Summary: 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
