Dbriefs Bytes

1. Cases: - India: Temasek • Secondment of employees to Indian company, which reimburses the formal employer for salary and related expenses • Is the reimbursement “fees for technical services”? - India: Green Infra • Share premium received on issue of new shares: taxable income? - India: Essar Oil • Art 7(1), second sentence: “may be taxed”: exemption for Indian resident with foreign PE? - Australia: AP Energy Investments • “Land-rich company” rules in Australia’s capital gains provisions • Mining information is not “real property” - China: Cayman Islands case • Sale of shares in Hong Kong listed company with 4 Chinese subsidiaries • China tax authorities + Did not apply GAAR + Did treat Hong Kong listed company as China resident, based on effective management 2. Australia - 7 September 2013: Australia’s Federal Election - Opposition’s tax policies • Abolish mineral resource rent tax • Abolish carbon tax • Reduce corporate income tax rate from 30% to 28.5% • Impose a 1.5% levy on companies with taxable income of more than AUD 5 million 3. BEPS - Modification of tax policies in the Netherlands and Singapore, in light of the BEPS Project 4. India - External commercial borrowing for general corporate purposes permitted (subject to conditions) 5. In brief - Philippines: removal from France’s “blacklist” - Japan: ongoing public debate on timing of consumption tax rate increases - OECD: 2012 MAP Report - Asia Pacific currencies: falling exchange rates (vs. USD) will cause foreign exchange losses

1. India: 4 cases in 6 minutes i. Simatech - "Resident" of UAE under the UAE / India treaty, although UAE did not levy tax on it ii. WNS - Application of gforce of attractionh rule in Article 7(1) of India / U.S. treaty iii. Gartner - Subscription fees for access to online database: "royalties"? iv. Pubmatic - PE status under India / U.S. treaty For information: - K.R. Sekar (Bangalore): krsekar@deloitte.com 2. China i. Mutual Assistance Convention - China signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters ii. VAT guidelines for exported services - SAT issued Bulletin 47: implementation guidelines for zero-rated VAT for certain exported services For information: - Vicky Wang (Shanghai): vicwang@deloitte.com.cn 3. IFA Congress • Comments by OECD official on aspects of BEPS - "More important functions" (Article 9) vs. "significant people functions" (Article 7) - Country-by-country reporting - "Special measures" 4. Intangibles: Example 13 (Shuyona) • Example 13 (Shuyona) in 30 July intangibles discussion draft shows change in OECD thinking: Company T is entitled to a "risk-adjusted" rate of anticipated return on its capital invested 5. Japan: frequency of tax audits for large companies • Reduced frequency of tax audits for certain large companies For information: - Jun Takahara (Tokyo): jun.takahara@tohmatsu.co.jp 6. In brief i. Sri Lanka / Belarus treaty signed ii. Taiwan: reward for information on tax evaders iii. New Zealand: GAAR Interpretation Statement issued iv. Australia: draft public ruling on Article 8 of Australiafs treaties v. India: Dr. Shome appointed chairman of the new Tax Reform Administration Commission vi. Vietnam: corporate income tax rate reductions

