Tax Treaty Series

ITQ T-

023

November 29, 2019

Question

ACO is a company resident in country A. It conducts a television content and broadcasting business. To conduct its business in country B, ACO uses a satellite which is in a geostationary orbit over country B – in other words, the satellite is permanently positioned 37,000 kilometres above a specific geographic point in country B. ACO owns the satellite. It uses the satellite to transmit signals to ground stations in country B – these ground stations are owned by country B television operators, which broadcast ACO's programs in return for fees paid to ACO.

The A/B treaty is identical to the 2014 OECD model treaty. The MLI does not apply to that treaty.

Does ACO have a PE in country B under the A/B treaty?

Answer

No, for these reasons:

There are 2 issues: (i) is the position of the satellite in space (35,786 kilometres above country B, well beyond the Karman line) within the territory of country B?; and (ii) is there a specific geographic point in country B which is “at the disposal” of ACO?
Regarding (i): The satellite is “at the disposal” of ACO. However, there is no consensus under international law that the position of the satellite in space would be within the territory of country B. In fact, such a notion is contrary to the UN’s “Outer Space Treaty”.
Regarding (ii): The specific geographic point which is directly below the satellite and the ground stations to which signals are transmitted, are within the territory of country B. However, ACO has no employees or property there, and it does not control the activities there. Accordingly, those specific points are not “at the disposal” of ACO.
These views are supported by the 2017 OECD Comm. on Art. 5 (at para. 27):
“The question of whether a satellite in a geostationary orbit could constitute a permanent establishment for the satellite operator relates in part to how far the territory of a State extends into space. No member country would agree that the location of these satellites can be part of the territory of a Contracting State under the applicable rules of international law and could therefore be considered to be a permanent establishment situated therein. Also, the particular area over which a satellite’s signals may be received (the satellite’s ‘footprint’) cannot be considered to be at the disposal of the operator of the satellite so as to make that area a place of business of the satellite’s operator.”
India has recorded a contrary position to para. 27.

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