Article 13, paragraph 1, provides that royalties collected for technical services that are provided in a contracting state and which are paid to a resident of the other Contractant State may be imposed in that other State party. Article 13, paragraph 2, provides that these fees for technical services may also be imposed in the contracting state in which they are created and under state law, but if the beneficiary is the beneficiary, the tax collected may not exceed 12.5% of the gross amount of taxes. Article 13, paragraph 4, provides that the provisions of paragraphs 1 and 2 above do not apply where the economic beneficiary of technical services charges acts as a resident of a contracting state in the other State party where technical services charges are generated, through a stable institution or in that other state, provides independent personal services from a fixed base and contract for which technical service charges are incurred, through a stable institution or in that other state. , services that are effectively linked to such a stable establishment or a fixed base. In these cases, the provisions of Article 7 or paragraph 15 apply. When we are faced with a problem with the interpretation of the articles of the treaty, we think it is important to take into account the objective for which the treaty was signed, namely to avoid double taxation. Given that the treaty was primarily double taxation, we believe that this is the priority objective that the Treaty is trying to achieve and, secondly, a waiver where the contract will benefit fairly from revenue collection in Pakistan, where the Chinese company also operates. A clear reading of Article 13, paragraph 4, would specify that it would nullifying the effect of Article 13, paragraph 1, if Chinese residents also have a branch in Pakistan. However, Article 13, paragraph 4, also provides for the effect of paragraph 2 of Article 13, which provides that such levies for technical services may also be imposed in the contracting state in which they are created and according to the laws of that state, but if the beneficiary is the beneficiary, the tax collected cannot exceed 12.5% of the gross amount of royalties. For the purposes of this article, we have tried to highlight this problem of interpretation and the mechanism that can be used to solve it.
China and Pakistan are both signatories to the agreement between the People`s Republic of China and the Islamic Republic of Pakistan to avoid double taxation and prevent tax evasion by taking tax evasion into account. This tax treaty (in the “treaty”) was signed in 1989 and deals specifically with double taxation issues. We are surprised, however, that most Chinese companies have not taken this contract into account or have not given due consideration. Even if Chinese companies refer to the tax relief contract, the problem of interpreting their articles leaves them perplexed. While sections 7, 13, paragraphs 1 and 15 are, in our view, clear that the imposition of fees paid to a resident occurs only in the country where the actual beneficiary of the royalties is established, the problem arises from the interpretation of section 13, paragraph 4. The agreement on double tax evasion between India and Mauritius (i.e. “DTAA”) provides for a possible tax exemption for foreign investors, under which Mauritius is considered one of the preferred ways of investing in India, which exempts capital gains tax from the sale of shares of an Indian company. In the past, Indian revenues have called into question the granting of capital gains tax exemption under the tax treaty, on the grounds that the Mauritian company has no real commercial substance and was created solely for the purchase of contracts.