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The Federal Board of Revenue initiated negotiations for the revision for the existing Convention for the Avoidance of Double Taxation between Islamic Republic of Pakistan and the Government of Japan. Tax delegations of both the countries met at Tokyo and finally at Islamabad. After detailed deliberations, a consensus was achieved and revised draft Convention was initialed by the respective heads of delegation on 17th May, 2007 at Islamabad. The Convention was signed by Mr. M. Abdullah Yusuf, Secretary General, Revenue Division, on behalf of the Government of Pakistan and Mr. Seiji Kojima, Japanese Ambassador at Islamabad, signed on behalf of the Government of Japan.
The signing ceremony was held at the Conference Room of International Taxes in the FBR (Hqs) and was attended, among others, by Member (Direct Taxes), FBR, Mr. Usman Khalid Mirza and senior officials of the Japanese Embassy.
The main features of the revised Convention are as under:
i) Permanent Establishment in the case of building site has been agreed at 6 months.
ii) Delivery from a warehouse will be considered as PE.
iii) Dividend in case of holding companies having 50% voting share for 6 months will be taxed @ 5% holding companies with 25% voting share at 7.5% and all other cases will be taxed @ 10% in the source country.
iv) Tax exemption for government owned banks and financial institutions has also been provided.
v) Royalty at source country will be taxes 10%.
vi) Fee for Technical Services is taxable @ 10% in the source country.
vii) Student's and Business Apprentices' exemptions on their remuneration has been increased from 360,000 Japanese yen to 1,500,000 Japanese yen.
On the occasion of signing the Convention, Secretary General, Revenue Division, Mr. M. Abdullah Yusuf remarked that the Convention will not only provide safeguards against double taxation on the income of the residents of both the countries but also promote economic cooperation, bilateral trade, investment and would further strengthen the existing bilateral economic relations between the two Contracting States. It will provide adequate certainty in respect of taxations rules applicable to cross-border business transactions, dividends, interests, royalties and fee for technical services etc. Taxpayers of both the countries will get relief form double taxation resulting in boosting up the trading activities in both the countries, he added.
In his comments on the occasion, the Japanese Ambassador, Mr. Seiji Kojima, said that he shares the views of the Secretary General on this historic moment and expressed the confidence that the existing very cordial relations between Japan & Pakistan would reflect in all fields particularly in economic, trade and investment sectors. He said, the manufacturing sector of Pakistan is of paramount importance and hoped that more Japanese investment will come in this sector.
The signed Convention will be put up to the Cabinet for ratification to initiate the process of enforcement.