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

Meridian Holdings, a company incorporated in Country A and effectively managed from Country A, runs a fixed-base consultancy office in India for 14 months and a separate building site in India for 8 months. Under the OECD Model Convention (Article 5), which of the following is the correct position on a permanent establishment (PE) in India?

The consultancy office is a PE as a fixed place of business through which business is carried on, while the 8-month building site is not a PE because the OECD Model requires a building site to last more than twelve months.

  1. AThe consultancy office is a PE because it is a fixed place of business through which business is wholly or partly carried on; the 8-month building site is not a PE under the OECD 12-month thresholdCorrect
  2. BBoth are PEs, since any fixed place of business is a PE irrespective of duration
  3. CNeither is a PE, because a PE under the OECD Model arises only after 24 months
  4. DOnly the building site is a PE, because a fixed place of business must be a construction project

Explanation

Article 5(1) of the OECD Model makes a fixed place of business through which the enterprise's business is carried on a PE. Article 5(3) treats a building site as a PE only if it lasts more than 12 months. The 8-month site therefore falls short. Treating both as PEs ignores the 12-month test.

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