1. India: 4 cases in 6 minutes i. Simatech - "Resident" of UAE under the UAE / India treaty, although UAE did not levy tax on it ii. WNS - Application of gforce of attractionh rule in Article 7(1) of India / U.S. treaty iii. Gartner - Subscription fees for access to online database: "royalties"? iv. Pubmatic - PE status under India / U.S. treaty For information: - K.R. Sekar (Bangalore): krsekar@deloitte.com 2. China i. Mutual Assistance Convention - China signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters ii. VAT guidelines for exported services - SAT issued Bulletin 47: implementation guidelines for zero-rated VAT for certain exported services For information: - Vicky Wang (Shanghai): vicwang@deloitte.com.cn 3. IFA Congress • Comments by OECD official on aspects of BEPS - "More important functions" (Article 9) vs. "significant people functions" (Article 7) - Country-by-country reporting - "Special measures" 4. Intangibles: Example 13 (Shuyona) • Example 13 (Shuyona) in 30 July intangibles discussion draft shows change in OECD thinking: Company T is entitled to a "risk-adjusted" rate of anticipated return on its capital invested 5. Japan: frequency of tax audits for large companies • Reduced frequency of tax audits for certain large companies For information: - Jun Takahara (Tokyo): jun.takahara@tohmatsu.co.jp 6. In brief i. Sri Lanka / Belarus treaty signed ii. Taiwan: reward for information on tax evaders iii. New Zealand: GAAR Interpretation Statement issued iv. Australia: draft public ruling on Article 8 of Australiafs treaties v. India: Dr. Shome appointed chairman of the new Tax Reform Administration Commission vi. Vietnam: corporate income tax rate reductions

1. India: 4 cases in 6 minutes i. Simatech - "Resident" of UAE under the UAE / India treaty, although UAE did not levy tax on it ii. WNS - Application of gforce of attractionh rule in Article 7(1) of India / U.S. treaty iii. Gartner - Subscription fees for access to online database: "royalties"? iv. Pubmatic - PE status under India / U.S. treaty For information: - K.R. Sekar (Bangalore): krsekar@deloitte.com 2. China i. Mutual Assistance Convention - China signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters ii. VAT guidelines for exported services - SAT issued Bulletin 47: implementation guidelines for zero-rated VAT for certain exported services For information: - Vicky Wang (Shanghai): vicwang@deloitte.com.cn 3. IFA Congress • Comments by OECD official on aspects of BEPS - "More important functions" (Article 9) vs. "significant people functions" (Article 7) - Country-by-country reporting - "Special measures" 4. Intangibles: Example 13 (Shuyona) • Example 13 (Shuyona) in 30 July intangibles discussion draft shows change in OECD thinking: Company T is entitled to a "risk-adjusted" rate of anticipated return on its capital invested 5. Japan: frequency of tax audits for large companies • Reduced frequency of tax audits for certain large companies For information: - Jun Takahara (Tokyo): jun.takahara@tohmatsu.co.jp 6. In brief i. Sri Lanka / Belarus treaty signed ii. Taiwan: reward for information on tax evaders iii. New Zealand: GAAR Interpretation Statement issued iv. Australia: draft public ruling on Article 8 of Australiafs treaties v. India: Dr. Shome appointed chairman of the new Tax Reform Administration Commission vi. Vietnam: corporate income tax rate reductions

1. Cases i. India: BMW - Delhi Income Tax Appellate Tribunal - Another "L.G. Electronics - type case" concerning excessive advertising, marketing, and promotion (AMP) expenditure - BMW India characterized as a full-fledged distributor - BMW India's AMP spend (3.62%) was higher than the mean of its comparables (1.99%) - Tribunal rejected tax authorities' argument that the excess AMP spend should be charged, with a mark-up, to legal owner of intangibles (BMW Germany) - Reason: BMW India was far more profitable (gross profit margin and net profit margin) than the comparables. Thus, BMW India was already being compensated for its higher AMP spend ii. India: Shell - Ahmedabad Income Tax Appellate Tribunal - Definition of "fees for technical services" (FTS) in India / Netherlands treaty contains a condition that services "make available" technical knowledge, experience, skill, etc. - Shell Netherlands and Shell India entered into a 10 year contract under which Shell Netherlands is required to provide various technical or consulting services to Shell India - Tribunal asked the tax authorities to investigate whether, in light of the long term (10 years) of the contract, expertise and skills were obtained by employees of Shell India 2. China: 2012 APA Report • As at 31 December 2012: cumulative total of APAs signed is 85 • In 2012, 12 APAs were signed (3 unilateral, 9 bilateral) • 9 bilateral APAs signed in 2012 - 5 with Asian countries - 1 with European country - 3 with North American countries • As at 31 December 2012: the SAT had 79 APA requests that were yet to be officially accepted 3. China: other developments i. Late filing costs Finnish company - Finnish company undertook corporate reorganization which satisfied all of the conditions for reorganization relief – except that it did not file forms on time - Reorganization relief was denied, causing a liability for tax, and interest of nearly USD2 million ii. Qianhai Shenzhen – Hong Kong Modern Service Industry Co-operation Zone - Tax subsidy for foreign highly-talented workers - The subsidy will ensure that the effective tax rate on employment income is 15% 4. 22 August: the day when nothing happened • Direct Taxes Code Bill was intended to be presented to the Indian Cabinet on 22 August • However, this did not occur, due to the concern that the new 35% individual income tax rate (for high income taxpayers) might not be a good idea, "given the depressed economic sentiments" at the current time • The Bill reportedly contains a definition of "substantially", for the purposes of the taxation of indirect share transfers under section 9(1)(i): more than 20%!

