United States Tax Treaty with Pakistan

Summary of United States Tax Treaty with Pakistan:

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The meeting discusses the ratification and provisions of a taxation convention between the United States and Pakistan aimed at avoiding double taxation and preventing fiscal evasion on income taxes.

Taxation Convention with Pakistan Overview

The taxation convention between the United States and Pakistan aims to avoid double taxation and prevent fiscal evasion regarding income taxes.

Convention Details and Ratification Process

• Signed on July 1, 1957, in Washington.

• Ratified by the U.S. Senate on July 9, 1958, with a reservation.

• Ratified by the U.S. President on November 6, 1958, and by Pakistan on May 2, 1959.

• Ratifications exchanged in Karachi on May 21, 1959.

• Entered into force on May 21, 1959, with a general effective date of January 1, 1959.

Articles of the Convention

• The convention includes 20 articles covering various aspects of taxation.

• Key articles address taxes covered, definitions, permanent establishments, associated enterprises, shipping and aircraft income, dividends, royalties, government employees, pensions, personal services, and avoidance of double taxation.

Key Provisions for Avoiding Double Taxation

• Article XV outlines the avoidance of double taxation through tax credits.

• U.S. tax credits for Pakistan tax payable on income from sources within Pakistan.

• Pakistan tax credits for U.S. tax payable on income from sources within the United States.

Exemptions and Special Provisions

• Exemptions for dividends, royalties, and certain government employee remuneration.

• Specific exemptions for students, trainees, professors, and teachers visiting the other contracting state.

• Exemptions for interest income from government banks.

Mutual Assistance and Information Exchange

• Article XVI mandates the exchange of information between taxation authorities to prevent fraud and ensure compliance.

• Taxation authorities can consult and communicate directly to resolve double taxation claims.

Limitations and Territorial Extension

• Article XVII ensures that citizens of one contracting state are not subjected to more burdensome taxes in the other state.

• Article XVIII allows for the extension of the convention to territories under the jurisdiction of either contracting state.

Extension of the Convention

The Convention can be extended to territories with similar tax systems under specific conditions.

• The extension can apply to any territory for which either contracting State is responsible.

• The extension may include modifications and will take effect based on agreed terms.

• Termination of the Convention for Pakistan or the United States also terminates its application to extended territories.

Entry into Force of the Convention

The Convention becomes effective upon completion of necessary legal formalities in both countries.

• It comes into force when the last required actions are completed in the United States and Pakistan.

• In the United States, it applies to taxable years starting on or after January 1 of the ratification year.

• In Pakistan, it applies to "previous years" or "chargeable accounting periods" starting on or after January 1 of the ratification year.

Termination of the Convention

The Convention remains in effect indefinitely but can be terminated by either State with proper notice.

• Either contracting State can terminate the Convention with written notice by June 30 of any year.

• Termination takes effect in the United States for taxable years starting after January 1 following the notice.

• In Pakistan, termination applies to "previous years" or "chargeable accounting periods" starting after January 1 following the notice.

Ratification and Proclamation Details

The Convention was ratified by both countries and officially proclaimed by the U.S. President.

• The U.S. Senate advised ratification on July 9, 1958, with a specific reservation regarding Article XV.

• The Convention was ratified by the U.S. President on November 6, 1958, and by Pakistan subsequently.

• Instruments of ratification were exchanged on May 21, 1959, in Karachi, confirming the Convention's validity.

Protocol of Exchange Summary

The exchange of ratification instruments was conducted by representatives of both governments.

• The exchange was carried out by James M. Langley and Manzur Qadir on May 21, 1959.

• The protocol confirms the ratification of the Convention for avoiding double taxation.

• Pakistani acceptance of the U.S. reservation is documented in official communications.