Dispute Resolution:How to obtain reasonable outcomes

8-9 May 2013

Chair: Mukesh Butani – Taxand IndiaPanelists:

Chinapat Vissutipat – Taxand Thailand David Weisner – Citigroup Gokul Chaudhri – Taxand India

1. Developments on Managing Disputes

2. Administrative & Judicial Litigation: Fresh Rules

3. New Methods to Avoid the Courtroom

4. Strategies for Jurisdictions where Court is Most Likely

5. Key Court Cases and Learnings for Taxpayers

6. Taxand’s Take

7. Key Contacts & About Taxand

Contents

Developments on Managing Disputes

8-9 May 2013

India

Protracted litigation straining Court infrastructure

Retrospective amendments unsettling settled positions

Special courts/ bench, e-courts for tax disputes, international tax & transfer pricing

Introduction of APA

Introduction of Dispute Resolution Panel

Advance Rulings open to challenge

Developments on Managing Disputes1 Developments on Managing Disputes 4

Developments on Managing Disputes1 Developments on Managing Disputes 5

Other key developments in Asia

Targets of tax collection not consistent with economic reality

Ever increasing data requests even on simple transactions

Developments on Managing Disputes1 Developments on Managing Disputes 6

Thailand

Trend of current tax collection

Deficit government budget

Incremental tax disputes

Administrative level: Tax collectors

Judicial level: tax court and Supreme Court

Alternative tax dispute resolution

Conciliation process in tax court

No tax arbitration methods

No associate judge

Administrative & Judicial Litigation: Fresh Rules

8-9 May 2013

India

Strict rules of evidence

Effectiveness of ADRs (AAR/MAP/APA)

Effectiveness of DRP

Planning, preparation and legal counsels/ firm’s advice

Impact of GAAR

Administrative & Judicial Litigation: Fresh Rules82 Administrative & Judicial Litigation: Fresh Rules

Experience in other countries:

Australia – New transfer pricing rules

Australia – Risk rating taxpayers

Korea – “Selling” of APAs

92 Administrative & Judicial Litigation: Fresh Rules

Administrative & Judicial Litigation: Fresh Rules

102 Administrative & Judicial Litigation: Fresh Rules

Thailand

Tax assessment: No burden of proof

Burden of proof in court: Shift to taxpayer

Flexible court hearing: Continuing procedures

Conciliation on facts: Not on tax laws

Anti-avoidance rule: TP/TC/TS/CFC/GAAR

Administrative & Judicial Litigation: Fresh Rules

New Methods to Avoid Courtroom

8-9 May 2013

New Methods to Avoid the Courtroom123 New Methods to Avoid the Courtroom

Alternative forms of dispute resolution

Arbitration

Conciliation

Mediation

MAP

APA

Settlement

New Methods to Avoid the Courtroom133 New Methods to Avoid the Courtroom

India

Is MAP an option? Reality check:

Roughly 150 – 200 MAPs between India and US only on TP

Impasse between Indian and US CA for past 12 – 18 months

India’s views on OECD and UN chapter on transfer pricing has increased the anxiety levels

APA – A smooth beginning so far

Guidelines notified on August 31, 2012

Encouraging response: around 150 pre-filings

3 14

New Methods to Avoid the CourtroomNew Methods to Avoid the Courtroom

Country specific experiences

Australia – Franchise issues

Korea – MAP

Thailand

Negotiation: Administrative level

Facts and business knowledge

Settlement to reduce penalty and surcharge

Avoid wasting time and lawyer’s cost

No way out after tax assessment

Unable to negotiate during tax appeal

Conciliation in tax court: Only facts issue

153

New Methods to Avoid the CourtroomNew Methods to Avoid the Courtroom

Strategies for Jurisdictions Where Court is Most Likely

8-9 May 2013

Strategies for Jurisdictions where Court is Most Likely174 Strategies for Jurisdictions where Court is Most Likely

Timely expert advice and engaging counsels

Preparing for uncertainty and dispute life cycle

Strategies for mitigating interest and penal exposure

Keeping management informed – governance issues

Endeavor for early disposal

Media management

4 Strategies for Jurisdictions where Court is Most Likely 18

Strategies for Jurisdictions where Court is Most Likely

India

Evaluation of alternative remedies

Strategy for stay of demand

Avoiding multiple parallel proceedings

Mitigating penalty exposure – robust documentation and disclosure

Filing caveats

Tribunal to state High Court and Supreme Court – facts vs substantial question of law

4 Strategies for Jurisdictions where Court is Most Likely 19

Strategies for Jurisdictions where Court is Most Likely

Other country experiences

Australia – Choosing a law firm wisely. Law firms considered “intermediaries”.

