Notification to the agreement between Hong Kong and Pakistan for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income

(TO BE PUBLISHED IN THE GAZETTE OF PAKISTAN EXTRAORDINARY PART.1) GOVERNMENT OF PAKISTAN REVENUE DIVISION *** Islamabad, the January2,2018 N O T I F I C A T I O N (Income Tax) S.R.O. 08 (1)/2018.- WHEREAS the Islamic Republic of Pakistan and the Government of Hong Kong Special Administrative Region of the People's Republic of China signed the Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income on 17" February, 2017, as set out in the Annexure to this Notification (the Agreement); AND Whereas, in terms of Article 29 of the Agreement each of the Contracting Parties shall notify the other in writing of the completion of procedure required by its laws for bringing into force of this Agreement and shall enter into force on the date of receipt of the later of these notification; NOW, THEREFORE, in exercise of the powers conferred by sub-section (1) of section 107 of the Income Tax Ordinance, 2001 (XLIX of 2001), the Federal Government is pleased to direct that the provisions of the said Agreement shall come into force fiom 24" November, 2017 and shall have effect: (a) in the case of Islamic Republic of Pakistan, (i) with regard to taxes withheld at source, in respect of amounts paid or credited on or after the first day of July next following the date upon which the Agreement enters into force; and (ii) with regard to other taxes, in respect of taxable years beginning on or after the first day of July next following the date upon which the Agreement enters into force. in the case of the Hong Kong Special Administrative Region, in respect of Hong (b) Kong Special Administrative Region tax, for any year of assessment beginning on or after the first day of April in the calendar year next following that in which the Agreement enters into force.

Annexure AGREEMENT BETWEEN THE GOVERNMENT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION OF THE PEOPLE'S REPUBLIC OF CHINA AND THE GOVERNMENT OF THE ISLAMIC REPUBLIC OF PAKISTAN FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME The Government of the Hong Kong Special Administrative Region of the People's Republic of China and the Government of the Islamic Republic of Pakistan desiring to conclude an Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, Have agreed as follows: CHAPTER 1 SCOPE OF THE AGREEMENT Article 1 Persons Covered This Agreement shall apply to persons who are residents of one or both of the Contracting Parties. Article 2 Taxes Covered This Agreement shall apply to taxes on income imposed on behalf of a Contracting Party or of its political subdivisions or local authorities, irrespective of the manner in which they are levied. 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 the total amounts of wages or salaries paid by enterprises, as well as taxes on capital appreciation. The existing taxes to which the Agreement shall apply are in particular: (a) in the case of the Hong Kong Special Administrative Region, (i) profits tax; (ii) salaries tax; and (iii) property tax;

whether or not charged under personal assessment; (b) in the case of Pakistan, (i) the income tax; and (ii) the super tax. The Agreement shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Agreement in addition to, or in place of, the existing taxes, as well as any other taxes falling within paragraphs 1 and 2 of this Article which a Contracting Party may impose in future. The competent authorities of the Contracting Parties shall notify each other of any significant changes that have been made in their taxation laws in relation to taxes covered by the Agreement. The existing taxes, together with the taxes imposed after the signature of the Agreement, are hereinafter referred to as "Hong Kong Special Administrative Region tax" or "Pakistan tax", as the context requires. CHAPTER I1 DEFINITIONS Article 3 General Definitions For the purposes of this Agreement, unless the context otherwise requires: (a) the term "Hong Kong Special Administrative Region" means any place where the tax laws of the Hong Kong Special Administrative Region of the People's Republic of China apply; (b) the term "Pakistan" when used in a geographical sense means the Islamic Republic of Pakistan and includes any area outside the territorial waters of Pakistan which under the laws of Pakistan and international law is an area within which Pakistan exercises sovereign rights and exclusive jurisdiction with respect to the natural resources of the seabed and subsoil and superjacent waters; (c) the term "company" means any body corporate or any entity that is treated as a body corporate for tax purposes; (d) the term "competent authority" means: (i) in the case of the Hong Kong Special Administrative Region, the Commissioner of Inland Revenue or his authorized representative; in the case of Pakistan, the Federal Board of Revenue or its authorized (ii) representative;

