ISLAMABAD, March 11: Pakistan is likely to send a formal request to the United States for revising and updating the existing convention for the avoidance of double taxation with respect to income for encouragement and reciprocal protection of investment between the two countries.

Well-placed sources told Dawn on Friday that Pakistan and the US had ratified the convention in 1959 to facilitate bilateral investment between the two countries.

The proposal was under consideration following the demand of the business community which has proposed to the Pakistani government to initiate dialogue at earliest with the US for making changes in the existing agreement to make it more business-friendly.

Businessmen have also proposed to the government that before going to sign the proposed treaty on bilateral investment with the USA, the Pakistani tax officials should have been assigned the task to negotiate the treaty with the US tax officials for modifying it and making amendments under the existing scenario.

The sources said that in the existing agreement there was a need to improve the technical language, some definitions of the articles along with definitions of Pakistan.

Interestingly, the articles on income from immovable property, business profit, interest, independent personal services, capital gains, artist and sports person, other income, non-discrimination, mutual agreement procedures and member of diplomatic missions and counsellor posts, which form part and parcel of the United Nations and OECD models and article of fee for technical services, which forms part of Pakistan model draft were not included in the double taxation treaty with the USA.

Elaborating the proposed amendments, the sources said that there was no separate article on the definition of resident. The definition of resident as contained in the general definition was not as comprehensive as contained in the United Nations and OECD model drafts.

Under the existing agreement, there was no separate article for permanent establishment and the definition was not as comprehensive and detailed as contained in the UN and OECD models.

There was also a need to combine income of shipping and aircraft under one article of the comprehensive treaty. Presently, there was a separate agreement for the shipping income, which was effective from 1989 between the two countries.

According to the UN and OECD model, the sources said, only article X deals with the dividend income. The existing treaty did not have a corresponding article. Article XIV of the treaty only covers the interest income of federal banks and did not make any mention of interest income earned by persons of the contracting states.

The sources said that definition of royalty needed to be redefined to cover all the items of income qualifying as royalty and fee for technical services has neither been defined in the general definition nor in the article VIII which deals with royalty.