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

Under the OECD Model Convention, Mr. Rao is a resident of both State X and State Y under their domestic laws. He has a permanent home available in State X and in State Y. His personal and economic relations are closer to State Y (centre of vital interests). Which state is treated as his residence under the tie-breaker in Article 4(2)?

Mr. Rao is treated as resident of State Y. The Article 4(2) tests run in order: permanent home, then centre of vital interests. Since he has a permanent home in both states, the centre of vital interests, which lies in State Y, decides.

  1. AState X, because it was the first state of residence
  2. BState Y, because the centre of vital interests decides when a permanent home is available in both statesCorrect
  3. CDecided by habitual abode, ignoring vital interests
  4. DBoth states, sharing taxing rights equally

Explanation

The Article 4(2) tie-breaker order is: permanent home, then centre of vital interests, then habitual abode, then nationality, then mutual agreement. A permanent home exists in both states, so the next test, centre of vital interests, applies and points to State Y.

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