1. BEPS

• OECD issues discussion draft on Action 1 (digital economy)

• No specific proposals

• First key point: BEPS planning, in the digital economy, will be significantly impacted by all the other Actions in the BEPS Project

• Second key point: but that will not be sufficient – something more fundamental would need to be done

• Potential options for "fundamental change"

- Article 5(4): trim or delete

- "Significant digital presence" / "fully dematerialized digital activity" (FU-DDA)

- "Virtual PE"

- Withholding tax on digital transactions

- VAT: exemptions on imports of low valued goods, and inbound B2C transactions

• To obtain a copy of the discussion draft, visit www.deloitte.com/ap/dbriefs/bepscentral

2. Australia

• Carbon tax and mining tax

• Protective legislation regarding abandoned measures

• ISAPS: 86 multinationals

• Debt vs. equity paper

• David Bradbury

• For information:

David Watkins (Sydney): [email protected]

3. India

• Bharti Airtel case: TP legislation does not apply to corporate guarantee without a fee

• APAs: first batch

• Nokia: US$394 million tax assessment for State VAT

• For information:

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

4. Philippines

• CS Garment case

• Taxpayer takes advantage of amnesty program in regard to tax assessment under litigation

• For information:

Fredieric Landicho (Manila): [email protected]

5. In brief

• Treaty developments: China / Ecuador enters into force, and Hong Kong / U.S. sign tax information exchange agreement

• New Zealand: Interpretation Statement on tax residency

- For information:

Teresa Farac (Auckland): [email protected]

      

1. BEPS: discussion draft on Action 6 (prevent treaty abuse)

• Released on 14 March 2014

• Proposed amendments to OECD model treaty

• Limitation-on-benefits (LOB) provision

• "Purpose" provision

• PEs in third countries

• "Saving clause"

• Articles 10, 13, and 4(3)

• To obtain a copy, visit www.deloitte.com/ap/dbriefs/bepscentral

2. BEPS: discussion drafts on Action 2 (hybrid mismatch arrangements)

• Two discussion drafts (domestic law changes and treaty issues) released on 19 March 2014

• Domestic law recommended changes regarding

i. Hybrid financial instruments and transfers

ii. Hybrid entity payments

iii. Imported mismatches and reverse hybrids

• Double deduction (DD) structures and deduction / no income (D/NI) structures

• Primary response, defensive rule, and scope

• Proposed amendment to OECD model treaty: comprehensive hybrid income and entity provision

• To obtain a copy of the two discussion drafts, visit www.deloitte.com/ap/dbriefs/bepscentral

3. China

• VAT pilot program: proposed extension to more industries

• Considering resource tax

• For information:

Vicky Wang (Shanghai): [email protected]

Ye Hong (Shanghai): [email protected]

4. Hong Kong

• Advance ruling published by tax authorities

• Obtaining financing in Hong Kong caused profits to be sourced in Hong Kong: surprising conclusion

• To obtain a copy of our Tax Analysis on this ruling, visit www.deloitte.com/ap/dbriefs/bytes

• For information:

Davy Yun (Hong Kong): [email protected]

5. Treaties

• Recently entered into force: India / Romania and Korea / Peru

      

1. BEPS

• “Country-by-country” reporting and transfer pricing documentation: OECD publishes all comments

• OECD regional consultations: Asia Pacific and Latin America / Caribbean

• U.S.: “correcting extreme views”, “completely off the wall”

• U.S. tax reform proposals: BEPS fingerprints

• IMF and UN consultations

• Israel's VAT and Italy's Google Tax

• Dbriefs: BEPS Central - www.deloitte.com/ap/dbriefs/bepscentral

2. China

• Circular 13: export VAT refunds for Chinese export companies

- For information:

Vicky Wang (Shanghai): [email protected]

Ye Hong (Shanghai): [email protected]

• China / Taiwan double tax arrangement: negotiations

- For information:

Vicky Wang (Shanghai): [email protected]

Ye Hong (Shanghai): [email protected]

Cheli Liaw (Taipei): [email protected]

3. India

• Sanofi “indirect share transfer” appeal: decision expected on 1 April 2014

• Changes to India’s model investment protection agreement (in response to Vodafone case?)