Korea – Keeping it simple

4 20

Strategies for Jurisdictions where Court is Most LikelyStrategies for Jurisdictions where Court is Most Likely

Thailand

Litigation team

Appropriate tax lawyer / tax litigator / tax advisor

Supporting tax team in the courtroom

Tax appeal is not a tax deferral

Pay tax first: To reduce monthly surcharge

Refund tax paid after winning the case: With interest 1% per month (12% per year)

Burden of proof

Documentation with reasonable grounds

Key Court Cases & Learnings for Taxpayers

8-9 May 2013

Key Court Cases & Learnings for Taxpayers225 Key Court Cases & Learnings for Taxpayers

India

Sanofi Pasteur Holding (Andhra Pradesh HC Ruling)

Nokia Networks OY (Delhi HC Ruling)

LG Electronics (Special Bench Delhi Tribunal Ruling)

Sanofi Pasteur Holding

Court re- affirms principle of legitimate tax planning within four corners of law – Vodafone followed

No unilateral Treaty override

Treaty shopping – sighted as an additional factor to attract foreign investments

Importance of underlying commercial substance

Impact of GAAR in treaty interpretation

5 23

Key Court Cases & Learnings for TaxpayersKey Court Cases & Learnings for Taxpayers

Nokia Networks OY

Software payments not taxable as royalty under treaty

Acknowledged distinction between “copyright” & “copyrighted article”

Retrospective amendments cannot be read into treaty

Matter sub-judice before Supreme Court

5 24

Key Court Cases & Learnings for TaxpayersKey Court Cases & Learnings for Taxpayers

LG ElectronicsTP adjustment on excessive AMP upheldFactors – need for proper comparables, FAR profile, business model, business and product life cycle etcBattle to continue before multiple forumsMNC’s in India need:

to be more cautious while undertaking FAR analysis / selection of comparablesto maintain proper documentation incorporating detailed functional analysisto review their current arrangements with AEs on AMP

5 25

Key Court Cases & Learnings for TaxpayersKey Court Cases & Learnings for Taxpayers

Other countries’ experiences:

Australia – TPG case

Australia - Project Wickenby cases continues

Korea - Supreme Court endorses application of domestic “substance over form” principle to deny tax treaty benefits

Korea – Look out for cases on management service fees

5 26

Key Court Cases & Learnings for TaxpayersKey Court Cases & Learnings for Taxpayers

275

Thailand

Pizza Hut Inc. (Marketing expense of franchise)

ABB (Subsidy as a deemed dividend)

NEC (Share premium as a subsidy)

Key Court Cases & Learnings for TaxpayersKey Court Cases & Learnings for Taxpayers

285 Key Court Cases & Learnings for Taxpayers

Key Court Cases & Learnings for Taxpayers

Pizza Hut Inc. (Marketing expense of franchise)

Controlling power of franchisor in marketing collateral

Marketing costs linked to gross sales and paid by franchisee directly to 3rd party suppliers

Withholding tax on marketing (franchise) expense

15% on marketing costs paid / Late penalty and surcharge

295 Key Court Cases & Learnings for Taxpayers

Key Court Cases & Learnings for Taxpayers

VAT on marketing (franchise) expense

7% on marketing costs paid / Late penalty and surcharge

Tax interpretation by the Supreme Court

Tax avoidance: Substance over form

305

ABB (Subsidy as a deemed dividend)

Key Court Cases & Learnings for TaxpayersKey Court Cases & Learnings for Taxpayers

315

Key Court Cases & Learnings for TaxpayersKey Court Cases & Learnings for Taxpayers

NEC (Share premium as a subsidy)

NEC Thailand:

67% of total shares owned by NEC Engineering Thailand and 33% owned by NEC Japan

Retained loss with negative NBV of shares

Increase capital of THB 410,000,000

NEC Japan:

1 preference share (par 1,000) with share premium (409,999,000)

Central Tax Court’s view:

Substantial transaction: Subsidy

Taxand’s Take

8-9 May 2013

Taxand’s Take336 Taxand’s Take

Choice of Counsels / law firms for expert advice and representation

Planning ahead

Efficacy of alternate dispute resolution mechanisms

Strategise how to approach under APAs

Effective housekeeping – robust documentation

Gearing up for changing tax landscape

Key Contacts Key Contacts & About Taxand 347

Mukesh ButaniTaxand IndiaE. Mukesh.Butani@bmrlegal.inT. +91124 339 5011  

David WeisnerCitigroupE. david.weisner@citi.comT. +852 3961 1232

Chinapat VisuttipatTaxand ThailandE. Chinapat.vs@hnpcounsel.comT. +66 2632 1800

Gokul ChaudhryTaxand IndiaE. Gokul.Chaudhri@bmradvisors.comT. +91124 339 5040

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Interpreting technical tax provisions

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Why Taxand?377 Key Contacts & About Taxand

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