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

Meridian Pte Ltd, a Singapore company, has no fixed place in India. It sends its employees to India for an installation project of Rohit Steels Ltd. Under a typical UN-model-based Indian treaty, an installation project constitutes a permanent establishment if it continues for more than 183 days. Meridian's employees worked 120 days on the project in the relevant period. Which conclusion is correct on these facts alone?

No permanent establishment arises under the installation project clause. The treaty creates a PE only if the project continues for more than the specified period, here 183 days, and the employees were present for only 120 days. The Indian customer's identity or profit size does not matter.

  1. AA permanent establishment exists because any physical presence creates one
  2. BNo permanent establishment exists under the installation project clause, as the duration threshold of 183 days is not exceededCorrect
  3. CA permanent establishment exists because the project is for an Indian company
  4. DA permanent establishment exists only if the profit exceeds Rs 50 lakh

Explanation

The installation project PE clause is triggered only when the project continues beyond the stated period, here 183 days. Since 120 days is below this, no PE arises from this clause. The identity of the customer and profit amount are irrelevant to the test, and mere presence does not create a PE.

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