ARTICLE 22

Relief from Double Taxation

(1) Tax shall be determined in the case of a resident of the Federal Republic of Germany as follows:

• (a) Unless the provisions of sub-paragraph (b) apply, there shall be excluded from the basis upon which German tax is imposed, any item of income arising in the Islamic Republic of Pakistan which, according to this Agreement, may be taxed in the Islamic Republic of Pakistan. The Federal Republic of Germany, however, retains the right to take into account in the determination of its rate of tax the items of income so excluded.
• In the case of income from dividends the foregoing provisions shall apply only to such dividends as are paid to a company (not including partnership) being a resident of the Federal Republic of Germany by a company being a resident of the Islamic Republic of Pakistan at least 20 per cent of the capital of which is owned directly by the German company.
• (b) Subject to the provisions of German tax law regarding credit for foreign tax, there 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:
  • (i) dividends not dealt with in sub-paragraph (a);
  • (ii) interest;
  • (iii) royalties and fees for technical services;
  • (iv) income to which paragraphs (4) and (5) of Article 13 apply;
  • (v) remuneration to which Article 16 applies; and
  • (vi) income to which Article 17 applies.
• (c) The provisions of sub-paragraph (a) shall not apply to the profits of a permanent establishment and or the gains from the alienation of movable and immovable property forming part of the business property of a permanent establishment to dividends paid by a company; provided that the resident of the Federal Republic of Germany concerned does not prove that the receipts of the permanent establishment or company are derived exclusively or almost exclusively;
  • (i) from producing or selling goods or merchandise, giving technical advice  or rendering engineering services, or doing banking or insurance business, within the Islamic Republic of Pakistan; or
  • (ii) from dividends paid by one or more companies, being residents of the Islamic Republic of Pakistan, more than 25 per cent of the capital of which is owned by the first-mentioned company, which themselves derive their receipts exclusively or almost exclusively from producing or selling goods or merchandise, giving technical advice or rendering engineering services, or doing banking or insurance business, within the Islamic Republic of Pakistan.
• In such a case Pakistan tax payable under the laws of the Islamic Republic of Pakistan and in accordance with this Agreement on the above-mentioned items of income shall, 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, whether directly or by deduction, by a resident of the Islamic Republic of Pakistan in respect of income from sources within the Federal Republic of Germany which has been subjected to tax both in the Islamic Republic of Pakistan and the Federal Republic of Germany, shall be allowed as a credit against the Pakistan tax payable in respect of such income but in an amount not exceeding that proportion of Pakistan tax which such income bears to the entire income chargeable to Pakistan tax.