1. Cases i. India: BMW - Delhi Income Tax Appellate Tribunal - Another "L.G. Electronics - type case" concerning excessive advertising, marketing, and promotion (AMP) expenditure - BMW India characterized as a full-fledged distributor - BMW India's AMP spend (3.62%) was higher than the mean of its comparables (1.99%) - Tribunal rejected tax authorities' argument that the excess AMP spend should be charged, with a mark-up, to legal owner of intangibles (BMW Germany) - Reason: BMW India was far more profitable (gross profit margin and net profit margin) than the comparables. Thus, BMW India was already being compensated for its higher AMP spend ii. India: Shell - Ahmedabad Income Tax Appellate Tribunal - Definition of "fees for technical services" (FTS) in India / Netherlands treaty contains a condition that services "make available" technical knowledge, experience, skill, etc. - Shell Netherlands and Shell India entered into a 10 year contract under which Shell Netherlands is required to provide various technical or consulting services to Shell India - Tribunal asked the tax authorities to investigate whether, in light of the long term (10 years) of the contract, expertise and skills were obtained by employees of Shell India 2. China: 2012 APA Report • As at 31 December 2012: cumulative total of APAs signed is 85 • In 2012, 12 APAs were signed (3 unilateral, 9 bilateral) • 9 bilateral APAs signed in 2012 - 5 with Asian countries - 1 with European country - 3 with North American countries • As at 31 December 2012: the SAT had 79 APA requests that were yet to be officially accepted 3. China: other developments i. Late filing costs Finnish company - Finnish company undertook corporate reorganization which satisfied all of the conditions for reorganization relief – except that it did not file forms on time - Reorganization relief was denied, causing a liability for tax, and interest of nearly USD2 million ii. Qianhai Shenzhen – Hong Kong Modern Service Industry Co-operation Zone - Tax subsidy for foreign highly-talented workers - The subsidy will ensure that the effective tax rate on employment income is 15% 4. 22 August: the day when nothing happened • Direct Taxes Code Bill was intended to be presented to the Indian Cabinet on 22 August • However, this did not occur, due to the concern that the new 35% individual income tax rate (for high income taxpayers) might not be a good idea, "given the depressed economic sentiments" at the current time • The Bill reportedly contains a definition of "substantially", for the purposes of the taxation of indirect share transfers under section 9(1)(i): more than 20%!