- For information:

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

4. Cases

• Singapore – AQQ: GAAR (section 33)

- For information:

Daniel Ho (Singapore): [email protected]

• Spain: withholding tax on embedded royalty

- For information:

Brian Leonard (Madrid): [email protected]

5. In brief

• Treaties enter into force

- Laos / Luxembourg

- Laos / Belarus

- Sri Lanka / Belarus

• OECD discussion draft on transfer pricing comparable data and developing countries

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

• Indonesia: export duties on mineral concentrates

- For information:

Nazly Siregar (Jakarta): [email protected]

• Bitcoins: guidance in UK and Japan

- For information:

Tom Downing (Birmingham): [email protected]

Jun Takahara (Tokyo): [email protected]

• Australia – Article 10: “holds directly... voting power”

- For information:

David Watkins (Sydney): [email protected]

      

1. BEPS

• “Country-by-country” reporting and TP documentation

- Public comments on discussion draft – common themes

+ Information that should not be included (e.g., intra-group payments of interest, royalties, and service fees)

+ “Bottom up” versus “top down” approach: flexibility needed

+ Confidentiality

+ Timing

- For information:

Bill Dodwell (London): [email protected]

Alison Brock (London): [email protected]

- To obtain a copy of the Deloitte comments, please visit: www.deloitte.com/ap/dbriefs/bytes

• Updated BEPS calendar

- To obtain a copy of the updated OECD BEPS calendar, please visit: www.deloitte.com/ap/dbriefs/bytes

- To obtain a copy of Deloitte’s color-coded and reformatted version, please visit: www.deloitte.com/ap/dbriefs/bytes

2. China

• Shanghai Pilot Free Trade Zone: cross-border use of RMB

• Cross-border RMB cash pooling

• POBO / ROBO

• Other changes

• For information:

Vicky Wang (Shanghai): [email protected]

Ye Hong (Shanghai): [email protected]

3. Budgets

• Singapore

- Extension of expiring tax incentives

- Singapore banks: Basel III additional tier 1 capital

- Significant increase in welfare payments

- For information:

Daniel Ho (Singapore): [email protected]

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

• Hong Kong

- Government is studying the issue of deductibility of interest expense

- For information:

Anthony Lau (Hong Kong): [email protected]

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

4. In brief

• Treaties

- Treaties signed: Bangladesh / Kuwait and Singapore / Laos

- Treaties entered into force: India / Malta and Indonesia / Suriname

• Taiwan

- Proposal to increase personal income tax rates on high earners and the business tax rate for financial institutions

- For information:

Cheli Liaw (Taipei): [email protected]

• Vietnam

- Circular 219: VAT zero-rating for exported services

- For information:

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

• India

- Vodafone proposes international arbitration to settle tax dispute regarding Hutchison indirect share acquisition

      

1. Cases

• India: Booz

- Authority for Advanced Rulings (AAR)

- Non-resident affiliates of Booz India were each held to have a PE in India

- Decision based on the fact that Booz India’s business is entwined with, and commercially dependent on, non-resident affiliates

- Contrast between this case and Delhi High Court’s decision in e-Funds (discussed in Dbriefs Bytes last week) is striking

• India: Gupta Overseas

- Agra Income Tax Appellate Tribunal

- Indian company failed to withhold tax from payments to non-residents

- Thus, tax deduction denied for such payments

- Taxpayer argued that the provision which denies the deduction breaches the non-discrimination article under the relevant treaties

- Tribunal: Article 24(4) (deduction neutrality) is breached, but not Article 24(1) (nationality)

2. Japan

• Consumption tax

- Japan is planning to change law to impose consumption tax on in-bound supplies of services and intangibles, in B2C situations – effective 1 October 2015

