "permanent establishment" includes especially

a) a place of management;

h) permanent sales exhibition;

i) a building site or construction, installation or assembly project where such site,

project or activity continues for a period or periods of more than six months.

3. Notwithstanding the preceding provisions of this article, the term "permanent

establishment" shall be deemed not to include:

a) the use of facilities solely for the purpose of storage or display of goods or

merchandise belonging to the enterprise;

c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely

for the purpose of processing by another enterprise;

d) the maintenance of a fixed place of business solely for the purpose of purchasing

goods or merchandise, or for collecting information, for the enterprise;

e) the maintenance of a fixed place of business solely for the purpose of carrying on, for

the enterprise, any other activity of a preparatory or auxiliary character;

f) the maintenance of a fixed place of business solely for any combination of activities

respect of any activities which that person undertakes for the enterprise, if such a

person:

a) has and habitually exercises in that State an authority to conclude contracts in the

name of the enterprise, unless the activities of such person are limited to those

mentioned in paragraph 3 which, if exercised through a fixed place of business,

would not make this fixed place of business a permanent establishment under the

provisions of that paragraph; or

b) has no such authority, but habitually maintains in the first-mentioned State a stock of

5. An enterprise of a Contracting State shall not be deemed to have a permanent

establishment in the other Contracting State merely because it carries on business in

that other State through a broker, general commission agent or any other agent of an

independent status, where such persons are acting in the ordinary course of their

business. However, when the activities of such an agent are devoted wholly, or almost

wholly on behalf of that enterprise, or a group of centrally controlled enterprises he

would not be considered an agent of an independent status within the meaning of this

paragraph.

7. The fact that a company which is a resident of a Contracting State controls or is

controlled by a company which is a resident of the other Contracting State, or which

carries on business in that other Contracting State (whether through a permanent

establishment or otherwise), shall not of itself constitutes either company a permanent

establishment of the other.

1. Income derived by a resident of a Contracting State from immovable property

(including income from agriculture or forestry) situated in the other Contracting State

may be taxed in that other State.

2. The term "immovable property" shall have the meaning which it has under the laws

in any case include property accessory to immovable property, livestock and

equipment used in agriculture and forestry, rights to which the provisions of general

law respecting landed property apply, usufruct of immovable property and rights to

variable or fixed payments as consideration for the working of, or the right to work,

mineral deposits, sources and other natural resources; ships, boats, and aircraft shall

not be regarded as immovable property.

3. The provisions of paragraph 1 shall also apply to income derived from the direct use,

letting, or use in any other form of immovable property.

4. The provisions of paragraph 1 and 3 shall also apply to the income from immovable

Article 7

Business Profits

1. The profits of an enterprise of a Contracting State shall be taxable only in that State

carries on business in the other Contracting State through a permanent establishment

situated therein, there shall in each Contracting State be attributed to that permanent

establishment the profits which it might be expected to make if it were a distinct and

separate enterprise engaged in the same or similar activities under the same or similar

3. In the determination of the profits of a permanent establishment, there shall be

allowed as deduction expenses which are incurred for the purposes of the permanent

establishment, including only those executive and general administrative expenses so

incurred, whether in the State in which the permanent establishment is situated or

elsewhere.

4. In so far as it has been customary in a Contracting State to determine the profits to be

attributed to a permanent establishment on the basis of an apportionment of the total

profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that

Contracting State from determining the profits to be taxed by such an apportionment

there is good and sufficient reason to the contrary.

7. Where profits include items of income which are dealt with separately in other

Articles of this Agreement, then the provisions of those Articles shall not be affected

by the provisions of this Article.

Article 8

Shipping and Air Transport

a pool, a joint business or in an international operating agency.

Article 9

Associated Enterprises

a) an enterprise of a Contracting State participates directly or indirectly in the

management, control or capital of an enterprise of the other Contracting State, or

and in either case conditions are made or imposed between the two enterprises in their

commercial or financial relations which differ from those which would be made between

independent enterprises, then any profits which would, but for those conditions, have

accrued to one of the enterprises, but by reason of those conditions, have not so accrued,

may be included in the profits of that enterprise and taxed accordingly.

