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

Meridian Tech GmbH, a German company, has its place of effective management in Germany and is also incorporated there. It maintains a fixed office in Pune, India, through which it carries on part of its software business. Under the OECD Model Tax Convention, Article 5, the Pune office would be regarded as which of the following?

The Pune office is a permanent establishment under Article 5(1) of the OECD Model, since it is a fixed place of business through which the German company carries on its business in part. The enterprise's residence in Germany does not negate a PE in India.

  1. AA permanent establishment, because it is a fixed place of business through which the business is wholly or partly carried onCorrect
  2. BNot a permanent establishment, because the enterprise's residence is in Germany
  3. CA permanent establishment only if it has existed for more than 12 months and has a dependent agent
  4. DNot a permanent establishment, because software business is excluded from Article 5

Explanation

Article 5(1) of the OECD Model defines a PE as a fixed place of business through which the business of an enterprise is wholly or partly carried on. A fixed office in Pune meets this. Residence in Germany does not prevent a PE in India. The 12-month and agent conditions apply to other types of PE, not to a fixed place of business.

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