1. Cases i. India: BMW - Delhi Income Tax Appellate Tribunal - Another "L.G. Electronics - type case" concerning excessive advertising, marketing, and promotion (AMP) expenditure - BMW India characterized as a full-fledged distributor - BMW India's AMP spend (3.62%) was higher than the mean of its comparables (1.99%) - Tribunal rejected tax authorities' argument that the excess AMP spend should be charged, with a mark-up, to legal owner of intangibles (BMW Germany) - Reason: BMW India was far more profitable (gross profit margin and net profit margin) than the comparables. Thus, BMW India was already being compensated for its higher AMP spend ii. India: Shell - Ahmedabad Income Tax Appellate Tribunal - Definition of "fees for technical services" (FTS) in India / Netherlands treaty contains a condition that services "make available" technical knowledge, experience, skill, etc. - Shell Netherlands and Shell India entered into a 10 year contract under which Shell Netherlands is required to provide various technical or consulting services to Shell India - Tribunal asked the tax authorities to investigate whether, in light of the long term (10 years) of the contract, expertise and skills were obtained by employees of Shell India 2. China: 2012 APA Report • As at 31 December 2012: cumulative total of APAs signed is 85 • In 2012, 12 APAs were signed (3 unilateral, 9 bilateral) • 9 bilateral APAs signed in 2012 - 5 with Asian countries - 1 with European country - 3 with North American countries • As at 31 December 2012: the SAT had 79 APA requests that were yet to be officially accepted 3. China: other developments i. Late filing costs Finnish company - Finnish company undertook corporate reorganization which satisfied all of the conditions for reorganization relief – except that it did not file forms on time - Reorganization relief was denied, causing a liability for tax, and interest of nearly USD2 million ii. Qianhai Shenzhen – Hong Kong Modern Service Industry Co-operation Zone - Tax subsidy for foreign highly-talented workers - The subsidy will ensure that the effective tax rate on employment income is 15% 4. 22 August: the day when nothing happened • Direct Taxes Code Bill was intended to be presented to the Indian Cabinet on 22 August • However, this did not occur, due to the concern that the new 35% individual income tax rate (for high income taxpayers) might not be a good idea, "given the depressed economic sentiments" at the current time • The Bill reportedly contains a definition of "substantially", for the purposes of the taxation of indirect share transfers under section 9(1)(i): more than 20%!

1. Cases i. India: Micro Inks • Ahmedabad Income Tax Appellate Tribunal • Zero-interest loan to U.S. subsidiary was held to satisfy the arm's length principle, because - The loan was quasi-equity - There was a significant trading relationship between the Indian parent and the U.S. subsidiary, which needed financial support ii. India: General Motors • Ahmedabad Income Tax Appellate Tribunal • Korean related party can and should be the tested party for Indian transfer pricing purposes iii. India: Maruti Suzuki • Delhi Income Tax Appellate Tribunal • Another "L.G. Electronics" case • Complicated by the aggregate trade mark: "Maruti Suzuki" iv. Australia: Fortescue • High Court of Australia • Court rejected Constitutional challenge to minerals resource rent tax 2. OECD: intangibles • Profit split method will become more important in the future, due to - Situations where related parties perform "more important functions" and must be compensated by the legal owner under the "transactional approach" (OECD discussion draft on intangibles, issued on 30 July 2013) - Country-by-country reporting, as described in Action 13 of the BEPS Action Plan 3. China • Bulletin 41/2013: tax treatment of hybrid (debt-equity) financing investments • Bulletin 43/2013: tax incentives for software companies 4. Vietnam • Decree 83/2013: APAs 5. India • Draft transfer pricing "safe harbor" rules • Circular 7/2013: tax treatment of losses incurred by tax holiday units • New Companies Act • Tax residency certificates: amendment of information