(e) the terms "Contracting Party", "Party" and the "other Contracting Party" mean the Hong Kong Special Administrative Region or Pakistan, as the context requires; (f) the terms "enterprise of a Contracting Party" and "enterprise of the other Contracting Party" mean respectively an enterprise carried on by a resident of a Contracting Party and an enterprise carried on by a resident of the other Contracting Party; (g) the term "international traffic" means any transport by a ship or aircraft operated by an enterprise of a Contracting Party except when the ship or aircraft is operated solely between places in the other Contracting Party; (h) the term "national" in relation to Pakistan means: (i) any individual possessing the nationality of Pakistan; and (ii) any legal person, partnership or association deriving its status as such from the laws in force in Pakistan: (i) the term "person" includes an individual, a company and any other body of persons and in the case of the Hong Kong Special Administrative Region also includes a trust and a partnership. The terms "Hong Kong Special Administrative Region tax" and "Pakistan tax" do not include any penalty, interest or default surcharge (including, in the case of the Hong Kong Special Administrative Region, any sum added to the Hong Kong Special Administrative Region tax by reason of default and recovered therewith and "additional tax") imposed under the laws of either Contracting Party relating to the taxes to which the Agreement applies by virtue of Article 2. As regards the application of the Agreement at any time by a Contracting Party, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that Party for the purposes of the taxes to which the Agreement applies, any meaning under the applicable tax laws of that Party prevailing over a meaning given to the term under other laws of that Party. Article 4 Resident For the purposes of this Agreement, the term "resident of a Contracting Party" means: (a) in the case of the Hong Kong Special Administrative Region, (i) any individual who ordinarily resides in the Hong Kong Special Administrative Region;

(ii) any individual who stays in the Hong Kong Special Administrative Region for more than 180 days during a year of assessment or for more than 300 days in two consecutive years of assessment one of which is the relevant year of assessment; (iii) a company incorporated in the Hong Kong Special Administrative Region or, if incorporated outside the Hong Kong Special Administrative Region, being normally managed or controlled in the Hong Kong Special Administrative Region; (iv) any other person constituted under the laws of the Hong Kong Special Administrative Region or, if constituted outside the Hong Kong Special Administrative Region, being normally managed or controlled in the Hong Kong Special Administrative Region; (b) in the case of Pakistan, any person who, under the laws of Pakistan, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. This term, however, does not include any person who is liable to tax in Pakistan in respect only of income from sources in Pakistan; and (c) in the case of either Contracting Party, the Government of that Party and any political subdivision or local authority thereof. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting Parties, then his status shall be determined as follows: (a) he shall be deemed to be a resident only of the Party in which he has a permanent home available to him; if he has a permanent home available to him in both Parties, he shall be deemed to be a resident only of the Party with which his personal and economic relations are closer (centre of vital interests); (b) if the Party 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 Party, he shall be deemed to be a resident only of the Party in which he has an habitual abode; (c) if he has an habitual abode in both Parties or in neither of them, he shall be deemed to be a resident only of the Party in which he has the right of abode (in the case of the Hong Kong Special Administrative Region) or of which he is a national (in the case of Pakistan); (d) if he has the right of abode in the Hong Kong Special Administrative Region and is also a national of Pakistan, or if he does not have the right of abode in the Hong Kong Special Administrative Region nor is he a national of Pakistan, the competent authorities of the Contracting Parties shall settle the question by mutual agreement.

3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting Parties, then it shall be deemed to be a resident only of the Party in which its place of effective management is situated. Article 5 Permanent Establishment . , For the purposes of this Agreement, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes especially: (a) a place of management; (b) a branch; (c) an office; (d) a factory; (e) a workshop; (f) a warehouse; (g) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources. The term "permanent establishment" also encompasses: (a) a building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities last more than six months; (b) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or a connected project) within a Contracting Party for a period or periods aggregating more than 183 days within any twelve-month period. An enterprise shall be deemed to have a permanent establishment in a Contracting Party and to carry on business through that permanent establishment if it operates substantial equipment in that Party for a period exceeding twelve months. 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; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display;

(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 of 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; (0 the maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paragraphs (a) to (e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character. 6. Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom paragraph 7 applies - is acting in a Contracting Party on behalf of an enterprise of the other Contracting Party, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting Party in respect of any activities which that person undertakes for the enterprise, if such a person: (a) has and habitually exercises, in the first-mentioned Contracting Party, an authority to conclude contracts in the name of the enterprise, unless the activities of such person are limited to those mentioned in paragraph 5 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 Contracting Party a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise. An enterprise of a Contracting Party shall not be deemed to have a permanent establishment in the other Contracting Party merely because it carries on business in that other Party through a broker, general commission agent or any other agent of an independent status, provided that 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, and conditions are made or imposed between that enterprise and the agent in their commercial and financial relations which differ from those which would have been made between independent enterprises, he will not be considered an agent of an independent status within the meaning of this paragraph. The fact that a company which is a resident of a Contracting Party controls or is controlled by a company which is a resident of the other Contracting Party, or which carries on business in that other Party (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

