Tax Treaty Case Law around the Globe 2013

1. S. 287 Introduction

Director’s fees are dealt with in a short article in the OECD Model. It was included as a separate article for the first time in the 1963 OECD MC. In the UN MC however, apart from including director’s fees and salaries etc., top-level management officials are also mentioned. This case from India indicates the implications of the issues of interpretation that may arise from the inclusion of such a provision in bilateral tax treaties.

2. Facts of the case

The taxpayer was an individual employed with a Polish pharmaceutical company, M/s Zaklady Farmaceutyczne Polpharma SA, as Business Development Director at its office at Bangalore, India from June 2004 to June 2005. Under a service agreement, duties were assigned to him to support the establishing and preparing of the representative office of Polpharma in India. The taxpayer was paid his salary from Poland, and after deduction of tax at source at the rate of 20%, which was deposited with the Polish government, the balance of 80 %was paid to him in India.

The taxpayer claimed that he was the highest authority at the Indian office of the Polish company, enjoying wide managerial powers. He had also furnished a certificate ...