Deloitte Asia Pacific Dbriefs Bytes

1. Cases

• Kerala Vision

- Retrospective amendments to definition of "royalties"

- Impact on tax deduction for relevant payments

- For information:

K.R. Sekar (Bangalore): [email protected]

• Antwerp Diamond Bank

- Retrospective amendments to definition of "royalties"

- Application to treaty definition?

- For information:

Rajesh Gandhi (Mumbai): [email protected]

• IATA BSP

- Application of "most favored nation" clause in treaty

- For information:

K.R. Sekar (Bangalore): [email protected]

2. Shanghai Pilot Free Trade Zone

• 2014 "negative list" for foreign investors

• Overall, a relaxation

• For a copy of the 2014 "negative list" (Chinese language), visit www.deloitte.com/ap/dbriefs/bytes

• For information:

Vicky Wang (Shanghai): [email protected]

Ye Hong (Shanghai): [email protected]

3. Transfer pricing: Malaysia and Vietnam

• Malaysia

- Questions on income tax return form

- Questionnaire (called "transfer pricing awareness survey")

- For a copy of the questionnaire, visit www.deloitte.com/ap/dbriefs/bytes

- For information:

Tan Hooi Beng (Kuala Lumpur): [email protected]

• Vietnam

- Revised transfer pricing information form

- For a copy of revised form, visit www.deloitte.com/ap/dbriefs/bytes

- For information:

Tom McClelland (Ho Chi Minh): [email protected]

4. FATCA and CRS

• FATCA (Foreign Account Tax Compliance Act) starts!

- For FATCA article in World Tax Advisor, visit www.deloitte.com/ap/dbriefs/bytes

• CRS (Common Reporting Standard)

- Australia issues discussion paper, for comment

- For a copy of discussion paper, visit www.deloitte.com/ap/dbriefs/bytes

5. In brief

• Japan: Shiseido

- Transfer pricing assessment

• BEPS: Spain’s unilateral actions

- For a copy of our Tax Alert, visit www.deloitte.com/ap/dbriefs/bytes

- For information:

Brian Leonard (Madrid): [email protected]

• U.S. officials resign

• Brazil: change of treaty interpretation

- For a copy of our Tax Alert, visit www.deloitte.com/ap/dbriefs/bytes

- For information:

Marcelo Natale (Sao Paulo): [email protected]

• China

- Bulletin 38: CFC rules

- Draft guidance on GAAR (comments requested by 1 August 2014)

- For information:

Vicky Wang (Shanghai): [email protected]

Ye Hong (Shanghai): [email protected]

• India: corporate social responsibility

- For a copy of government circular, visit www.deloitte.com/ap/dbriefs/bytes

- For information:

K.R. Sekar (Bangalore): [email protected]

• Indonesia: Presidential election

      

1. BEPS

• OECD’s Committee on Fiscal Affairs

• Unilateral changes: Sweden (interest)

- For information:

Thomas Andersson (Stockholm): [email protected]

- To obtain a copy of our Tax Alert, visit www.deloitte.com/ap/dbriefs/bytes

• EU investigations of Apple, Starbucks, and Fiat

• IMF: “Spillovers in international corporate taxation”

- To obtain a copy of the paper, visit BEPS Central at www.deloitte.com/ap/dbriefs/bepscentral#5

• U.S. State taxation: formulary apportionment

2. Japan

• Abenomics: “third arrow” plan

• Proposed corporate income tax rate cuts

• For information:

Jun Takahara (Tokyo): [email protected]

3. Cases

• India: Shaan Marine Services

• Pune Income Tax Appellate Tribunal

• Article 8 of India / Cyprus treaty

• For information:

K.R. Sekar (Bangalore): [email protected]

4. India

• Budget scheduled for 10 July

• Tax Administration Reform Commission (TARC) report: significant criticism

- To obtain a copy of the report, visit www.deloitte.com/ap/dbriefs/bytes

• Switzerland: list of Indian tax evaders

• For information:

K.R. Sekar (Bangalore): [email protected]

5. China

• Guangdong: two related “indirect share transfer” cases

• Circular 56: VAT incentives for film industry

• For information:

Vicky Wang (Shanghai): [email protected]

Ye Hong (Shanghai): [email protected]

6. In brief

• Inversions

• Singapore: new liquidity requirements for banks

- For information:

Frederic Bertholon-Lampiris (Singapore): [email protected]

- To obtain a copy of the consultation paper, visit www.deloitte.com/ap/dbriefs/bytes

• UN: questionnaire on Article 13(4)

- To obtain a copy of the questionnaire, visit www.deloitte.com/ap/dbriefs/bytes

• Netherlands fiscal unity

- For information:

Hans van den Hurk (Eindhoven): [email protected]