CHAPTER 111 TAXATION OF INCOME Article 6 Income from Immovable Property . Income derived by a resident of a Contracting Party from immovable property (including income from agriculture or forestry) situated in the other Contracting Party may be taxed in that other Party. 2. The term "immovable property" shall have the meaning which it has under the law of the Contracting Party in which the property in question is situated. The term shall 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, quarries, sources and other natural resources; ships, boats and aircraft shall not be regarded as immovable property. 5. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property. 4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services. Article 7 Business Profits The profits of an enterprise of a Contracting Party shall be taxable only in that Party unless the enterprise carries on business in the other Contracting Party through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other Party but only so much of them as is attributable to: (a) that permanent establishment; (b) sales in that other Party of goods or merchandise of the same or similar kind as those sold through that permanent establishment; or (c) other business activities carried on in that other Party of the same or similar kind as those effected through that permanent establishment, provided that @) or (c) shall not apply where an enterprise is able to demonstrate that the sales or business activities were carried out for reasons other than obtaining benefits under this Agreement.

Subject to the provisions of paragraph 3, where an enterprise of a Contracting Party carries on business in the other Contracting Party through a permanent establishment situated therein, there shall in each Contracting Party 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 conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. (a) In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the Party in which the permanent establishment is situated or elsewhere. (b) However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the permanent establishment. Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts charged (otherwise than towards reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the head office of the enterprise or any of its other offices. In so far as it has been customary in a Contracting Party 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 Party from determining the profits to be taxed by such an apportionment as may be customary; the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained in this Article. 5. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

Where profits include items of income which are dealt with separately in other Articles of the Agreement, then the provisions of those Articles shall not be affected by the provisions of this Article. Article 8 Shipping and Air Transport Profits of an enterprise of a Contracting Party from the operation of ships or aircraft in international traffic shall be taxable only in that Party. However, profits of an enterprise of a Contracting Party derived in the other Contracting Party from the operation of ships in international traffic may also be taxed in the other Contracting Party but the tax so charged shall be reduced by an amount equal to 50 per cent thereof. The provisions of paragraphs 1 and 2 shall also apply to profits from the participation in a pool, a joint business or an international operating agency. Article 9 Associated Enterprises Where: (a) an enterprise of a Contracting Party participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting Party, or (b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting Party and an enterprise of the other Contracting Party, 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. 2. Where a Contracting Party includes in the profits of an enterprise of that Party - and taxes accordingly - profits on which an enterprise of the other Contracting Party has been charged to tax in that other Party and the profits so included are profits which would have accrued to the enterprise of the first-mentioned Party if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other Party shall make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be had to the other provisions of this Agreement and the competent authorities of the Contracting Parties shall, if necessary, consult each other.

The provisions of paragraph 2 shall not apply where judicial, administrative or other legal proceedings have resulted in a final ruling that by actions giving rise to an adjustment of profits under paragraph 1, one of the enterprises concerned is liable to penalty with respect to fraud, gross negligence or wilful default. Article 10 Dividends Dividends paid by a company which is a resident of a Contracting Party to a resident of the other Contracting Party may be taxed in that other Party. However, such dividends may also be taxed in the Contracting Party of which the company paying the dividends is a resident and according to the laws of that Party, but if the beneficial owner of the dividends is a resident of the other Contracting Party, the tax so charged shall not exceed 10 per cent of the gross amount of dividends. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. The term "dividends" as used in this Article means income from shares, "jouissance" shares or "jouissance" rights, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the Party of which the company making the distribution is a resident. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting Party, carries on business in the other Contracting Party of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other Party independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 15, as the case may be, shall apply. Where a company which is a resident of a Contracting Party derives profits or income from the other Contracting Party, that other Party may not impose any tax on the dividends paid by the company, except in so far as such dividends are paid to a resident of that other Party or in so far 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 Party, 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 Party.

