CA Final · Direct Tax Laws & International Taxation · Overview of Model Tax Conventions
Sundar, a resident of both State P and State Q under their domestic laws, has a permanent home available in both States. His personal and economic relations are closer to State Q, where his family and business are located. Under the OECD Model, Article 4(2), which State is treated as his State of residence for treaty purposes?
Sundar is treated as resident of State Q. Under OECD Article 4(2), the tie-breaker tests run in order. Permanent home is available in both States, so the centre of vital interests decides, and his closer personal and economic relations are in State Q.
- AState P, because the first test of permanent home is inconclusive and State P is chosen by default
- BState Q, because his centre of vital interests is thereCorrect
- CState of his nationality, since a permanent home is available in both
- DDetermined by the mutual agreement procedure directly, bypassing other tests
Explanation
Article 4(2) applies the tie-breaker tests in order: permanent home, then centre of vital interests, then habitual abode, then nationality, then mutual agreement. A permanent home exists in both, so the next test, centre of vital interests (closer personal and economic relations), applies. That points to State Q. Nationality and mutual agreement come later and are not reached.
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