1. Dividends paid by a company which is a resident of a Contracting State to a resident

of the other Contracting State may be taxed in that other State.

2. However, such dividends may also be taxed in the Contracting State of which the

but if the recipient is the beneficial owner of the dividends, the tax so charged shall

not exceed:

a) 10 per cent of the gross amount of the dividends if the recipient is a company

(excluding partnerships) which owns directly at least 20 per cent of the capital of the

company paying the dividends, and

b) 15 per cent of the gross amount of the dividends in all other cases.

Any amount payable in a Contracting State for not depositing tax within time and any

penalty, fee or charge on account of tax offence shall not be considered at the time of

treatment as income from shares by the laws of the State of which the company

making the distribution is a resident, and in the case of the Federal Republic of

Germany income derived by a sleeping partner from his participation as such and

distributions on certificates of an investment trust.

4. The provisions of paragraph 1 and 2 shall not apply if the beneficial owner of the

dividends, being a resident of a Contracting State, carries on business in the other

Contracting State of which the company paying the dividends is a resident, through a

permanent establishment situated therein, or performs in that other State independent

personal services from a fixed base situated therein, and the holding in respect of

5. Where a company which is a resident of a Contracting State derives profits or income

from the other Contracting State, that other State may not impose any tax on the

dividends paid by the company except, insofar as such dividends are paid to a

resident of that other State or insofar as the holding in respect of which the dividends

are paid is effectively connected with a permanent establishment or a fixed base

situated in that other State, nor subject the company's undistributed profits to a tax on

the company's undistributed profits, even if the dividends paid or the undistributed

profits consist wholly or partly of profits or income arising in such other State.

6. The provisions of this Article shall not affect the taxation of the company in respect

1. Interest arising in a Contracting State and paid to a resident of the other Contracting

State may be taxed in that other State.

2. However, such interest may be taxed in the Contracting State in which it arises, and

according to the law of that State, but if the recipients is the beneficial owner of the

interest, the tax so charged shall not exceed:

a) 10 per cent of the gross amount of the interest if the recipient is a bank, recognized as

a banking institution under the laws of that State and,

b) 20 per cent of the gross amount of the interest in all other cases.

a) interest arising in the Federal Republic of Germany and paid to the Pakistan

Government or the State Bank of Pakistan shall be exempt from German tax;

b) interest arising in the Islamic Republic of Pakistan and paid to the German

Government, the Deutsche Bundesbank, the Kreditanstalt fuer Wiederauf bau or the

Deutsche Investitions- und Entwicklungsgesellschaft, as well as interest paid in

consideration of a loan guaranteed by Hermes-Deckung shall be exempt from

Pakistan tax.

income, being a resident of a Contracting State, carries on business in the other

Contracting State through a permanent establishment situated therein, or performs in

that other State independent personal services from a fixed base situated therein, and

the right or property in respect of which the income is paid is effectively connected

with such permanent establishment or fixed base. In such case, the provisions of

Article 7 or Article 14, as the case may be, shall apply.

3. Notwithstanding the provisions of paragraphs 1, if a resident of a Contracting State

derives income from sources within the other Contracting State in the form of lottery

prizes and award, such income may be taxed in the other Contracting State.

excluded.

In the case of income from dividends the foregoing provisions shall apply only to such

shall be allowed as a credit against German income and corporation tax payable in

respect of the following items of income arising in the Islamic Republic of Pakistan

the Pakistan tax paid under the laws of the Islamic Republic of Pakistan and in

accordance with this Agreement on:

subject to the provisions of German tax law regarding credit for foreign tax, be allowed

as a credit against German income or corporation tax payable on such items of income.

2. Tax shall be determined in the case of a resident of the Islamic Republic of Pakistan

as follows:

Subject to the provisions of the laws of Islamic Republic of Pakistan, regarding the

allowance as a credit against Pakistan tax, the amount of German tax payable, under

the laws of Germany and in accordance with the provisions of this Agreement,

residents of one or both of the Contracting Sates.