- To obtain a copy of our Tax Alert, visit www.deloitte.com/ap/dbriefs/bytes

• So long, Mike Danilack

• Maldives

      

1. BEPS

• OECD Washington conference

- Multilateral instrument

- Intangibles

- Hybrid mismatch arrangements

- Digital economy

- CbC reporting

- Post-implementation monitoring

- Timing

• Criticism of BEPS project by senior U.S. Republicans

• Ireland: BEPS consultation

- To obtain a copy of the consultation document and our Tax Alert, visit www.deloitte.com/ap/dbriefs/bepscentral#5

- For information:

Declan Butler (Dublin): [email protected]

• UN: BEPS consultation

- To obtain a copy of the responses, visit www.deloitte.com/ap/dbriefs/bepscentral#5

2. China

• Jiangsu provincial SAT

- To obtain a copy of the English language document, visit www.deloitte.com/ap/dbriefs/bepscentral#5

• Director Liao: deductibility of cross-border service fees

- 6 tests

• China / Hong Kong double tax arrangement

- Use of GAAR to defeat fragmentation strategy

• For information:

Vicky Wang (Shanghai): [email protected]

Ye Hong (Shanghai): [email protected]

3. Australia

• Draft legislation to correct technical error: retrospective

• Three rulings on double tax treaties

• For information:

David Watkins (Sydney): [email protected]

4. In brief

• Singapore: 10% tax rate for fund managers

- For information:

Rohit Shah (Singapore): [email protected]

• U.S. ratification of protocol to Japan / U.S. treaty

• New Zealand consultation on 4 tax avoidance scenarios

- For information:

Teresa Farac (Auckland): [email protected]

- To obtain a copy of the consultation document, visit www.deloitte.com/ap/dbriefs/bytes

      

1. BEPS

• OECD BEPS webcast

- Some “gold nuggets” in regard to

+ Action 6 (prevent treaty abuse)

+ Action 8 (intangibles)

+ Action 13 (TP documentation and CbC reporting)

+ Action 15 (multilateral instrument)

- To access a recording of the webcast, visit BEPS Central at www.deloitte.com/ap/dbriefs/bepscentral

• Action 13 public consultation meeting

- Language for files and reports

• EU: digital economy report

- To obtain a copy of the report, visit www.deloitte.com/ap/dbriefs/bytes

2. Cases

• India: MSM Satellite

- Application of “arising” definition in Article 12 (royalties) of India / Singapore treaty

- For information:

K.R. Sekar (Bangalore): [email protected]

• Korea: Dividend case

- Denial of “beneficial ownership” status, for the purposes of the dividend article in Korea / UK treaty

- For information:

Gyung Ho Kim (Seoul): [email protected]

3. Japan

• BEPS

- Cabinet Office discussion paper on BEPS

- Japan / Australia redeemable preference shares

- To obtain a copy of the report (Japanese language), visit www.deloitte.com/ap/dbriefs/bytes

• Corporate tax rate reduction

• Increase in highest marginal tax rate for individuals

- To obtain a copy of our News Flash, visit www.deloitte.com/ap/dbriefs/bytes

• IBM

• For information:

Jun Takahara (Tokyo): [email protected]

4. Indonesia

• Electronic VAT invoices

• Exchange of information

• For information:

Nazly Siregar (Jakarta): [email protected]

5. In brief

• New Zealand

- Public rulings on foreign tax credits

- For information:

Teresa Farac (Auckland): [email protected]

• Myanmar

- Changes to commercial tax on services

- To obtain a copy of our Alert, visit www.deloitte.com/ap/dbriefs/bytes

- For information:

Anthony Loh (Bangkok): [email protected]

• India

- Speculation that new government might repeal retrospective Vodafone legislation

- For information:

N.C. Hegde (Mumbai): [email protected]

• Vietnam

- Circular 39: invoicing

- To obtain a copy of our Alert, visit www.deloitte.com/ap/dbriefs/bytes

- For information:

Tom McClelland (Ho Chi Minh): [email protected]

• China

- Jiangsu provincial SAT: Administrative Measures on international tax matters and BEPS topics

- To obtain a copy of the Administrative Measures (Chinese language), visit www.deloitte.com/ap/dbriefs/bytes

- For information:

Vicky Wang (Shanghai): [email protected]

Ye Hong (Shanghai): [email protected]

      

1. BEPS

• Action 13: Country-by-country (CbC) reporting / transfer pricing documentation

- 19 May 2014: OECD public consultation meeting

- Debate on how to distribute CbC reports to local country tax authorities

• Action 2: Hybrid mismatch arrangements

- China: indication of potential unilateral action

• Margaret Hodge

- Amazon

2. UN

• Michael Lennard

• Developing country perspective on BEPS

• UN tax projects

3. Cases

• India: Steria

• "Most favored nation" provision in India / France protocol

• "Scope more restricted"

