Tax exemption on loan income: Pakistani, Chinese authorities yet to develop consensus

Pakistani tax authorities and their Chinese counterpart have yet to develop consensus on tax exemption in case of interest income from the commercial loans by Chinese commercial banks for projects in Pakistan. Sources told Business Recorder here on Tuesday that a two-member Pakistani delegation visited China from June 1-4 to re-negotiate agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.
Negotiations were held between local tax officials and their Chinese counterpart on the said convention. Further negotiations would be held on Article 11 (interest income). According to the sources, Prime Minister has approved to initiate negotiations under Rule 16(2) of the Rules of Business, 1973 on third protocol to amend the Convention for Avoidance of Double Taxation between Pakistan and China. Chinese Tax Authorities had invited FBR for negotiations in Beijing, China in the first week of June, 2015.
The protocol is proposed in pursuance of China-Pakistan Economic Corridor Energy Projects Co-operation Agreement signed between Government of Pakistan (Ministry of Water and Power) and Government of China on 8th November, 2014. In the said agreement a provision was incorporated to the effect that exemption of interest income from commercial loans by ICBC and other Chinese Commercial Banks for projects identified under the Agreement would be considered and negotiated under the processes and protocols for making amendments and modifications in the ADTA.
The negotiations on the aforementioned arrangement were agreed to be completed within 6 months after the signing of the agreement. The ensuring negotiations are very important as Chinese side, through their draft, has sought major and unprecedented concessions under Article 11, sources added.