Skip to content

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

Vihaan, an individual, is resident in India under the Act and is also treated as resident in Country P under that country's law. The India-P treaty has a tie-breaker article similar to the OECD Model Article 4(2). Vihaan has a permanent home available in both countries. His personal and economic relations are closer to Country P, where his family and business are based. How should his residence be determined for treaty purposes?

Vihaan is treated as resident of Country P for treaty purposes. Since he has a permanent home in both countries, the tie-breaker moves to the centre of vital interests, meaning closer personal and economic relations, which are with Country P. Days of stay are tested only if that test fails.

  1. AResident of India, since domestic law determines residence first
  2. BResident of Country P, because the centre of vital interests is thereCorrect
  3. CResident of both countries for all purposes
  4. DResident of the country where he spent more days in the year

Explanation

The tie-breaker tests apply in order: permanent home, then centre of vital interests, then habitual abode, then nationality. A permanent home is in both, so the centre of vital interests, being Country P, decides. Days of stay is a later test, habitual abode, and is not reached.

Did you get it right without looking?

One question tells you little. A timed set on Application and Interpretation of Tax Treaties shows your real accuracy, how long you take and where you lose marks.

Practise Application and Interpretation of Tax TreatiesFree diagnostic mock

More Application and Interpretation of Tax Treaties questions