Calculate profit for purposes of state r-state s tax treaty

Reference no: EM133335508

Assignment:

A company resident in state R is in the business of producing aerial photographs for commercial use. It has a permanent establishment in state S that carries on the same business there. The permanent establishment secures a contract to undertake aerial photography for two years. It does not have a drone in order to do the work as none are available in state S. The company buys a drone (which has a useful life of four years) in state R and sends it to the permanent establishment on the basis that it will be used there for two years and then returned to the head office in state R.

Is the cost of the drone deductible in calculating the PE's profit for purposes of the State R-State S tax treaty (based on the 2008 OECD Model)? If so, on what basis and to what extent is it deductible? Does the 2010 Model change this, if so, how?

Reference no: EM133335508

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