1. Cases i. India: Micro Inks • Ahmedabad Income Tax Appellate Tribunal • Zero-interest loan to U.S. subsidiary was held to satisfy the arm's length principle, because - The loan was quasi-equity - There was a significant trading relationship between the Indian parent and the U.S. subsidiary, which needed financial support ii. India: General Motors • Ahmedabad Income Tax Appellate Tribunal • Korean related party can and should be the tested party for Indian transfer pricing purposes iii. India: Maruti Suzuki • Delhi Income Tax Appellate Tribunal • Another "L.G. Electronics" case • Complicated by the aggregate trade mark: "Maruti Suzuki" iv. Australia: Fortescue • High Court of Australia • Court rejected Constitutional challenge to minerals resource rent tax 2. OECD: intangibles • Profit split method will become more important in the future, due to - Situations where related parties perform "more important functions" and must be compensated by the legal owner under the "transactional approach" (OECD discussion draft on intangibles, issued on 30 July 2013) - Country-by-country reporting, as described in Action 13 of the BEPS Action Plan 3. China • Bulletin 41/2013: tax treatment of hybrid (debt-equity) financing investments • Bulletin 43/2013: tax incentives for software companies 4. Vietnam • Decree 83/2013: APAs 5. India • Draft transfer pricing "safe harbor" rules • Circular 7/2013: tax treatment of losses incurred by tax holiday units • New Companies Act • Tax residency certificates: amendment of information

1. Cases i. India: Micro Inks • Ahmedabad Income Tax Appellate Tribunal • Zero-interest loan to U.S. subsidiary was held to satisfy the arm's length principle, because - The loan was quasi-equity - There was a significant trading relationship between the Indian parent and the U.S. subsidiary, which needed financial support ii. India: General Motors • Ahmedabad Income Tax Appellate Tribunal • Korean related party can and should be the tested party for Indian transfer pricing purposes iii. India: Maruti Suzuki • Delhi Income Tax Appellate Tribunal • Another "L.G. Electronics" case • Complicated by the aggregate trade mark: "Maruti Suzuki" iv. Australia: Fortescue • High Court of Australia • Court rejected Constitutional challenge to minerals resource rent tax 2. OECD: intangibles • Profit split method will become more important in the future, due to - Situations where related parties perform "more important functions" and must be compensated by the legal owner under the "transactional approach" (OECD discussion draft on intangibles, issued on 30 July 2013) - Country-by-country reporting, as described in Action 13 of the BEPS Action Plan 3. China • Bulletin 41/2013: tax treatment of hybrid (debt-equity) financing investments • Bulletin 43/2013: tax incentives for software companies 4. Vietnam • Decree 83/2013: APAs 5. India • Draft transfer pricing "safe harbor" rules • Circular 7/2013: tax treatment of losses incurred by tax holiday units • New Companies Act • Tax residency certificates: amendment of information

1. OECD: Transfer Pricing (TP) • White paper on TP documentation - Focuses on how best to simplify and standardize the preparation of TP documentation on a global basis - Also considers the "big picture" issue (Action 13 in the BEPS Action Plan) - Two-tiered approach + First tier: Global masterfile + Second tier: Local country file - Public comments invited by 1 October 2013 • Revised discussion draft on the TP aspects of intangibles - Two parts - Proposed amendments to Chapter I of the Transfer Pricing Guidelines (TPG) + Location savings + Other local market features + Assembled workforce + Group synergies - Proposed re-write of Chapter VI of the TPG + More examples than June 2012 draft + "Intangible related returns" is replaced by a requirement that the legal owner compensates related parties for their contributions to the value of the intangible + Public comments invited by 1 October 2013 2. Treaties • Signed - Korea / Tajikistan - Australia / Switzerland • Entry into force - Hong Kong / Kuwait - Australia / Mauritius • Negotiations - Mongolia / Luxembourg 3. Case • Veeda Clinical Research • Ahmedabad Income Tax Appellate Tribunal • Definition of "fees for technical services" (FTS) in India / UK treaty: "make available" condition • Case law: "make available" condition requires transfer of technology • The training services in this case were general in nature and thus they did not involve any transfer of technology • Thus, FTS definition not satisfied For information: K.R. Sekar (Bangalore): krsekar@deloitte.com 4. UN Committee of Tax Experts • Agenda for next meeting (21 to 25 October 2013) released 5. Taiwan: Dividend Withholding Tax (DWT) • Cash distributions from share premium reserve: not subject to DWT For information: Cheli Liaw (Taipei): cheliliaw@deloitte.com.tw 6. In brief • China - Bulletin 40: relaxation of foreign exchange procedures on outbound payments for services and other items For information: Ye Hong (Shanghai): hoye@deloitte.com.cn • Australia - Investment management regime - Revised draft legislation released for public comment (by 13 September 2013) For information: David Watkins (Sydney): dwatkins@deloitte.com.au • Japan - Public debate as to whether increases in consumption tax rates should + Proceed as scheduled + Be deferred + Be abandoned? For information: Jun Takahara (Tokyo): jun.takahara@tohmatsu.co.jp

