Transcript Document

International Tax – The Emerging
Landscape
UN Model Convention –
Present and Proposed Work
Current Membership (2009-2013)
"Developing country# experts (15)
Morocco
Egypt
South Africa
Nigeria
Ghana
Senegal
Brazil
China
Malaysia
Republic of Korea*
"Developed country# experts (10)
Belgium*
Italy*
Spain*
Germany*
Japan*
Norway*
Switzerland*
Bulgaria
United States*
New Zealand*
India
Pakistan
Mexico*
Barbados
Chile*
July 7, 2012
# Though nominated by countries,
Members serve in their own
capacity
* Denotes OECD Member
UN Model Convention – Present & Proposed Work
T.P.OSTWAL & ASSOCIATES
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Special features of UN Model
• Article 11 (Interest)
– Islamic
financing issues
addressed.
– Rate not specified.
• Option to have Article 14
• Dispute Resolution – Option of Arbitration
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UN Model Convention – Present & Proposed Work
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UN Model Convention
• Present work
- In relation to services separate sub-committee
is presently working on
- Various options are under debate (eg: PE,
Gross Taxation, FTS, etc.)
- Manual for Negotiation of Tax Treaties for
developing countries
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UN Model Convention – Present & Proposed Work
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Present Work
Paragraph 3 of the UN Model Commentary on
Article 9
• Old Mandate:
– "3. With regard to transfer pricing of goods, technology,
trademarks and services between associated enterprises and
the methodologies which may be applied for determining
correct prices where transfers have been made on other than
arm’s length terms, the Contracting States will follow the
OECD principles which are set out in the OECD Transfer
Pricing Guidelines. These conclusions represent
internationally agreed principles and the Group of Experts
recommend that the Guidelines should be followed for the
application of the arm’s length principle which
underlies the article."
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Present Work
Paragraph 3 of the UN Model Commentary on
Article 9
• Now it will:
– The records of the 2011 Annual Session of the Committee will note
that the recommendation may need to note that the Guidelines are for
guidance only and that three Members have expressed reservations.
– But acknowledge agreement on Arm’s Length and
– Makes clear no change to direction of UN Transfer Pricing
Manual
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Present Work
Subcommittee on Transfer Pricing –
Practical Issues
• New Mandate:
– develop a practical manual on transfer pricing, based on the following
principles:
a) That it reflects the operation of Article 9 of the United Nations
Model Tax Convention, and the Arm’s Length Principle embodied in
it, and is consistent with relevant Commentaries of the UN Model
[i.e. "recommendation" of following the OECD Guidelines].
b) That it reflects the realities for developing countries, at their
relevant stages of capacity development.
c) That special attention should be paid to the experience of other
developing countries [i.e. South- South sharing of experiences]; and
d) That it draws upon the work being done in other fora.
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Present Work
Transfer Pricing Manual
• Complete draft manual for adoption to the 2012 Tax
Committee Annual Session (October 15-19).
• Integrated into renewed UN (and hopefully other)
capacity building efforts.
• Working Drafts on our Website – comment welcome.
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Present Work
Transfer Pricing Manual
• Areas of focus:
– What sort of approach might be appropriate for a developing country at
its particular stage of development, in line with its own sovereign
priorities?
– TP should be understood as a journey – how should it be planned – a
staged approach? initial focus areas?
– Integration with other aspects, e.g. general investment promotion
policy.
– Can arm’s length principles (ALP) approach be addressed in a way that
better works for Developing Countries(especially by allowing focus of
limited resources on areas of greatest concern at a point in time, and by
reducing levels of data seeking and crunching required for each
individual case) and still be ALP?
– How do we most fairly deal with the imprecision and complexity
of ALP and distribute its burdens?
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Present Work
Transfer Pricing Manual
• On going project:
- Sub-Committee Meetings held in Kuala Lampur, New Delhi,
Tokyo, Johannesburg & Shanghai
- Work is divided in following ten chapters:
- Chapter 1 Introduction
- Chapter 2 Business Framework
Chapter 3 Legal Environment
- Chapter 4 Capability Building
- Chapter 5 Comparability
- Chapter 6 TP Methods
- Chapter 7 Country Practices
- Chapter 8 Documentation
- Chapter 9 Audits and Risk Assessment
- Chapter 10 Dispute Resolution
- Glossary
- Annexures
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Present Work
Major Differences
- Reference to formulary apportionment & fixed margin
method not acceptable to majority members
- Importance given location savings, locational saving
advantages, market premium and how measure them
- Give importance to bargaining power and its control
over risk – Fully explained through examples
- Treatment of losses is dealt with in a more practical
manner
- Like India, Sixth Method is also proposed
- Arbitration in Dispute Resolution is given as an option
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Proposed Work
- Intangibles
- Business Restructuring
- Services
- Cost Sharing will be continuing
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THANK YOU
T.P. Ostwal & Associates
Chartered Accountants
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FORT, MUMBAI-400001.
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Email: [email protected]
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