I know branches of foreign companies pay CIT like resident companies but how do they access treaties?
In vrtually all tax treaties, the tax treaty applies to persons who are ”˜residents' of the contracting states. The concept of ”˜resident' is dealt with in Article 4 of tax treaties.
While defining the term “resident” in the majority of the treaties you'll find this part at the end of article 4 “This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capitals situated therein”.
This means that where the treaty seeks to exclude a person from being treated as “resident” who is liable to tax in the Contracting State only in respect of income from sources in that State, a branch office may not qualify as a “resident” of the State where the branch is situated. In such cases, the branch shall be treated as “resident” of the State where the head office of the branch is situated.
For example take an Israel company with a German branch. The India-Germany treaty contains the aforesaid additional condition; therefore, branch of Israel company shall not be treated as resident of Germany so the treaty between India-Israel (head office-country) will apply.
However, in the reverse situation where the branch is in Israel and the head office is in Germany, branch would be treated as resident of Israel and the treaty between India-Israel would apply. This is so because the treaty between India and Israel does not contain the aforesaid additional condition.
Does anyone have some experience on this matter? I consulted with a couple of "tax planners" but apparently i know more than them.
In vrtually all tax treaties, the tax treaty applies to persons who are ”˜residents' of the contracting states. The concept of ”˜resident' is dealt with in Article 4 of tax treaties.
While defining the term “resident” in the majority of the treaties you'll find this part at the end of article 4 “This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capitals situated therein”.
This means that where the treaty seeks to exclude a person from being treated as “resident” who is liable to tax in the Contracting State only in respect of income from sources in that State, a branch office may not qualify as a “resident” of the State where the branch is situated. In such cases, the branch shall be treated as “resident” of the State where the head office of the branch is situated.
For example take an Israel company with a German branch. The India-Germany treaty contains the aforesaid additional condition; therefore, branch of Israel company shall not be treated as resident of Germany so the treaty between India-Israel (head office-country) will apply.
However, in the reverse situation where the branch is in Israel and the head office is in Germany, branch would be treated as resident of Israel and the treaty between India-Israel would apply. This is so because the treaty between India and Israel does not contain the aforesaid additional condition.
Does anyone have some experience on this matter? I consulted with a couple of "tax planners" but apparently i know more than them.