Article 11 Interest 1. Interest arising in a Contracting Party and paid to a resident of the other Contracting Party may be taxed in that other Party. 2. However, such interest may also be taxed in the Contracting Party in which it arises and according to the laws of that Party, but if the beneficial owner of the interest is a resident of the other Contracting Party, the tax so charged shall not exceed 10 per cent of the gross amount of the interest. 3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting Party shall be exempt from tax in that Party provided it is beneficially owned by: (a) in the case of the Hong Kong Special Administrative Region, (i) the Hong Kong Monetary Authority; (ii) the Exchange Fund; in the case of Pakistan, the State Bank of Pakistan; (c) the Government of either Contracting Party or any political subdivision or local authority thereof; (d) any entity wholly or mainly owned by the Government of either Contracting Party or any political subdivision or local authority thereof and mutually agreed upon by the competent authorities of the two Contracting Parties. 4. The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article. 5. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the interest, being a resident of a Contracting Party, carries on business in the other Contracting Party in which the interest arises through a permanent establishment situated therein, or performs in that other Party independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with (a) such permanent establishment or fixed base, or with (b) business activities referred to in subparagraph (c) of paragraph 1 of Article 7. In such case the provisions of Article 7 or Article 15, as the case may be, shall apply. 6. Interest shall be deemed to arise in a Contracting Party when the payer is a resident of that Party. Where, however, the person paying the interest, whether he is a resident of a

Contracting Party or not, has in a Contracting Party a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the Party in which the permanent establishment or fixed base is situated. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest exceeds, for whatever reasons, the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting Party, due regard being had to the other provisions of this Agreement. Article 12 Royalties Royalties arising in a Contracting Party and paid to a resident of the other Contracting Party may be taxed in that other Party. However, such royalties may also be taxed in the Contracting Party in which they arise and according to the laws of that Party, but if the beneficial owner of the royalties is a resident of the other Contracting Party, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting Party, carries on business in the other Contracting Party in which the royalties arise through a permanent establishment situated therein, or performs in that other Party independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with (a) such permanent establishment or fixed base, or with (b) business activities referred to in subparagraph (c) of paragraph 1 of Article 7. In such case the provisions of Article 7 or Article 15, as the case may be, shall apply. Royalties shall be deemed to arise in a Contracting Party when the payer is a resident of that Party. Where, however, the person paying the royalties, whether he is a resident of a Contracting Party or not, has in a Contracting Party a permanent establishment or a fixed base in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such permanent establishment or a fixed base, then such royalties

shall be deemed to arise in the Party in which the permanent establishment or fixed base is situated. 6. Where by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties exceeds, for whatever reasons, the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting Party, due regard being had to the other provisions of this Agreement. Article 13 Fees for Technical Services . Fees for technical services arising in a Contracting Party and paid to a resident of the other Contracting Party may be taxed in that other Party. 2. However, such fees for technical services may also be taxed in the Contracting Party in which they arise and according to the laws of that Party, but if the beneficial owner of the fees for technical services is a resident of the other Contracting Party, the tax so charged shall not exceed 12.5 per cent of the gross amount of the fees for technical services. 3. The term "fees for technical services" as used in this Article means payments of any kind to any person, other than to an employee of the person making the payments, in consideration of any services of a technical, managerial or consultancy nature. 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the fees for technical services, being a resident of a Contracting Party, carries on business in the other Contracting Party in which the fees for technical services arise through a permanent establishment situated therein, or performs in that other Party independent personal services from a fixed base situated therein, and the fees for technical services are effectively connected with (a) such permanent establishment or fixed base, or with (b) business activities referred to in subparagraph (c) of paragraph 1 of Article 7. In such case the provisions of Article 7 or Article 15, as the case may be, shall apply. 5. Fees for technical services shall be deemed to arise in a Contracting Party when the payer is a resident of that Party. Where, however, the person paying the fees for technical services, whether he is a resident of a Contracting Party or not, has in a Contracting Party a permanent establishment or a fixed base in connection with which the obligation to pay the fees for technical services was incurred, and such fees for technical services are borne by such permanent establishment or fixed base, then such fees for technical services shall be deemed to arise in the Party in which the permanent establishment or fixed base is situated. 6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the fees for technical

