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CA Final · Direct Tax Laws & International Taxation · Overview of Model Tax Conventions

Kaveri Infra Ltd, an Indian company, hires a foreign contractor, Brightbuild GmbH, to run an installation project in India. Treaty follows the UN Model Convention, with a 6-month threshold for installation projects, whereas the OECD Model uses 12 months. The project in India lasts 8 months. Which statement is correct about a permanent establishment (PE) of Brightbuild in India for this project?

A PE exists under the UN Model-style six-month threshold but not under the OECD twelve-month threshold. The project of eight months exceeds six months but is below twelve, so only the UN Model treaty creates a construction or installation PE for Brightbuild in India.

  1. AA PE exists under the UN Model-style threshold but not under the OECD 12-month thresholdCorrect
  2. BNo PE exists under either model
  3. CA PE exists under both models
  4. DA PE exists under OECD but not under UN Model

Explanation

The UN Model Article 5(3)(a) sets a 6-month period for building site, construction or installation projects, while the OECD Model Article 5(3) sets 12 months. At 8 months, the duration exceeds 6 but not 12 months, so the PE arises only under the UN-style threshold. The OECD-based option reverses the thresholds.

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