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

Under the UN Model Convention, a service PE provision (Article 5(3)(b)) is included but is absent from the OECD Model's main text. Zenith Consulting of State P sends employees to India to provide consulting services to an Indian client for 120 days in total across a 12-month period. Under a UN-style treaty with a threshold of 183 days in any 12-month period, what is the position?

No service PE exists. Under the UN Model, a service PE arises only when the services continue beyond the threshold, here 183 days within any 12-month period. Since Zenith's employees were present for only 120 days, the threshold is not met.

  1. AA service PE exists since services were rendered in India
  2. BNo service PE exists, as the duration of 120 days is below the 183-day thresholdCorrect
  3. CA service PE exists only if the client is a related party
  4. DA service PE exists if fees exceed a monetary limit

Explanation

UN Model Article 5(3)(b) creates a service PE when services continue for more than 183 days in any 12-month period for the same or connected project. Duration is 120 days, below the threshold, so no service PE arises. Mere rendering of services in India is not sufficient.

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