Summary: 1. Cases (i) Germanischer Lloyd AG − Mumbai Income Tax Appellate Tribunal − Taxpayer is a German company, with an Indian branch − German company provides inspection and certification services to the shipping industry − The Indian branch performed inspections of ships in India and prepared reports for review by the German head office. The head office examined the reports, obtained additional information from the branch (if necessary), and then issued the certificates to the ships − Fees from clients were allocated 70% to the branch and 30% to the head office − Indian tax authorities argued that 100% of the fees should be allocated to the branch, on the basis that the German head office merely provided back-office support and all key functions were performed by the branch − Tribunal rejected assertion that head office merely provided back-office support: the 70 / 30 split was confirmed (ii) Wellinx − Hyderabad Income Tax Appellate Tribunal − Taxpayer is a U.S. company, with an Indian branch − Taxpayer is in the business of providing medical transcription and software development services to clients for a fee. A significant part of the services are performed by the Indian branch − Taxpayer argued that the activities performed by the Indian branch are merely back-office support functions for the U.S. head office, and thus no profit should be allocated to the PE, in accordance with Article 7(3) of the India / U.S. treaty − Tribunal disagreed: the Indian branch was performing integral parts of the service provision to the clients − Thus, it is appropriate that a profit element be recognized in regard to the activities performed by the PE (iii) Reebok − Delhi Income Tax Appellate Tribunal − Similar facts to L.G. Electronics case − Reebok India’s advertising, marketing, and promotion (AMP) expenses equal 8.5% of sales revenue − Set of comparables: average AMP ratio is 3% of sales revenue − Tribunal: excess of 5.5% should be treated as a service provided to Reebok U.S. – thus, a deemed “cost-plus” recharge to the U.S. 2. Treaties (i) New treaties signed − Philippines / Thailand − Singapore / Ecuador − Singapore / Liechtenstein − Laos / Belarus − Malaysia / Poland − India / Albania − Bangladesh / Belarus (ii) Protocol signed − Singapore / Czech Republic (iii) Treaty entered into force − Hong Kong / Jersey 3. UN: Handbook on Administration of Double Tax Treaties for Developing Countries − 10 chapters written by international tax experts, addressing how double tax treaty provisions apply in practice − 417 pages! 4. India: Amendment of Transfer Pricing Circulars on R&D − 29 June • Circular No. 2 of 2013 (dealing with the application of the profit split method): withdrawn • Circular No. 3 of 2013 (dealing with the identification of R&D centers with insignificant risk): amended and renamed as Circular No. 6 of 2013 − Important changes in Circular No. 6 • Three broad categories of R&D center in India • Conditions (Circular No.3) vs. guidelines (Circular No.6) • Some elaboration on “economically significant functions” in the R&D development cycle • Principal’s activities can be performed by the principal or by its associated enterprises 5. In brief (i) Japan − Significant tax refunds for Shimadzu and Daikin following MAP negotiations (ii) OECD − Discussion draft on the double tax treaty treatment of termination payments
