Pakistan – USA Transport Tax Agreement (1989)

Transportation Tax Agreement and Supplementary Notes (1989)

This Treaty was signed on July 27, 1989 and entered into force on July 27, 1989.

Agreement Between the UNITED STATES OF AMERICA and PAKISTAN
The American Embassy to the Pakistani Ministry of Foreign Affairs
Embassy of the United States of America

Note No. ECON/1448

The Embassy of the United States of America presents its compliments to the Ministry of Foreign Affairs of Pakistan and has the honor to propose that the two governments conclude an agreement to exempt from income tax, on a reciprocal basis, income derived by residents of the other country from the international operation of ships. The terms of the agreement are as follows:

• The Government of the United States of America in accordance with Sections 872(B)(1) and 883(A)(1) of the Internal Revenue Code of 1986, agrees to exempt from tax gross income derived from the international operation of ships by individuals who are residents of Pakistan (other than U.S. citizens), companies registered in Pakistan, and other Pakistani enterprises (other than corporations organized in the United States) to the extent that the income of such enterprises is subject to tax by Pakistan on the basis of residence. This exemption is granted on the basis of equivalent exemptions granted by Pakistan to individual residents of the United States and to corporations organized in the United States (which are not subject to tax by Pakistan on the basis of residence). In the case of a Pakistan company or enterprise, the exemption shall apply only if the company meets the ownership or public trading requirements of Section 883(C) of the Internal Revenue Code. For purposes of such ownership requirement, the Government of Pakistan will be treated as an individual resident of Pakistan.

• The Embassy of the United States of America considers that this note, together with the Ministry’s reply note confirming that the Government of Pakistan agrees to these terms, constitute an agreement between the two governments. This agreement shall enter into force on the date of the Ministry’s reply note and shall have effect for United States tax with respect to taxable years beginning on or after January 1, 1987.

• Either Government may terminate this agreement by giving written notice of termination through diplomatic channels.

The Embassy of the United States of America takes this opportunity to renew to the Ministry of Foreign Affairs of Pakistan the assurances of its highest Consideration.

The Embassy of the United States of America,
Islamabad, July 26, 1989.

The Pakistani Ministry of Foreign Affairs to the American Embassy

Note No. 2(3)IT-2/77 No. 04
July 27, 1989.

The Ministry of Foreign Affairs of Pakistan presents its compliments to the Embassy of the United States of America and with respect to Sections 872(B)(I) and 883(A)(I) of the Internal Revenue Code of 1986, which subject to reciprocity, grants tax exemption to foreign shipping enterprises operating in international traffic, has the honour to agree as follows:

Under Clause (141) of Part I of the Second Schedule to the Income Tax Ordinance, 1979, income of a foreign enterprise derived from operation of ships in international traffic may be exempted from payment of tax in Pakistan on a reciprocal basis.

The Government of the Islamic Republic of Pakistan, therefore, confirms the principle of reciprocity by stating that, subject to the grant by the United States Government of exemption from tax on the income derived by shipping enterprises carried on by residents of Pakistan from the operation of ships in international traffic, individual residents of the United States and corporations organized in the United States (which are not subject to tax by Pakistan on the basis of residence) deriving income from the operation of ships in international traffic shall be exempt from income tax in Pakistan. The proposed tax exemption will be applicable to the income of United States shipping enterprises derived on or after the first day of January 1987.

The Ministry of Foreign Affairs of Pakistan, therefore, confirms that the contents of the United States note are acceptable to the Government of the Islamic Republic of Pakistan and that this note, together with the note of the Government of the United States, constitute an agreement between the two Governments.

The Ministry of Foreign Affairs of Pakistan avails itself of this opportunity to renew to the Embassy of the United States Government the assurances of its highest consideration.

SIDE LETTER

Excellency:

I have the honor to refer to the agreement signed today between the United States of America and the Islamic Republic of Pakistan with respect to the reciprocal exemption from tax of income derived from the operation of ships in international traffic.

It is understood that the income exempt from tax under that agreement income from the operation of ships in international traffic, including income from the rental on a full basis of ships operated in international traffic. The exemption does not apply to income from the rental of ships on a bareboat basis, income from the rental of containers, or gain on the disposition of ships.

SIDE LETTER

Excellency:

I have the honour to refer to the agreement signed today between the United States of America and the Islamic Republic of Pakistan with respect to the reciprocal exemption from tax of income derived from the operation of ships in international traffic.

It is understood that the income exempt from tax under that agreement is income from the operation of ships in international traffic, including income from the rental on a full basis of ships operated in international traffic. The exemption does not apply to income from the rental of ships on a bareboat basis, income from the rental of containers, or gain on the disposition of ships.