services paid exceeds, for whatever reasons, the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting Party, due regard being had to the other provisions of this Agreement. Article 14 Capital Gains Gains derived by a resident of a Contracting Party from the alienation of immovable property referred to in Article 6 and situated in the other Contracting Party may be taxed in that other Party. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting Party has in the other Contracting Party or of movable property pertaining to a fixed base available to a resident of a Contracting Party in the other Contracting Party for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other Party. Gains derived by an enterprise of a Contracting Party from the alienation of ships or aircraft operated in international traffic, or movable property pertaining to the operation of such ships or aircraft shall be taxable only in that Party. Gains derived by a resident of a Contracting Party from the alienation of shares of a company deriving more than 50 per cent of its asset value directly or indirectly from immovable property situated in the other Contracting Party may be taxed in that other Party. Gains from the alienation of any property, other than that referred to in paragraphs 1, 2, 3 and 4, shall be taxable only in the Contracting Party of which the alienator is a resident. Article 15 Independent Personal Services Income derived by a resident of a Contracting Party in respect of professional services or other activities of an independent character shall be taxable only in that Party except in the following circumstances, when such income may also be taxed in the other Contracting Party: (a) if he has a fixed base regularly available to him in the other Contracting Party for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other Contracting Party; or

@) if his stay in the other Contracting Party is for a period or periods amounting to or exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned; in that case, only so much of the income as is derived from his activities performed in that other Party may be taxed in that other party. The term "professional services" includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants. Article 16 Dependent Personal Services Subject to the provisions of Articles 17, 19 and 20, salaries, wages and other similar remuneration derived by a resident of a Contracting Party in respect of an employment shall be taxable only in that Party unless the employment is exercised in the other Contracting Party. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other Party. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting Party in respect of an employment exercised in the other Contracting Party shall be taxable only in the first-mentioned Party if: (a) the recipient is present in the other Party for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned; and (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other Party; and (c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other Party. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting Party shall be taxable only in that Party. Article 17 Directors' Fees Directors' fees and other similar payments derived by a resident of a Contracting Party in his capacity as a member of the board of directors of a company which is a resident of the other Contracting Party may be taxed in that other Party.

Article 18 Artistes and Sportspersons Notwithstanding the provisions of Articles 7, 15 and 16, income derived by a resident of a Contracting Party as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsperson, from his personal activities as such exercised in the other Contracting Party, may be taxed in that other Party. Where income in respect of personal activities exercised by an entertainer or a sportsperson in his capacity as such accrues not to the entertainer or sportsperson himself but to another person, that income may, notwithstanding the provisions of Articles 7, 15 and 16, be taxed in the Contracting Party in which the activities of the entertainer or sportsperson are exercised. Article 19 Pensions Subject to the provisions of paragraph 2 of Article 20, pensions and other similar remuneration, including a lump sum payment, paid to a resident of a Contracting Party in consideration of past employment shall be taxable only in that Party. However, such pensions and other similar remuneration may also be taxed in the other Contracting Party if the payment is made by a resident of that other Party or a permanent establishment situated therein. Notwithstanding the provisions of paragraphs 1 and 2, pensions and other similar remuneration, including a lump sum payment, made under a pension or retirement scheme which is: (a) a public scheme that belongs to or is managed by the Government of a Contracting Party or a political subdivision or local authority thereof; (b) a scheme in which individuals may participate to secure retirement benefits and which is recognised for tax purposes in a Contracting Party, shall be taxable only in that Contracting Party. Article 20 Government Service (a) Salaries, wages and other similar remuneration, other than a pension, paid by the Government of a Contracting Party or a political subdivision or local authority thereof to an individual in respect of services rendered to that Party or subdivision or authority shall be taxable only in that Party.

(b) However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting Party if the services are rendered in that other Party and the individual is a resident of that Party who: (i) in the case of the Hong Kong Special Administrative Region, has the right of abode therein and in the case of Pakistan, is a national thereof; or (ii) did not become a resident of that Party solely for the purpose of rendering the services. 2. (a) Any pension, including a lump sum payment, paid by, or paid out of funds created or contributed by, the Government of a Contracting Party or a political subdivision or local authority thereof to an individual in respect of services rendered to that Party or subdivision or authority shall be taxable only in that Party. (b) However, if the individual who rendered the services is a resident of the other Contracting Party and the case falls within subparagraph (b) of paragraph 1 of this Article, any corresponding pension (whether a payment in lump sum or by instalments) shall be taxable only in that other Contracting Party. 3. The provisions of Articles 16, 17, 18 and 19 shall apply to salaries, wage$ pensions (including a lump sum payment), and other similar remuneration in respect of services rendered in connection with a business carried on by the Government of a Contracting Party or a political subdivision or local authority thereof. Article 21 Students A student or business apprentice who is or was a resident of a Contracting Party immediately before visiting the other Contracting Party and is temporarily present in that other Party solely for the purpose of his education or apprenticeship and receives payments for the purpose of his maintenance, education or apprenticeship shall not be taxed in that Party in respect of: (a) remittances from abroad arising from sources outside that Party; and (b) remuneration for personal services rendered in that Party with a view to supplementing his resources, unless such remittances or remuneration exceed the Basic Allowance or Exemption limit as available in the internal tax laws of that Contracting Party. 2. An individual who is or was a resident of a Contracting Party immediately before visiting the other Contracting Party and is temporarily present in that other Party solely for the purpose of study, research or training as a recipient of a grant, allowance or award from a