1. OECD: Transfer Pricing (TP) • White paper on TP documentation - Focuses on how best to simplify and standardize the preparation of TP documentation on a global basis - Also considers the "big picture" issue (Action 13 in the BEPS Action Plan) - Two-tiered approach + First tier: Global masterfile + Second tier: Local country file - Public comments invited by 1 October 2013 • Revised discussion draft on the TP aspects of intangibles - Two parts - Proposed amendments to Chapter I of the Transfer Pricing Guidelines (TPG) + Location savings + Other local market features + Assembled workforce + Group synergies - Proposed re-write of Chapter VI of the TPG + More examples than June 2012 draft + "Intangible related returns" is replaced by a requirement that the legal owner compensates related parties for their contributions to the value of the intangible + Public comments invited by 1 October 2013 2. Treaties • Signed - Korea / Tajikistan - Australia / Switzerland • Entry into force - Hong Kong / Kuwait - Australia / Mauritius • Negotiations - Mongolia / Luxembourg 3. Case • Veeda Clinical Research • Ahmedabad Income Tax Appellate Tribunal • Definition of "fees for technical services" (FTS) in India / UK treaty: "make available" condition • Case law: "make available" condition requires transfer of technology • The training services in this case were general in nature and thus they did not involve any transfer of technology • Thus, FTS definition not satisfied For information: K.R. Sekar (Bangalore): krsekar@deloitte.com 4. UN Committee of Tax Experts • Agenda for next meeting (21 to 25 October 2013) released 5. Taiwan: Dividend Withholding Tax (DWT) • Cash distributions from share premium reserve: not subject to DWT For information: Cheli Liaw (Taipei): cheliliaw@deloitte.com.tw 6. In brief • China - Bulletin 40: relaxation of foreign exchange procedures on outbound payments for services and other items For information: Ye Hong (Shanghai): hoye@deloitte.com.cn • Australia - Investment management regime - Revised draft legislation released for public comment (by 13 September 2013) For information: David Watkins (Sydney): dwatkins@deloitte.com.au • Japan - Public debate as to whether increases in consumption tax rates should + Proceed as scheduled + Be deferred + Be abandoned? For information: Jun Takahara (Tokyo): jun.takahara@tohmatsu.co.jp

