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

Orion Inc, a company resident in Country Y, has a fixed place in India that it uses only to store goods for delivery on behalf of its Indian customer. The India-Y treaty follows the OECD Model Article 5, with the standard list of exclusions from permanent establishment (PE). Orion Inc has no other presence in India. Under the treaty, how will this fixed place be treated?

The fixed place is not a PE, because storage or delivery of goods is within the specific activity exclusions of OECD Model Article 5(4), which treat such activities as preparatory or auxiliary. A fixed place is a PE only when it is not covered by these exclusions.

  1. AIt is a PE because any fixed place of business is a PE
  2. BIt is not a PE if the storage or delivery is a preparatory or auxiliary activity falling in the excluded listCorrect
  3. CIt is a PE only if it exists for more than 30 days
  4. DIt is a PE only if the Indian customer is a related party

Explanation

Article 5(4) lists activities such as use of facilities solely for storage, display or delivery of goods that are excluded from PE status. These are treated as preparatory or auxiliary. Option A ignores the exclusion list, and the 30-day and related-party tests are not in the Article.

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