scientific, educational, religious or charitable organization or under a technical assistance program entered into by the Government of a Contracting Party shall, from the date of his first arrival in that other Party in connection with that visit, not be taxed in that other Party in respect of- the amount of such grant, allowance or award; (a) (b) remittances from abroad arising from sources outside that Party; and remuneration for personal services rendered in that Party with a view to (c) supplementing his resources, unless such remittances or remuneration exceed the Basic Allowance or Exemption limit as available in the internal tax laws of that Contracting Party. Article 22 Other Income Items of income of a resident of a Contracting Party, wherever arising, not dealt with in the foregoing Articles of this Agreement shall be taxable only in that Party. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income, being a resident of a Contracting Party, carries on business in the other Contracting Party through a permanent establishment situated therein, or performs in that other Party 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 15, as the case may be, shall apply. 3. Notwithstanding the provisions of paragraphs 1 and 2, items of income of a resident of a Contracting Party not dealt with in the foregoing Articles of this Agreement and arising in the other Contracting Party may also be taxed in that other Party in accordance with its internal laws. CHAPTER IV METHODS FOR ELIMINATION OF DOUBLE TAXATION Article 23 Methods for Elimination of Double Taxation In the case of the Hong Kong Special Administrative Region double taxation shall be avoided as follows: Subject to the provisions of the laws of the Hong Kong Special Administrative Region relating to the allowance of a credit against Hong Kong Special Administrative Region

tax of tax paid in a jurisdiction outside the Hong Kong Special Administrative Region (which shall not affect the general principle of this Article), Pakistan tax paid under the laws of Pakistan and in accordance with this Agreement, whether directly or by deduction, in respect of income derived by a person who is a resident of the Hong Kong Special Administrative Region from sources in Pakistan, shall be allowed as a credit against Hong Kong Special Administrative Region tax payable in respect of that income, provided that the credit so allowed does not exceed the amount of Hong Kong Special Administrative Region tax computed in respect of that income in accordance with the tax laws of the Hong Kong Special Administrative Region. 2. In the case of Pakistan double taxation shall be avoided as follows: (a) Where a resident of Pakistan derives income which, in accordance with the provisions of this Agreement, may be taxed in the Hong Kong Special Administrative Region whether directly or by deduction, Pakistan shall allow as a deduction from the tax on the income of that resident an amount equal to the income tax paid in the Hong Kong Special Administrative Region, but such amount of the tax to be deducted shall not exceed the lesser of the tax which would have been charged on the same income in Pakistan under the rates applicable therein. (b) Where a resident of Pakistan derives income which, in accordance with the provisions of this Agreement, shall be taxable only in the Hong Kong Special Administrative Region, Pakistan may include this income in the tax base but only for purposes of determining the rate of tax on such other income as is taxable in Pakistan. CHAPTER V SPECIAL PROVISIONS Article 24 Nan-Discrimination Persons who, in the case of the Hong Kong Special Administrative Region, have the right of abode or are incorporated or otherwise constituted therein, and, in the case of Pakistan, are Pakistani nationals, shall not be subjected in the other Contracting Party to any taxation or any requirements connected therewith, which is other or more burdensome than the taxation and connected requirements to which persons who have the right of abode or are incorporated or otherwise constituted in that other Party (where that other Party is the Hong Kong Special Administrative Region) or nationals of that other Party (where that other Party is Pakistan) in the same circumstances, in particular with respect to residence, are or may be subjected. This provision shall, notwithstanding the provisions of Article 1, also apply to persons who are not residents of one or both of the Contracting Parties.