- Compliance is the difficult issue

- Similar issue is faced in South Africa and the EU

• Foreign asset report

- New report is required to be filed (for the first time) by 17 March 2014

- Failure to file can be punished by imprisonment

• 2013 protocol to Japan / U.S. treaty

- U.S. ratification process is “stuck” in the Senate

• For information: Jun Takahara (Tokyo): [email protected]

3. India

• “Interim budget” released this week

• No income tax changes

• Finance Minister: Direct Taxes Code (DTC) will be placed on Finance Ministry’s website

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

4. BEPS

• G20 Finance Ministers meet in Sydney this weekend

• Expect strong political statements supporting BEPS Project

• Updated OECD BEPS timetable: www.deloitte.com/ap/dbriefs/bytes

• For information: David Watkins (Sydney): [email protected]

5. In brief

• Treaties

- India / Croatia

- Philippines / Nigeria

• Upcoming budgets

- Singapore: today

- Hong Kong: 26 February 2014

• OECD publishes comments on two discussion drafts

- To access the comments, please visit www.deloitte.com/ap/dbriefs/bytes

• New Zealand: Alesco case

- Taxpayer’s appeal to Supreme Court discontinued after settlement agreed with tax authorities

      

1. Cases

• India: e-Funds

- Delhi High Court

- Definition of PE under India / U.S. treaty

- PE status is not determined by earlier MAP agreement between the two competent authorities

- Court applied OECD and UN Commentaries to conclude “no PE”

- Different approach from recent cases in Spain (Roche and Dell) and India (Rolls Royce and Convergys)

- For information:

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

• Netherlands: Redeemable preference shares (RPS)

- Netherlands Supreme Court

- RPS issued by Australian subsidiary to Netherlands parent

- RPS treated as debt for Australian tax purposes

- Court: RPS are equity for Dutch tax purposes

- For information:

Hans Pijl (Amsterdam): [email protected]

2. BEPS

• Country-by-country reporting

- UK: template included in 30 January 2014 discussion draft requires “too much information”

• Unilateral action: Canada

- Proposal to include “anti-treaty shopping” provision in domestic tax law

- For information:

Charles Taylor (Alberta): [email protected]

3. India

• Enforcement of tax return filing, in regard to royalties and technical service fees

• Vodafone: conciliation talks break down

• DTC: don’t hold your breath

• For information:

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

4. Taiwan

• New withholding tax rules for outbound payments of certain royalties and technical service fees

• Retrospective from 2011

• For information:

Cheli Liaw (Taipei): [email protected]

5. In brief

• Singapore / Poland and New Zealand / Papua New Guinea treaties entered into force

• China: Circular 2 (movement of cash out of China, on capital account) and Bulletin 9 (procedural changes regarding establishment of Chinese corporate residence based on “effective management”)

- For information:

Vicky Wang (Shanghai): [email protected]

Ye Hong (Shanghai): [email protected]

• United Nations: report of October 2013 meeting of Committee of Tax Experts

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

• Australia: revised draft determination on capital support payments

- For information:

David Watkins (Sydney): [email protected]

• OECD report: “Standard for Automatic Exchange of Financial Account Information”

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

      

1. BEPS

• Action 13: TP documentation and “Country-by-Country” (CbC) reporting

- Discussion draft issued on 30 January 2014 (public comments requested by 23 February 2014)

- Three types of document

+ Common template for CbC reporting

+ TP documentation: master file

+ TP documentation: local file

- To obtain a copy of the discussion draft, please visit: www.deloitte.com/ap/dbriefs/bytes

- For information:

Shanto Ghosh (Boston): [email protected]

Eunice Kuo (Shanghai): [email protected]

Cam Smith (Melbourne): [email protected]

• BEPS: Unilateral actions

- Mike Danilack (U.S. competent authority): foreign tax authorities are using BEPS concepts in tax audits and MAP discussions

• Action 1: Digital economy

- Comments by Pascal Saint-Amans: not appropriate to formulate tax rules specifically for the digital economy

- Therefore?

