handbook-tb

Adolfo Martín Jimenézthe rule. This leaves some room for avoidance that should be dealt withby domestic anti-avoidance doctrines or rules, or with other relevantclauses or modifications of treaty policy. This would be appropriate asthese clauses do not contribute significantly to the alignment of economicpresence and the taxable base in the source country, and thePE principle, as such, would continue to work in favour of residencecountries. The issue of attribution of profits to PEs/associated companiesalso needs attention in these cases and may cause some conflictif transfer pricing continues to function in these situations to moveprofits away from the source country in favour of residence countries.5.2.4.6 Combination of clauses in the PE articleAll of the clauses, or a majority of those described, whether or notincluded in the United Nations Model Convention, that lower the PEthreshold can be combined in the PE Article, thus substantially reducingthe PE threshold. This reduction can also be mixed with withholdingtaxes at source for royalties and technical services fees, whichwould increase divergence from the OECD Model Convention andcontribute to lowering the thresholds for taxation at source.For example, Article 5 of the tax treaty between the UnitedStates of America and India (1989) 118 combines some variations ofthe clauses studied and a withholding tax at source for royalties and“included services” (services, ancillary and subsidiary, to any propertyincluded within the royalty definition or consisting of making availablesome knowledge or technical plans or design). This treaty, however,replicates the limitation of Article 5 (7) of the United Nations ModelConvention and, therefore, independence may be presumed if the subsidiaryof a non-resident company is remunerated at arm’s length.An interesting variation is also found in the tax treaty betweenthe United Kingdom and India (1993), 119 which has two distinguishing118Convention between the Government of the United States of Americaand the Government of the Republic of India for the Avoidance of DoubleTaxation and the Prevention of Fiscal Evasion with respect to Taxes onIncome, of 2 September 1989.119Convention between the Government of the United Kingdom of GreatBritain and Northern Ireland and the Government of the Republic of India396