1. OECD: Transfer Pricing (TP) • White paper on TP documentation - Focuses on how best to simplify and standardize the preparation of TP documentation on a global basis - Also considers the "big picture" issue (Action 13 in the BEPS Action Plan) - Two-tiered approach + First tier: Global masterfile + Second tier: Local country file - Public comments invited by 1 October 2013 • Revised discussion draft on the TP aspects of intangibles - Two parts - Proposed amendments to Chapter I of the Transfer Pricing Guidelines (TPG) + Location savings + Other local market features + Assembled workforce + Group synergies - Proposed re-write of Chapter VI of the TPG + More examples than June 2012 draft + "Intangible related returns" is replaced by a requirement that the legal owner compensates related parties for their contributions to the value of the intangible + Public comments invited by 1 October 2013 2. Treaties • Signed - Korea / Tajikistan - Australia / Switzerland • Entry into force - Hong Kong / Kuwait - Australia / Mauritius • Negotiations - Mongolia / Luxembourg 3. Case • Veeda Clinical Research • Ahmedabad Income Tax Appellate Tribunal • Definition of "fees for technical services" (FTS) in India / UK treaty: "make available" condition • Case law: "make available" condition requires transfer of technology • The training services in this case were general in nature and thus they did not involve any transfer of technology • Thus, FTS definition not satisfied For information: K.R. Sekar (Bangalore): krsekar@deloitte.com 4. UN Committee of Tax Experts • Agenda for next meeting (21 to 25 October 2013) released 5. Taiwan: Dividend Withholding Tax (DWT) • Cash distributions from share premium reserve: not subject to DWT For information: Cheli Liaw (Taipei): cheliliaw@deloitte.com.tw 6. In brief • China - Bulletin 40: relaxation of foreign exchange procedures on outbound payments for services and other items For information: Ye Hong (Shanghai): hoye@deloitte.com.cn • Australia - Investment management regime - Revised draft legislation released for public comment (by 13 September 2013) For information: David Watkins (Sydney): dwatkins@deloitte.com.au • Japan - Public debate as to whether increases in consumption tax rates should + Proceed as scheduled + Be deferred + Be abandoned? For information: Jun Takahara (Tokyo): jun.takahara@tohmatsu.co.jp

1. Base Erosion and Profit Shifting (BEPS) − Overall, OECD’s BEPS Action Plan has been well received − Public comments have largely focused on the following issues: i. Arm’s length principle vs. formulary apportionment ii. “Special measures….beyond the arm’s length principle” iii. Profits to be allocated in accordance with “value creation” iv. Country-by-country reporting: no public disclosure v. Consensus: will it hold together? − “Invitation” to China and India to develop their own standards for the appropriate split between source and residence taxation 2. Cases (i) India: Diageo − Mumbai Income Tax Appellate Tribunal − Similar to L.G. Electronics case − Tribunal: • Sales-related expenses should be excluded from advertising, marketing and promotion (AMP) expenses • When computing the average AMP level of comparables, adjustments should be made for differences in market share, range of products and functions For information: Anis Chakravarty (Mumbai): anchakravarty@deloitte.com (ii) India: Bangkok Glass − Madras High Court − India / Thailand treaty: no article which covers “fees for technical services” (FTS) − Bangkok Glass (Thai resident) entered into a contract with an unrelated Indian company, to provide both know-how and on-going technical services relating to the Indian company’s construction of a glass factory − Fee related to the provision of know-how = “royalty” covered by Art.12 − Fee related to the provision of technical services: • Covered by Art. 7 (business profits article) : as Bangkok Glass had no PE in India, it is exempt • Thus, “other income” article (Art. 22) not applicable For information: K. R. Sekar (Bangalore): krsekar@deloitte.com (iii) Korea: Private Equity Fund − Supreme Court of Korea − Fund in the form of Cayman Islands limited partnership (CILP) − CILP owns shares in Korean company through interposed entities which lack substance − Interposed entities ignored under Korea’s “substance over form” rules − Who is the “owner” for Korean tax purposes? CILP or the limited partners in CILP? − Korean tax authority practice: if information on limited partners is disclosed, then “look through” to limited partners is permitted (which would allow treaty benefits under treaties between Korea and the residence country of the limited partner) − Supreme Court: CILP will be regarded as the “owner” (and thus no “look through” will be allowed, even if information on limited partners is disclosed) if: • CILP is treated as a corporation for Korean tax purposes; and • CILP is not to be disregarded as a conduit under the Korean “substance over form” rules − This decision could have a significant adverse impact on private equity funds which invest in Korea For information: Gyung Ho Kim (Seoul): gykim@deloitte.com 3. Treaties − Singapore / Barbados: signed on 15 July − India / Uruguay: entered into force on 21 June − Australia / Turkey: entered into force on 5 June − Japan / Luxembourg: exchange of notes on 18 July 4. In brief (i) Japan − Abe government achieves huge win in upper house election: now controls both houses of parliament − Berry Ratio can be used as a profit level indicator under the transactional net margin method For information: Jun Takahara (Tokyo): jun.takahara@tohmatsu.co.jp (ii) China − China (Shanghai) Free Trade Pilot Area For information: Vivian Jiang (Shanghai): vivjiang@deloitte.com.cn Clare Lu (Shanghai): cllu@qinlilawfirm.com (iii) Malaysia − Public ruling on business trusts − Deductibility of cost incurred in acquiring a foreign-owned company For information: K. Sandra Segaran Karuppiah (Kuala Lumpur): ksandrasegaran@deloitte.com (iv) India − India’s competent authority has been changed