2. Stateless persons who are residents of a Contracting State shall not be subject in

either Contracting State to any taxation or any requirement connected therewith,

which is other or more burdensome than the taxation and connected requirements to

which nationals of the State concerned in the same circumstances are or may be

3. The taxation on a permanent establishment which an enterprise of a Contracting State

has in the other Contracting State shall not be less favourably levied in that other

State than the taxation levied on enterprises of that other State carrying on the same

activities in the same circumstances and under the same conditions.

4. Interest, royalties fees for technical services and other disbursements paid by an

enterprise of a Contracting State to a resident of the other Contracting State shall, for

the purpose of determining the taxable profits of such enterprise, be deductible under

the same conditions as if they had been paid to a resident of the first-mentioned State.

However, the preceding provisions of this paragraph shall not apply

5. Enterprises of a Contracting State, the capital of which is wholly or partly owned or

controlled, directly or indirectly, by one or more residents of the other Contracting

State, shall not be subjected in the first-mentioned Contracting State to any taxation

or any requirements connected therewith which is other or more burdensome than the

taxation and connected requirements to which other similar enterprises of that first-

mentioned State are or may be subjected.

6. Nothing contained in this Article shall be construed as

b) affecting the provisions of tax law of either Contracting State regarding the

imposition of tax on a non-resident individual; or

c) affecting the provisions of tax law of Islamic Republic of Pakistan regarding the grant

of rebate of tax to companies fulfilling specific requirements regarding the

declaration and payment of dividends

7. In this Article, the term "taxation" means taxes which are the subject of this

Agreement.

the Contracting States result or will result for him in taxation not in accordance with

the provisions of this Agreement, he may, irrespective of the remedies provided by

the national laws of those States, present his case to the competent authority of the

Contracting State of which he is a resident or, if his case comes under paragraph 1 of

Article 24, to that of the Contracting State of which he is a national. This case must

he presented within two years from the first notification of the action giving rise to

taxation not in accordance with the Agreement.

2. The competent authority shall endeavour, if the objection appears to it to be justified

and if it is not itself able to arrive at an appropriate solution, to resolve the case by

mutual agreement with the competent authority of the other Contracting State, with a

application of the Agreement. They may also consult together for the elimination of

double taxation in cases not provided for in the Agreement.

4. The competent authorities of the Contracting States will establish by mutual

agreement the mode of application of the provisions of this Agreement regarding the

exemption or reduction of taxes.

5. The competent authorities of the Contracting States may communicate with each

other directly for the purposes of reaching an agreement in the sense of the preceding

paragraphs or for giving effect to the provisions of the Agreement.

secret or any trade process.

2. In no case shall the provisions of paragraph 1 be construed so as to impose upon

either of the Contracting States the obligation to carry out administrative measures at

variance with the regulations and practice of either Contracting State or which would

be contrary to its sovereignty, security or public policy or to supply particulars which

income as are residents of that State.

1. This Agreement may be extended, either in its entirety or with any necessary

modifications to any State or territory for whose international relations Islamic

2. Unless otherwise agreed by both Contracting States the denunciation of the

Agreement by one of them under Article 29 shall terminate, in the manner provided

for in that Article, the application of the Agreement to any State or territory to which

it has been extended under this Article.

1. This Agreement shall be: ratified and the instruments of ratification shall be

exchanged at * * * as soon as possible.

2. This Agreement shall enter into force one month after the date of exchange of the

instruments of ratification and shall thereupon have effect

a) in the Federal Republic of Germany

3. Upon the entry into force of this Agreement the Convention between the Federal

Republic of Germany and the Islamic Republic of Pakistan for the Avoidance of

Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on

Income signed at Bonn on 7th August, 1958, the Protocol amending this Convention

signed at Bonn on 27th August, 1963 and the Supplementary Convention between the

to have effect.

Contracting State, through diplomatic channels, written notice of termination and, in such

event, this Agreement shall cease to have effective:

a) in the Federal Republic of Germany