September/October 2018  
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Asia-Pacific Tax Bulletin
 
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Issue No. 5 - 2018 of the Asia-Pacific Tax Bulletin is now available online.

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Number 5 - 2018 contains the following:
ARTICLES
China (People's Rep.)

Tax Risks for Chinese Investments in ASEAN under the Belt and Road Initiative

Xu Diheng

In this article, the author analyses the tax risks faced by Chinese enterprises that invest in ASEAN countries under China’s Belt and Road Initiative. In this context, the article discusses inter alia the impact of the presence of permanent establishments, limitations on foreign tax credits, the need for tax sparing provisions in China’s double tax treaties with ASEAN countries, transfer pricing, controlled foreign company rules, exchange of information, treaty abuse and tax dispute resolution for Chinese investors. The author offers recommendations to Chinese investors and China’s tax authority on tax risk management, so that they and China may gain maximum benefit from the Initiative.

Indonesia

Allocation of Head Office Expenses and the Interpretation of Article 7(3) of the United Nations Model Tax Treaty

Andreas Adoe

In this article, the author discusses the interpretation of article 7(3) of the UN Model Tax Treaty and the allocation of head office expenses to a permanent establishment under Indonesia’s domestic law. The article reviews Indonesian case law, which has generally upheld the indirect method of allocation, despite double taxation outcomes, and supported the tax authority’s demands for detailed supplementary information and documentation beyond consolidated accounts and audited allocation methodologies. The author also addresses arm’s length pricing of intra-group services and suggests that it might be challenged by the Indonesian tax authority in the determination of taxable profit of a permanent establishment in Indonesia.

Indonesia

A Critical Analysis of Indonesia’s New Controlled Foreign Company Rules

Asrul Hidayat and Melani Dewi Astuti

This article reviews Indonesia’s new controlled foreign company regulation. It explains the ways that the regulation conforms with the recommendations in the OECD’s final report on BEPS Action 3, and contrasts various aspects of Indonesia’s approach with that of Australia and the United States. Drawing on these sources, the authors suggest amendments to the Indonesian regulation to make it more effective in achieving the goal of combatting base erosion and profit shifting by Indonesian-resident corporate taxpayers.

CASE NOTES
India

Non-Compete Fees Paid on the Sale of Shares Not Taxable

Abhishek Dugar and Lakshita Bhandari

This case note sets out the ruling by the Authority for Advance Rulings in HM Publishers Holdings Limited that the receipt by a shareholder of non-compete fees paid on the sale of shares of a company to another company constitutes business income. However, in the absence of a permanent establishment in India, the foreign shareholder was not chargeable to tax in India under the India-United Kingdom Income Tax Treaty (1993).

India

Lenders’ Fees Not Linked to Loan Are Not Interest Income

Abhishek Dugar and Lakshita Bhandari

This case note sets out the ruling by the Authority for Advance Rulings in Societe De Promotion Et De Participation Pour La Cooperation Economique that an appraisal front-end fee charged by the taxpayer to its client borrowers was not taxable in India as interest because it was not linked to the loan and not payable if the loan was not approved. However, all other fees (i.e. non-appraisal front-end fees, commitment fees, cancellation fees, monitoring fees and amendment fees) were taxable in India as interest income in terms of article 12(4) of the France-India Income and Capital Tax Treaty (1992) because they were payable only after the debt claim came into existence.

India

Subsidiary of Foreign Parent Not Permanent Establishment in India

Author

Abhishek Dugar and Lakshita Bhandari

In this case note, the authors outline the ruling by the Authority for Advance Rulings in Saudi Arabian Oil Company, which determined that an Indian subsidiary of a Saudi Arabian company did not constitute a permanent establishment in India under article 5 of the India-Saudi Arabia Income Tax Treaty (2006) where the Indian subsidiary merely provides business and marketing support services to its Saudi Arabian parent company.

India

Global Reservations Fees Held to be Income Derived Through a Permanent Establishment

Abhishek Dugar and Lakshita Bhandari

This case note sets out the recent ruling by the Authority for Advance Rulings in FRS Hotel Group (Lux) Sarl that, in the light of the entirety of a series of agreements entered into by FRS Hotel with an Indian-resident property developer, FRS Hotel managed the entire operations of the property developer’s hotel in India; therefore, FRS Hotel had a fixed place permanent establishment in India. The payments received by FRS Hotel for provision of global reservation services were attributable to FRS Hotel’s PE in India and consequently chargeable to tax in India as business income, rather than as royalties or fees for technical services, in terms of the India-Luxembourg Income Tax Treaty (2008).

India

Payments to Foreign Entity to Accelerate Access to Online Content Not Income under Income Tax Act or United States Treaty

Abhishek Dugar and Lakshita Bhandari

This case note summarizes the recent ruling by the Authority for Advance Rulings in Akamai Technologies Inc. that payments received by a foreign company from its Indian subsidiary for a content delivery solution to accelerate online content and business processes under a services reseller agreement were not in the nature of fees for technical services or royalties under the Income-tax Act, 1961 or the India-United States Income Tax Treaty (1989), and that the arrangement did not create a permanent establishment of the foreign company in India.

INTERNATIONAL PERSPECTIVE ON ASIA-PACIFIC TAXATION AND INVESTMENT
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