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CA Final · Direct Tax Laws & International Taxation · Application and Interpretation of Tax Treaties

Gamma Inc, a company incorporated in Country X, has its board meetings held in Country X, but its day-to-day key commercial decisions are taken by directors sitting in Mumbai. Country X and India have a treaty using the standard OECD tie-breaker for a person other than an individual that is resident of both states. Which test decides the treaty residence of Gamma Inc under that tie-breaker?

The place of effective management decides it. The treaty tie-breaker for a dual-resident company looks to where key management and commercial decisions are in substance taken, not where it is incorporated or where board meetings are formally held. On these facts that points to Mumbai.

  1. APlace of incorporation
  2. BPlace of effective managementCorrect
  3. CLocation of the majority of shareholders
  4. DPlace where its bank accounts are held

Explanation

The OECD Model (pre-2017) resolves dual residence of non-individuals by the place of effective management, being where key management and commercial decisions are in substance made. Incorporation is a distractor because it is a domestic law test, not the treaty tie-breaker. Here that place would be Mumbai, based on the facts.

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