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

Nimbus Ltd, a company incorporated in Country Z, has its place of effective management in India for the relevant year. Under the India-Z treaty, a dual-resident company is deemed resident of the state in which its place of effective management is situated. For the purposes of treaty application, which statement is correct?

Nimbus is treated as a resident of India. When a company is resident in both countries under domestic law, the treaty tie-breaker decides residence, and here it is the place of effective management, which is in India. Place of incorporation is not the deciding factor under this treaty.

  1. ANimbus is treated as resident of Country Z because it was incorporated there
  2. BNimbus is treated as resident of India under the tie-breaker ruleCorrect
  3. CNimbus is treated as resident of neither country
  4. DNimbus can freely choose the state of residence each year

Explanation

Where a company is resident in both states under their domestic laws, the treaty tie-breaker applies. Since the treaty uses place of effective management and this is in India, Nimbus is treated as an Indian resident for treaty purposes. Incorporation is not the tie-breaker here, and there is no free choice.

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