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

Meridian Inc., a US company, has an agent in India who habitually concludes contracts on its behalf. Under the typical OECD/UN Model Convention approach, an agency permanent establishment is questioned for an independent agent. Which statement is correct as per Article 5 of the Model Conventions (before MLI modifications)?

A dependent agent who has and habitually exercises authority to conclude contracts in the enterprise's name creates a permanent establishment. An independent agent acting in the ordinary course of its own business does not. This is the rule in Article 5(5) and 5(6) of the Model Conventions.

  1. AA dependent agent with authority to habitually conclude contracts in the name of the enterprise creates a PE, whereas an independent agent acting in the ordinary course of business does notCorrect
  2. BAny agent in the source state automatically creates a PE
  3. CAn independent agent creates a PE whereas a dependent agent does not
  4. DAn agent creates a PE only if it also owns a fixed place of business for the enterprise

Explanation

Article 5(5) treats a person acting on behalf of an enterprise with authority to habitually conclude contracts in its name as creating a PE. Article 5(6) excludes a broker or general commission agent of independent status acting in the ordinary course of business. Hence the reverse statement is wrong.

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