• Action 2: Hybrid mismatch arrangements

- Leaked discussion draft

2. Cases

• Singapore: BBO case

- Insurance company derived profit on sale of shares in subsidiary

- Held to be a tax-exempt capital gain

- For information:

Wong Chee Ming (Singapore): [email protected]

• India: Brown & Sharpe

- U.S. company’s “liaison office” in India performed sales promotion activities

- Tribunal: U.S. company taxable under domestic tax law and had a PE under the India / U.S. treaty

- For information:

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

• India: Tesco

- Hong Kong company’s “liaison office” in India performed activities related to sourcing goods for export

- Tribunal: domestic tax law exemption applies

- For information:

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

3. Australia

• Government releases draft legislation (third version) on the third and final element of the “investment manager” regime

• Public comments requested by 14 February 2014

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

• For information:

David Watkins (Sydney): [email protected]

4. Singapore

• Bitcoins

- Singapore releases guidance on the GST and income tax treatment of virtual currencies such as Bitcoins

- For information:

Richard Mackender (Singapore): [email protected]

• Stamp duty

- Revision of rules for waiver of stamp duty in regard to transactions between associated entities

- Future operation of new rules – two key changes

+ Deadlines for filing of application

+ 12 months association condition extended to intermediary companies

- For information:

Daniel Ho (Singapore): [email protected]

5. In brief

• Treaty: India / Fiji

• Hong Kong: listed REITs

- For information:

Patrick Yip (Hong Kong): [email protected]

• Indonesia: 5% final tax on bond interest income of registered mutual funds

- For information:

Nazly Siregar (Jakarta): [email protected]

• China: Tobin tax?

      

1. BEPS

• OECD webcast

- Update on the 6 actions which will be finalized by September 2014

- Little new information

- However, no reference to this week's newspaper story that task force has decided that specific rules for "pure play digital companies" will not work

- Interesting Q&A session

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

• Submission on PE avoidance schemes

- Only one submission made

- To obtain a copy of the submission, click here

• Canada: OTIP

- Canadian tax authorities launch Offshore Tax Informant Program (OTIP)

- Under OTIP, Canadian tax authorities will pay rewards to informants who provide information on international tax non-compliance, both tax evasion and offshore tax avoidance

2. Cases

• India: Uttam Galva Steel

- Mumbai Income Tax Appellate Tribunal

- Offshore procurement company

- Tribunal: TP position must be determined on aggregate basis, not by looking at each type of transaction separately

- For information:

Anis Chakravarty (Mumbai): [email protected]

• U.S.: Rent-A-Center

- U.S. Tax Court

- U.S. group sets up captive insurance company in Bermuda

- Insurance company provides insurance to its U.S. sister subsidiaries only

- Court held that the insurance arrangements were bona fide and should be respected for tax purposes

3. Hong Kong

• Tax audits regarding offshore funds

- Hong Kong tax authorities have commenced a tax audit initiative in regard to offshore fund structures

• Company law change: amalgamations

- Hong Kong company law will be changed, effective 3 March 2014, to permit the amalgamation of Hong Kong incorporated companies within a group, without the need for court approval

• For information:

Anthony Lau (Hong Kong): [email protected]

4. Australia

• Australian tax authorities consider proposal to outsource parts of tax audits to external auditors, which would generally be the Big 4 accounting firms

• For information:

David Watkins (Sydney): [email protected]

5. China

• SAT reports single largest transfer pricing adjustment in regard to cross-border service charges: taxes and interest of US$132 million

• Two "bad facts": (a) switch of allocation methodology, (b) Chinese companies had no legal, or economic, rights to IP which results from recharged R&D

• For information:

Vicky Wang (Shanghai): [email protected]

Ye Hong (Shanghai): [email protected]

6. In brief

• UN: invitation for submissions regarding UN TP Manual

• India / Albania treaty entered into force

• Japan: still focused on tax rates

      

1. BEPS

• Digital economy: OECD publishes comments

- 17 organizations made comments, including Deloitte

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

- For information:

Bill Dodwell (London): [email protected]

Alison Lobb (London): [email protected]

• Digital economy: EU expert group

- Publication of papers following its first meeting in December

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

• OECD webcast

- Thursday, 23 January, 3pm to 4pm (CET)

- To register for the webcast, go to

http://www.oecd.org/tax/beps-webcasts.htm

• Netherlands hesitates on country-by-country reporting

- For information:

Hans Pijl (Amsterdam): [email protected]

2. Cases

• Customs duty case: Skechers

• Canadian International Trade Tribunal

• Contribution payments for “unsuccessful” R&D: should the payments be included in the customs value?