• For information:

K.R. Sekar (Bangalore): [email protected]

4. New Zealand

• 2014 Budget

• To obtain a copy of our Budget Analysis, visit www.deloitte.com/ap/dbriefs/bytes

• For information:

Patrick McCalman (Wellington): [email protected]

5. In brief

• Singapore

- Three recent public rulings

+ To obtain a copy of tax treatment of R&D expenditure, visit www.deloitte.com/ap/dbriefs/bytes

+ To obtain a copy of the M&A Scheme, visit www.deloitte.com/ap/dbriefs/bytes

+ To obtain a copy of tax treatment of hybrid instruments, visit www.deloitte.com/ap/dbriefs/bytes

- For information:

Daniel Ho (Singapore): [email protected]

• Treaties

- Vietnam / Azerbaijan treaty signed

• Japan

- IBM wins tax case

      

1. BEPS

• Action 8 (transfer pricing aspects of intangibles)

- Bermudan cash box

• Action 13 (country-by-country reporting)

• Action 1 (digital economy)

- Source vs. residence

- Profit attribution

• Action 6 (prevent treaty abuse)

- LOB Article vs. purpose rule

• Action 2 (hybrid mismatch arrangements)

- Public consultation meeting (15 May 2014)

• Upcoming OECD events (visit www.deloitte.com/ap/dbriefs/bepscentral)

- 19 May 2014: Action 13 public consultation meeting (broadcast live on internet)

- 26 May 2014: OECD webcast

2. Cases

• India: R&B Falcon Offshore

• "Installation" PE under India / U.S. treaty

• Is repair time counted in applying the time test?

• For information:

K.R. Sekar (Bangalore): [email protected]

3. Australia

• 2014 Budget

- To obtain a copy of our Budget Brief, visit www.deloitte.com/ap/dbriefs/bytes

• Draft legislation on thin capitalization and dividend participation exemption rule

- Public comments requested by 6 June 2014

• Review of 8 leading technology companies

• For information:

David Watkins (Sydney): [email protected]

4. India

• Vodafone: "indirect share transfer" dispute to be resolved by arbitration

5. In brief

• New Zealand / Vietnam treaty enters into force

• Malaysia: guidance on limited liability partnerships

- For information:

Tan Hooi Beng (Kuala Lumpur): [email protected]

• Indonesia: new negative list for foreign investment

- For information:

Nazly Siregar (Jakarta): [email protected]

• China (Circular 26): 15% tax rate in 3 geographic zones

- Hengqin in Guangdong, Qianhai in Shenzhen, and Pingtan in Fujian

- For information:

Vicky Wang (Shanghai): [email protected]

Ye Hong (Shanghai): [email protected]

      

1. BEPS

• Action 8 (transfer pricing aspects of intangibles)

• Action 2 (hybrid mismatch arrangements)

• To access all of the public comments on the Action 2 discussion draft, visit BEPS Central

2. Cases

• India: Velti

- Definition of "fees for technical services"

- Fee paid to South African telecom company for bulk text messaging

- For information:

K.R. Sekar (Bangalore): [email protected]

• Brazil: Vale

- Brazil's CFC rules vs. treaties

- Held that Article 7 of relevant treaties prevents application of domestic law CFC rules

- To obtain a copy of our analysis of the Vale case in World Tax Advisor (9 May 2014), visit: www.deloitte.com/ap/dbriefs/bytes

- For information:

Marcelo Natale (Sao Paulo): [email protected]

3. China

• Bulletin 24: "entrusted investment" structures

- To obtain a copy of our Tax Newsflash, visit: www.deloitte.com/ap/dbriefs/bytes

• VAT pilot scheme

- Extends to telecommunications sector effective 1 June 2014

- Two VAT rates: 11% / 6%

- For information:

Vicky Wang (Shanghai): [email protected]

Ye Hong (Shanghai): [email protected]

4. APEC: Fund Passport

• Joint consultation paper

• Public comments requested by 11 July 2014

• To obtain a copy of the paper, visit: www.deloitte.com/ap/dbriefs/bytes

• For information:

Rohit Shah (Singapore): [email protected]

5. In brief

• OECD: exchange of information

• Treaties

- Singapore / Barbados

- Pakistan / Czech Republic

• Australia

- Dividend washing: TD 2014 / 10

- Budget: 13 May 2014

- For information:

David Watkins (Sydney): [email protected]

• India

- Nokia: Tamil Nadu VAT assessment

• Mergers

- Corporate inversions

      

