The aim of this article is to identify possible scenarios of triangular cases. Often, a 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. A few reasons for this seem 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 the source base concept yet at times it appears as a hybrid between source and residence concept
Broadly, triangular cases can arise in the following situations –
- 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 a third state (State C i.e. source state) (This situation is often referred to as PE triangular case)
- A person resident in one state (State A) receives income from another state (State B) and the income originates in a third state (State C) through the PE of State B in State C. (This situation is often referred to Reverse PE triangular case)
- A person who is a 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)
- A person who is a resident of two states (State A and State B) pays an amount that forms the income of a resident of a third state (State C)
(This situation is often referred to Reverse dual resident triangular case)