• Key issue: are such payments “in respect of” the imported goods?

• Tribunal decides in favor of customs authorities

• For information:

Bob Fletcher (Singapore): [email protected]

Dan Kiselbach (Vancouver): [email protected]

3. China

• Amended company law

- Objectives of simplifying the process and relaxing the requirements for forming a Chinese company

- Amendments effective on 1 March 2014

• Circular 96

- VAT and consumption tax guidance on e-commerce exports

• For information:

Vicky Wang (Shanghai): [email protected]

Ye Hong (Shanghai): [email protected]

4. Bitcoins

• Huge gyrations in value

• Response of different countries varies

• Number of businesses accepting payments in Bitcoins increases

5. In brief

• Vietnam: APA program

- For information:

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

• Treaties

- Japan / Oman: treaty signed

- Singapore / Morocco: treaty entered into force

• Hong Kong: captive insurance

- For information:

Anthony Lau (Hong Kong): [email protected]

• Australia: patent box

- For information:

David Watkins (Sydney): [email protected]

      

1. Cases

• Casio

- Delhi Income Tax Appellate Tribunal

- "Excessive" amount of advertising, marketing and promotion (AMP) expenditure

- Charge-back principle applies, even though the Indian company is a fully-fledged distributor

- For information:

Anis Chakravarty (Mumbai): [email protected]

• Li and Fung

- Delhi High Court

- Indian company rewarded by related Hong Kong company on "cost plus 5%" basis for performance of sourcing functions

- Tax authorities argued that the purchase price of goods should be included in the cost base, and that the Indian company assumed significant risks

- Court: decision for taxpayer

- For information:

Anis Chakravarty (Mumbai): [email protected]

• Dash Engineering

- Philippines Supreme Court

- Taxpayer failed to file petition for judicial review (for refund of excess VAT input tax) within 30 day "window"

- Court denies refund

- For information:

Fredieric Landicho (Manila): [email protected]

2. China

• Bulletin 72

- Non-recognition treatment for certain share reorganizations

- "Foreign to foreign"

+ Non-recognition treatment will not apply if transferee is in better "capital gains" treaty position than transferor

+ If transferee is in better "dividend withholding tax" treaty position than transferor, non-recognition treatment can still apply, but transferee will be denied lower treaty rate for dividends paid out of pre-acquisition profits. Treaty override?

- For information:

Vicky Wang (Shanghai): [email protected]

Ye Hong (Shanghai): [email protected]

• Circular 698 case

- Largest tax bill for a circular 698 (indirect share transfer) case

3. India

• TP safe harbors

- Central Board directs that safe harbors are not evidence of arm's length prices

- For information:

Anis Chakravarty (Mumbai): [email protected]

• Vodafone

- News report that Vodafone and government are likely to commence conciliation talks in regard to all outstanding tax disputes

4. Japan

• 2014 tax reform proposals

• Reduction in effective corporate income tax rate from approximately 38% to 35%

• For Japanese brances of foreign companies and foreign branches of Japanese companies: change from "entire income" rule to profit attribution rule (effective for income year commencing on 1 April 2016)

• For information:

Jun Takahara (Tokyo): [email protected]

5. In brief

• Treaties: entry into force

- Belgium / China

- Singapore / Belarus

- India / Latvia

- Thailand / Estonia

- India / UK (protocol)

• Australia

- Backlog of unlegislated measures

- Discussion draft on thin cap

- For information:

David Watkins (Sydney): [email protected]

• BEPS

- Italy: "Google tax"

- Discussion drafts and public consultations: February to May