handbook-tb

Preventing avoidance of permanent establishment statusfeatures when compared with the tax treaty between the United Statesand India:‣ ¾ Whereas Article 5 has a broad definition of PE very similar tothat in Article 5 of the tax treaty between the United Statesand India, there is a very relevant difference in the independentagent provision which, as drafted in the tax treaty betweenthe United Kingdom and India, excludes independence if theagent acts wholly, or almost wholly, for the non-resident enterpriseor associated companies without adding the reference toarm’s length remuneration found in Article 5 (7) of the UnitedNations Model Convention. This provision, which is also in linewith OECD draft proposals on Action 7 in the Action Plan onBEPS and the independent agent clause, contributes to the eliminationof some of the problems of Article 5 (7) of the UnitedNations Model Convention as arm’s length remuneration isnot a condition for establishing independence, and even arm’slength remuneration of the agent would not preclude attributionof other profits to the PE of the foreign enterprise;‣ ¾ Article 7 (3) of the tax treaty between the United Kingdom andIndia attributes to the source State a relevant portion of theprofits obtained by the enterprise through contracts which thePE has negotiated, concluded or fulfilled.These provisions have been used by the tax administration andcourts in India to “pierce the veil” of some subsidiaries and attribute toIndia more than a cost-plus remuneration of the services provided bythe Indian subsidiary to its United Kingdom parent. 120Countries must be sure, however, that they are able to apply andadminister these complex PE (or attribution of profits) provisions alsoin connection with withholding taxes at source for royalties and technicalservices in general, or some services in particular (for example,“included services,” as in Indian tax treaties).for the Avoidance of double Taxation and the Prevention of Fiscal Evasionwith respect to Taxes on Income and Capital Gains, of 25 January 1993.120See, for instance, Income Tax Appellate Tribunal-Delhi Bench “F”New Delhi, Rolls Royce Plc. vs. Dy. Director of Income Tax, 26 October 2007,(2008) 113 TTJ 446.397