1. Base Erosion and Profit Shifting (BEPS) − Overall, OECD’s BEPS Action Plan has been well received − Public comments have largely focused on the following issues: i. Arm’s length principle vs. formulary apportionment ii. “Special measures….beyond the arm’s length principle” iii. Profits to be allocated in accordance with “value creation” iv. Country-by-country reporting: no public disclosure v. Consensus: will it hold together? − “Invitation” to China and India to develop their own standards for the appropriate split between source and residence taxation 2. Cases (i) India: Diageo − Mumbai Income Tax Appellate Tribunal − Similar to L.G. Electronics case − Tribunal: • Sales-related expenses should be excluded from advertising, marketing and promotion (AMP) expenses • When computing the average AMP level of comparables, adjustments should be made for differences in market share, range of products and functions For information: Anis Chakravarty (Mumbai): anchakravarty@deloitte.com (ii) India: Bangkok Glass − Madras High Court − India / Thailand treaty: no article which covers “fees for technical services” (FTS) − Bangkok Glass (Thai resident) entered into a contract with an unrelated Indian company, to provide both know-how and on-going technical services relating to the Indian company’s construction of a glass factory − Fee related to the provision of know-how = “royalty” covered by Art.12 − Fee related to the provision of technical services: • Covered by Art. 7 (business profits article) : as Bangkok Glass had no PE in India, it is exempt • Thus, “other income” article (Art. 22) not applicable For information: K. R. Sekar (Bangalore): krsekar@deloitte.com (iii) Korea: Private Equity Fund − Supreme Court of Korea − Fund in the form of Cayman Islands limited partnership (CILP) − CILP owns shares in Korean company through interposed entities which lack substance − Interposed entities ignored under Korea’s “substance over form” rules − Who is the “owner” for Korean tax purposes? CILP or the limited partners in CILP? − Korean tax authority practice: if information on limited partners is disclosed, then “look through” to limited partners is permitted (which would allow treaty benefits under treaties between Korea and the residence country of the limited partner) − Supreme Court: CILP will be regarded as the “owner” (and thus no “look through” will be allowed, even if information on limited partners is disclosed) if: • CILP is treated as a corporation for Korean tax purposes; and • CILP is not to be disregarded as a conduit under the Korean “substance over form” rules − This decision could have a significant adverse impact on private equity funds which invest in Korea For information: Gyung Ho Kim (Seoul): gykim@deloitte.com 3. Treaties − Singapore / Barbados: signed on 15 July − India / Uruguay: entered into force on 21 June − Australia / Turkey: entered into force on 5 June − Japan / Luxembourg: exchange of notes on 18 July 4. In brief (i) Japan − Abe government achieves huge win in upper house election: now controls both houses of parliament − Berry Ratio can be used as a profit level indicator under the transactional net margin method For information: Jun Takahara (Tokyo): jun.takahara@tohmatsu.co.jp (ii) China − China (Shanghai) Free Trade Pilot Area For information: Vivian Jiang (Shanghai): vivjiang@deloitte.com.cn Clare Lu (Shanghai): cllu@qinlilawfirm.com (iii) Malaysia − Public ruling on business trusts − Deductibility of cost incurred ...