CA Final · Direct Tax Laws & International Taxation · Overview of Model Tax Conventions
Zephyr Ltd, a company incorporated in State A, has its registered office there. Its board meetings are always held in State B, where all key strategic decisions are taken, and State B's treaty is based on the OECD Model. Under the OECD Model Article 4 tie-breaker for a company that is resident of both States, how is its residence determined in the current Model?
Under the current OECD Model Article 4(3), the residence of a dual-resident company is settled by mutual agreement between the competent authorities, considering place of effective management, place of incorporation and other relevant factors, rather than automatically by place of effective management as in the earlier version.
- ABy mutual agreement of the competent authorities, having regard to place of effective management, place of incorporation and other relevant factorsCorrect
- BAutomatically the State where the place of effective management is situated
- CAutomatically the State of incorporation
- DThe State where the majority of shareholders reside
Explanation
Since the 2017 OECD Model, Article 4(3) replaced the place-of-effective-management tie-breaker for dual-resident non-individuals with a case-by-case mutual agreement of competent authorities, considering place of effective management, place of incorporation and other factors. The option naming effective management as automatic reflects the pre-2017 rule and is no longer the Model text.
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