Stateless persons who are residents of a Contracting Party shall not be subjected in either Contracting Party to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which persons who have the right of abode in the Party (where the Party is the Hong Kong Special Administrative Region) or nationals of the Party (where the Party is Pakistan) in the same circumstances, in particular with respect to residence, are or may be subjected. The taxation on a permanent establishment which an enterprise of a Contracting Party has in the other Contracting Party shall not be less favourably levied in that other Party than the taxation levied on enterprises of that other Party carrying on the same activities. This provision shall not be construed as obliging a Contracting Party to grant to residents of the other Contracting Party any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents. Except where the provisions of paragraph 1 of Article 9, paragraph 7 of Article 11, paragraph 6 of Article 12, or paragraph 6 of Article 13 apply, interest, royalties, fees for technical services and other disbursements paid by an enterprise of a Contracting Party to a resident of the other Contracting Party 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 Party. Enterprises of a Contracting Party, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting Party, shall not be subjected in the first-mentioned Party to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of the first-mentioned Party are or may be subjected. The provisions of this Article shall apply to the taxes referred to in Article 2 of this Agreement. Article 25 Mutual Agreement Procedure Where a person considers that the actions of one or both of the Contracting Parties 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 internal law of those Parties, present his case to the competent authority of the Contracting Party of which he is a resident or, if his case comes under paragraph 1 of Article 24, to that of the Contracting Party in which he has the right of abode or is incorporated or otherwise constituted (in the case of the Hong Kong Special Administrative Region) or of which he is a national (in the case of Pakistan). The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of 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 a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting Party, with a view to the avoidance of taxation which is not in accordance with the Agreement. Any agreement reached shall be implemented notwithstanding any time limits in the intemal law of the Contracting Parties. The competent authorities of the Contracting Parties shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Agreement. They may also consult together for the elimination of double taxation in cases not provided for in the Agreement. The competent authorities of the Contracting Parties may communicate with each other directly, including through a joint commission consisting of themselves or their representatives, for the purpose of reaching an agreement in the sense of the preceding paragraphs. The competent authorities, through consultations, may develop appropriate bilateral procedures, conditions, methods and techniques for the implementation of the mutual agreement procedure provided for in this Article. In addition, a competent authority may devise appropriate unilateral procedures, conditions, methods and techniques to facilitate the above-mentioned bilateral actions and the implementation of the mutual agreement procedure. Where, (a) under paragraph 1, a person has presented a case to the competent authority of a Contracting Party on the basis that the actions of one or both of the Contracting Parties have resulted for that person in taxation not in accordance with the provisions of the Agreement, and (b) the competent authorities are unable to reach an agreement to resolve that case pursuant to paragraph 2 within two years from the presentation of the case to the competent authority of the other Contracting Party, any unresolved issues arising from the case shall be submitted to arbitration if the person so requests and agrees in writing to be bound by the arbitration decision. These unresolved issues shall not, however, be submitted to arbitration if a decision on these issues has already been rendered by a court or administrative tribunal of either Party. The arbitration decision in a particular case shall be binding on both Contracting Parties with respect to that case, and shall be implemented notwithstanding any time limits in the intemal laws of these Parties. The competent authorities of the Contracting Parties shall by mutual agreement settle the mode of application of this paragraph.

Article 26 Exchange of Information The competent authorities of the Contracting Parties shall exchange such information as is foreseeably relevant for carrying out the provisions of this Agreement or to the administration or enforcement of the internal laws of the Contracting Parties concerning taxes covered by the Agreement imposed on behalf of the Contracting Parties, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to the Agreement. The exchange of information is not restricted by Article 1. Any information received under paragraph 1 by a Contracting Party shall be treated as secret in the same manner as information obtained under the internal laws of that Party and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to the taxes referred to in paragraph 1. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. Information shall not be disclosed to any third jurisdiction for any purpose. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting Party the obligation: (a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting Party; (b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting Party; (c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (ordrepublic). 4. If information is requested by a Contracting Party in accordance with this Article, the other Contracting Party shall use its information gathering measures to obtain the requested information, even though that other Party may not need such information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of paragraph 3 but in no case shall such limitations be construed to permit a Contracting Party to decline to supply information solely because it has no domestic interest in such information. 5 . In no case shall the provisions of paragraph 3 be construed to permit a Contracting Party to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person.