1. BEPS: Action 6 (prevent treaty abuse)

• 11 April 2014: OECD publishes all of the public comments received on the Action 6 discussion draft

• 14 and 15 April 2014: Public consultation meeting

• Review of private sector comments in regard to

- Need for the "main purpose" provision

- Detailed design of "limitation on benefits" (LOB) article

+ Intermediary entities

+ Derivative benefits

+ Base erosion test

+ Headquarter companies

+ Publicly listed companies

+ Collective investment vehicles (CIVs)

+ Dual-listed company structures

+ Discretionary benefits

+ Active conduct of a trade or business

+ Reconciliation with laws of trading blocs

2. BEPS: Action 1 (the digital economy)

• 16 April 2014: OECD publishes all of the public comments received on the Action 1 discussion draft

• 23 April 2014: Public consultation meeting

• Review of private sector comments in regard to

- Ring-fencing of digital economy

- Source vs. residence taxation

- Likely impact of all other BEPS Actions

- "Wait and see" approach

- Draft list of options in Chapter VII

3. Cases

• Japan: Yahoo

- Anti-avoidance provision regarding carryover of losses in merger

- For information:

Jun Takahara (Tokyo): [email protected]

• India: Viacom

- Changes to domestic law definition of "process"

- Changes also impact treaty definition of "royalties"

- Thus, fees for satellite services are subject to royalty withholding tax

- For information:

Rajesh Gandhi (Mumbai): [email protected]

4. China

• Three cases on beneficial ownership

• SAT's submission to UN on transfer pricing aspects of intra-group services

• For information:

Vicky Wang (Shanghai): [email protected]

Ye Hong (Shanghai): [email protected]

5. In brief

• Treaties

- Sri Lanka / Singapore

- Sri Lanka / Luxembourg

• OECD: International VAT guidelines

• Australia: Reconstruction of transactions for TP purposes

- For information:

Cam Smith (Melbourne): [email protected]

• Japan: possible cut in corporate income tax rate

- For information:

Jun Takahara (Tokyo): [email protected]

      

Action 1: The Digital Economy

• OECD asserts that all the other Actions, taken collectively, will likely deal a major blow to BEPS planning in the digital economy

• OECD gives us hints as to what the other Actions will consist of – hints that have not been previously publicized

• List of possible options, such as withholding tax on digital transactions and a new tax nexus based on “significant digital presence”

• Timetable: “wait and see” approach – a recipe for unilateral actions by countries who don’t want to wait

Action 2: Hybrid Mismatch Arrangements

• Not concerned with mismatches based on timing, tax rate differentials, or exemption for foreign sourced income

• Objective is to drive taxpayers away from hybrid mismatch arrangements, and towards “plain vanilla” structures and instruments

• Discussion draft covers hybrid financial instruments, hybrid financial transfers (such as repos), hybrid entity payments, and imported mismatch arrangements

Action 6: Prevent Treaty Abuse

• Two general anti-treaty shopping rules: “limitation on benefits” (LOB) article and “purpose” provision

• LOB article: based on Article 22, U.S. model treaty

• “Purpose” provision: “one of the main purposes”, determined objectively

• String of specific anti-avoidance provisions

• Interaction with Action 15 (multilateral instrument)

U.S. Perspective

• U.S. Treasury official: U.S. Government opposes large parts of the discussion drafts on Actions 1, 2, and 6

      

1. BEPS

• Country-by-country reporting

- No interest, royalties, and service fees

- No entity-by-entity reporting – instead, country reporting

- Flexibility regarding sources of financial data

• TP master file: flexibility regarding group-wide basis vs. by business line

• IMF request: include indirect transfers in BEPS Project

• Discussion draft on Action 1 (digital economy)

- “Wait and see” approach in regard to section VII options

2. Cases

• Huawei (India)

- Sale of equipment with embedded software: “royalty”?

- PE under India / China treaty: another Rolls Royce / Convergys case?

• Bamford (India)

- Secondment of employees: “furnishing of services” PE under India / UK treaty?

- Individuals held to be employees of UK company (“legal form” approach)

- But does the UK company “furnish services”?

• RCF (Australia) and Antwerp Diamond Bank (India)

3. India

• DTC

- Indirect share transfers: (i) “substantially” = 20%; (ii) de minimis exception

- CFC rules

- GAAR rules

• APAs: 5 down, 391 to go

4. In brief

• China / Germany treaty

- Dividends: 5% / 10%

- Interest: 10% / 0% (sale of equipment on credit) / no limit (profit-participating debt)

- Royalties: 10% / 6% (equipment rentals)

• Australia: tax amnesty

• Malaysia: GST bill

• Singapore: GST guidance regarding fund management services

• Greece: non-cooperative jurisdictions

• Japan: not joking