IF an enterprise of State A owns a shop on a ship registered in State B and the ship travels between several countries including States A and B, in which country may the income from the shop be taxed? In the example, it may be assumed that enterprise is not associated to the enterprise operating the ship. Could it be argued that there is a PE on the ship (and if so in which country would the PE be situated)?

Whether and in which circumstances the home office of a resident employee of a foreign company could be considered to be a permanent establishment of the foreign company? Can a farm be a permanent establishment?

These and several other interesting questions are raised in a public draft for additions and changes to the Commentary on the OECD Model Tax Convention. Article 5 (Permanent Establishment) of the OECD Model Tax Convention includes the definition of the treaty concept of permanent establishment, which is primarily used for the purpose of the allocation of taxing rights when an enterprise of one State derives business profits from another State. Despite the long history of the concept of permanent establishment, its practical application raises a number of issues.

India's CBDT proposes to send its comments on the OECD draft and invites comments from all officers of the Department by 02.12.2011.

(Click here for CBDT Letter)