Article 27 Members of Government Missions Nothing in this Agreement shall affect the fiscal privileges of members of government missions, including consular posts, under the general rules of international law or under the provisions of special agreements. Article 28 Miscellaneous Rules Notwithstanding the other provisions of this Agreement, a benefit under the Agreement shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the Agreement. 2. Nothing in the Agreement shall prejudice the right of each Contracting Party to apply its internal laws and measures concerning tax avoidance, whether or not described as such. CHAPTER VI FINAL PROVISIONS Article 29 Entry into Force 1. Each of the Contracting Parties shall notify the other in writing of the completion of the procedures required by its law for the bringing into force of this Agreement. The Agreement shall enter into force on the date of the later of these notifications. 2. The provisions of the Agreement shall thereupon have effect: (a) in the case of the Hong Kong Special Administrative Region, in respect of Hong Kong Special Administrative Region tax, for any year of assessment beginning on or after the first day of April in the calendar year next following that in which the Agreement enters into force; (b) in the case of Pakistan, (i) with regard to taxes withheld at source, in respect of amounts paid or credited on or after the first day of July next following the date upon which the Agreement enters into force; and

(ii) with regard to other taxes, in respect of taxable years beginning on or after the first day of July next following the date upon which the Agreement enters into force. Article 30 Termination This Agreement shall remain in force until terminated by a Contracting Party. Either Contracting Party may terminate the Agreement, through appropriate government channels, by giving the other Contracting Party written notice of termination at least six months before the end of any calendar year starting five years after the year in which the Agreement entered into force. In such event, the Agreement shall cease to have effect: (a) in the case of the Hong Kong Special Administrative Region, in respect of Hong Kong Special Administrative Region tax, for any year of assessment beginning on or after the first day of April in the calendar year next following that in which the written notice of termination is given; @) in the case of Pakistan, in respect of taxes withheld at source, for amounts paid or credited, and for other taxes, in respect of taxable years beginning, on or after the first day of July next following the date on which written notice of termination is given. IN WITNESS WHEREOF, the undersigned, being duly authorized thereto, have signed this Agreement. DONE in duplicate at Hong Kong this 17" day of February 2017 in the English language. For the Government of For the Government of the Hong Kong Special Administrative Region the Islamic Republic of Pakistan of the People's Republic of China

PROTOCOL At the time of signing the Agreement between the Government of the Hong Kong Special Administrative Region of the People's Republic of China and the Government of the Islamic Republic of Pakistan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (the "Agreement"), the two Governments have agreed on the following provisions which shall form an integral part of the Agreement. It is understood that provisions of the Agreement which have been formulated on the basis of the corresponding provisions of the United Nations Model Double Taxation Convention between Developed and Developing Countries ("UN Model Tax Convention") or the Model Tax Convention on Income and on Capital of the Organisation for Economic Co-operation and Development ("OECD Model Tax Convention") shall generally be considered to have the same meaning as expressed in the Commentaries on the articles of the UN Model Tax Convention or the OECD Model Tax Convention. The understanding in the preceding sentence shall not apply with respect to the following: (a) any reservations or observations to the UN Model Tax Convention or the OECD Model Tax Convention, or Commentaries on the articles thereof, by either Contracting Party; (b) any contrary interpretation as provided for in this Protocol; (c) any contrary interpretation agreed to by the competent authorities after the entry into force of the Agreement. The Commentaries on the articles of the UN Model Tax Convention and the OECD Model Tax Convention, as may be revised from time to time, constitute a means of interpretation in the sense of the Vienna Convention on the Law of Treatiesl969. With reference to Article 7 (Business Profits) It is understood that in paragraph 3, the term "banking enterprise", in the case of the Hong Kong Special Administrative Region, means a financial institution as defined in its tax laws. 3. With reference to Article 26 (Exchange of Information) It is understood that the provisions in this Article also apply to the following taxes that are administrated and enforced in Pakistan: (a) the sales tax under the Sales Tax Act 1990; (b) the federal excise duty under the Federal Excise Duty Act 2005;

(c) the customs duty under the Customs Act 1969; and (d) the capital value tax. IN WITNESS WHEREOF, the undersigned, being duly authorized thereto, have signed this Protocol. DONE in duplicate at Hong Kong this 17* day of February 2017 in the English language. -Sd- -Sd- For the Government of For the Government of the Hong Kong Special Administrative Region the Islamic Republic of Pakistan of the People's Republic of China S/D (Dr. Muhammad Iqbal) Additional SecretaryIMember (IR- Policy)