1. OECD/UN Model controversies and the
Indian DTAAs (Double Taxation Avoidance
Agreements)
Tax Litigation Conference,
The Lalit, New Delhi
Gautam Chopra | Partner

2. OECD and UN Model Convention

3. OECD Model Tax Convention
• OECD, formed in 1961 - an organization with 30-member countries,
comprising of developed nations such as US, UK, Australia,
Canada, France, Germany etc.;
• India not a member of OECD; granted “Observer” status in 2006,
which permits expressing reservations/comments on the Model Tax
Convention and Commentary;
• OECD Model Tax Convention widely used as template for
negotiation of treaties between countries; widely perceived as
favouring ‘residence based taxation’;
• Though OECD Model commentary is considered to have
“persuasive value” in interpreting tax treaties, Indian courts have,
time and again, placed reliance on OECD Commentary to interpret
treaties concluded by India;

4. UN Model Tax Convention
• To counter-balance the influence of developed countries on tax treaty
policy, UN conducted its First Interregional Training workshop in
International Taxation in 1999;
• UN Committee of Experts on International Cooperation in Tax matters
formed in 2005; has representatives from developing countries as well,
including India;
• UN Model Convention/Commentary issued; based on OECD Model but
also reflecting the voice of developing countries including India;
perceived to be favoring ‘source based taxation’;
• India’s tax treaties are based on a combination of OECD and UN Model-
with emphasis on ‘source based taxation’;
• India has expressed certain reservations on UN Model and
Commentary – stating that in some cases, the UN Model follows OECD
Model too closely!!

5. India’s position on Model Conventions

6. Article 5(1) & (2): Fixed place PE
Article 5(1) provides a general definition of ‘Fixed place PE’;
Article 5(2) of the OECD/UN Model Convention provides illustrative list
of PEs, e.g.
• an office,
• a place of management;
• a branch;
OECD considers satisfaction of conditions prescribed in para 1 as
necessary for examples in para 2 to constitute PE;
India’s position:
• India considers that the examples in para 2 independently
constitute a PE;
• ICS to constitute PE in ‘certain circumstances’- whether or not on
dry lease or wet lease;

7. Article 5(1) & (2): Fixed place PE
India’s position:
• ‘Website’ may constitute a PE- depending on location of server;
• Geographical coherence not necessary to constitute PE;
Some important decisions:
 CIT v BKI/HAM: 15 Taxmann.com 102 (HC)(Uttarakhand)
 DIT v efunds Corporation: 42 taxmann.com 50 (HC)(Del.)
 DIT v Ericsson AB: 343 ITR 470 (HC)(Del.)
 Fugro Engineers B.V.: 26 SOT 78 (ITAT)(Del.)
 Galileo International Inc.:19 SOT 257 (ITAT)(Del.)
 Seagate Singapore International Headquarters: 189 Taxman
181(AAR);
 Airline Rotables v JDIT: 44 SOT 368(ITAT)(Mum.)

8. Article 5(3): Installation & Service PE
• Article 5(3)(a) of UN Model Convention contains Installation PE
clause
• Article 5(3)(b) contains Service PE clause – PE to be constituted if
an enterprise furnishes services for not less than 183 days through
‘employees or other personnel’: no such clause in OECD Model
Convention;
India’s position:
• Installation and Service PE threshold should be 90 days instead of
183 days
• For constituting installation PE, individual projects needs to be
considered together;
• Service PE may be constituted even if services provided from
outside India;

9. Article 5(3): Installation & Service PE
Some important decisions:
 DIT v Morgan Stanley : 292 ITR 416 (SC)
 DIT v efunds Corporation: 42 taxmann.com 50 (HC)(Del.)
 DIT v Tekmark Global Solutions LLC: 38 SOT 7 (ITAT)(Mum.)
 Sumitomo Corporation v DCIT: 114 ITD 61(ITAT)(Del.)
 Centrica India Offshore (P.) Ltd: 19 taxmann.com 214 (AAR)

10. Article 5(5): Agency PE
Article 5(5) of UN Model Convention provides for constitution of
Agency PE if a dependent agent (i) has authority to conclude
contracts; or (ii) regularly delivers goods from stock maintained in the
other State on behalf of the enterprise.
India’s position:
• Arm’s length remuneration to an agent who constitutes a PE, shall
not imply independence of agent and extinguishment of liability of
the overseas principal;
• PE should also be constituted if a dependent agent habitually
secures orders;
• Mere presence at negotiation meetings should be sufficient to hold
that the agent has authority to conclude contracts;

11. Article 5(5): Agency PE
Some important decisions:
 DIT v efunds Corporation: 42 taxmann.com 50 (HC)(Del.)
 Galileo International Inc.:19 SOT 257 (ITAT)(Del.)
 ebay International AG v DIT: 40 taxmann.com 20 (Mumbai - Trib.)
 Delmas, France v. ADIT: 17 taxmann.com 91
 SET Satellite v DDIT: 307 ITR 205 (HC)(Bom.)
 DIT v BBC Worldwide: 203 Taxman 554(HC)(Del.)

12. Article 7: Business Profits
Article 7 of the OECD Model Convention provides that profits
attributable to activities of the PE shall be taxable in the other State.
The Article is silent on ‘force of attraction clause;
Article 7 of UN Model Convention contains force of attraction clause;
India’s position:
• Profits attributable to PE should include all profits from activities
wherever carried out, similar to activities of the PE;
• Expenses deductible should be computed in accordance with
domestic tax law principles;
• Attribution of profits may be based on apportionment of total profits
of the enterprise to its various functions;

13. Article 7: Business Profits
Some important decisions:
 DIT v Clifford Chance: 33 taxmann.com 200 (ITAT Spl Bench-Mum)
 ADIT v WNS Global Services (UK) Ltd: 40 taxmann.com 315
(ITAT)(Mum.)
 Convergys Customer Management Group Inc. : 34 taxmann.com 24
(ITAT)(Del.)