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International Tax Planning and Research-chapter 3

International Tax Planning and Research-chapter 3 -...

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International Tax Planning and Research: Acc568 Homework Problems Chapter 3 Problem 3 pg. 201 How would the case of Handfield v. Commissioner, at ¶3050, be decided under the U. S. Model Treaty? Under the U. S. Model Treaty, the case of Handfield v. Commissioner would be decided differently. Article 5 ¶ 6 specifies that activities carried on by an agent (independent or dependent) on behalf of foreign principals create a permanent establishment for that principal. However, as we see in the case of Handfield V. Commissioner, it was established that the agent had limited duties that did not constitute a permanent establishment. Under the treaty, the case decision would be reversed because the second part of the treaty states that if the agent has limited activities carried on by the foreign principal through a fixed place of business, the agent is not a permanent establishment. The treaty further states that it is possible for an independent agent to also be a dependent agent if they satisfy the two dependence elements and acts outside the ordinary course of business. The two conditions that must be satisfied are: the agent must be both legally and economically independent of the enterprise, and the agent must be acting in the ordinary course of its business in carrying out activities on behalf of the enterprise. Whether the agent and the enterprise are independent is a factual determination. Among the questions to be considered is the extent to which the agent operates on the basis of instructions from the enterprise.
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