Applicability of bilateral treaties in Triangular cases (Part 1)

The aim of this article is to identify possible scenario’s of triangular cases. Often, situation arises in which more than two states are involved in the transaction and exiting tax treaties are not able to resolve the unintended consequences that can arise. Few reasons for this seems to be –

  • Tax treaties generally don’t account for the results arising under other tax treaties, such as an allocation of residence or the distribution of taxing rights
  • PE concept though was incorporated to protect source base concept yet at times it appears as a hybrid between source and residence concept

Broadly, triangular cases can arise in following situations –

  1. A person resident in one state (State A) carries on business in another state (State B) through its permanent establishment (PE) and the PE earns income from third state (State C i.e. source state) (This situation is often referred to PE triangular case)
  2. A person resident in one state (State A) receives income from another state (State B) and the income originates in third state (State C) through the PE of State B in State C. (This situation is often referred to Reverse PE triangular case)
  3. A person who is resident of two states (State A and State B) for tax purposes receives income from sources in a third state (State C)
    (This situation is often referred to Dual resident triangular case)
  4. A person who is resident of two states (State A and State B) pays an amount which forms the income of a resident of third state (State C)
    (This situation is often referred to Reverse dual resident triangular case)
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