CA Final · Direct Tax Laws & International Taxation · Overview of Model Tax Conventions
Zenith Components Ltd, a company resident in State X, has a fixed place of business in India used solely for storing goods belonging to Zenith, with no delivery or other activity. Under the OECD Model Convention (Article 5), how is this fixed place treated after the 2017 update?
The storage facility is not a permanent establishment under the OECD Model. Article 5(4) excludes facilities used solely for storing the enterprise's own goods, provided the activity is preparatory or auxiliary. The 12-month threshold applies to building sites and installation projects, not to storage places.
- AIt is a permanent establishment because it is a fixed place of business
- BIt is not a permanent establishment, as storage is a specific activity exemption, provided it is preparatory or auxiliary in characterCorrect
- CIt is a permanent establishment only if it exceeds 12 months
- DIt is a permanent establishment only if it employs more than five persons
Explanation
Article 5(4) lists specific activity exemptions, including use of facilities solely for storage of goods of the enterprise. After the 2017 update, each exemption applies only if the activity is of a preparatory or auxiliary character. Mere storage with no other activity meets this, so no PE arises. The 12-month test applies to building sites, not to this case.
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