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Asia-Pacific Tax Bulletin
This free e-mail service informs you about the contents of the forthcoming edition of Asia-Pacific Tax Bulletin.

Issue No. 6 - 2017 of the Asia-Pacific Tax Bulletin is now available online.

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Number 6 - 2017 contains the following:


Does the Special Tax Zone Policy Still Matter for Foreign Investment in China? An Analysis Based on the Evolution of China’s Special Tax Zones

Li Du

This article reviews the evolution of China’s policies on special tax zones since 1980. It discusses the change in the country’s approach upon the introduction of the Enterprise Income Tax Law in 2008. The author argues that China modified its special tax zone policies from that year to comply with World Trade Organization requirements, to conform with international norms and to address increasing regional disparity in its domestic economic growth, without giving up its economic development strategy of attracting foreign investment


Profit Split Method: Is It Becoming the Most Appropriate “Alternate” Method?

Bhavik Timbadia and Shilpi Suneja

In this article, the authors highlight the increasing move by the Indian tax authorities towards adoption of the profit split method of allocating profits of multinational enterprises which undertake operations in India, particularly in relation to marketing intangibles, permanent establishments and contract research and development centres. The article canvasses recent Income Tax Appellate Tribunal decisions and highlights the need for multinational enterprises to protect themselves from the tax authority’s newfound thirst for the profit split method by carrying out detailed functional analyses, which are comprehensively documented.


The UPM Case – The Issue of Taxpayer Classification

Sunny Bilaney

In this contribution, the author reviews the recent transfer pricing ruling, in relation to the characterization of the taxpayer as a manufacturer, issued by the Mumbai Income Tax Appellate Tribunal in UPM-Kymmene India Pvt. Ltd v. DCIT. The author raises some important aspects, which should have been considered by the tax authority and Tribunal in arriving at their decisions, and also provides his view on why the taxpayer should have been characterized as a value added distributor.


In Search of Tax Policy to Improve Taxpayer Compliance in Pakistan

Bilal Hassan

In this article, the author analyses taxpayer non-compliance in Pakistan from various perspectives. Factors affecting taxpayer compliance are discussed. The article also examines tax compliance policy employed by the Pakistan tax authority, gives reasons for its failure and proposes a number of measures to improve taxpayer compliance in Pakistan.


Abhishek Dugar and Lakshita Bhandari

The authors outline the decisions in five recent international tax cases delivered by the Delhi, Bombay and Gujarat High Courts.

The first case note addresses the July 2017 Delhi High Court decision in Director of Income Tax v. Mitsui & Co. Ltd, which found that the Indian tax department failed to satisfy the onus of proof to show that the taxpayer’s liaison office in India constituted a permanent establishment. Rather, the office met the preparatory and auxiliary activities test in article 5(6)(e) of the 1989 India–Japan Income Tax Treaty.

The second case note explains the decision of the Delhi High Court in Valvoline Cummins Private Ltd. v. Deputy Commissioner of Income-tax that the Indian tax department is required to demonstrate the existence of an international transaction between an Indian taxpayer and its foreign associated enterprise before it can make a transfer pricing adjustment to the taxpayer’s advertising, marketing and promotion expenditure, on the grounds that excessive amounts of such expenditure were incurred to enhance the associated enterprise’s brand, and that the associated enterprise should have compensated the taxpayer accordingly.

The third case note addresses the recent decision of the Bombay High Court in Commissioner of Income Tax v. JSH Mauritius Ltd, which found that the capital gain derived by a Mauritius company from the disposal of a long-term share investment in an Indian company was not taxable in India by virtue of article 13(4) of the India–Mauritius Income Tax Treaty.

The fourth case note reviews the Bombay High Court ruling in Ballarpur Industries Ltd v. Commissioner of Income Tax, which holds that a foreign exchange gain, which arises from a currency fluctuation upon remittance of underlying interest and royalty income does not have the character of that income, and therefore does not qualify for the same treaty exemption from Indian taxation as the interest and royalty income.

In case note 5, the authors review the recent short judgement of the Gujarat High Court in Principal Commissioner of Income Tax v. M/s Veer Gems, where the court held that two enterprises must meet the criteria specified in section 92A of the Income-tax Act 1961 before they were associated enterprises, and transfer pricing adjustments could be made. Mere control of each company by the same family members was not sufficient.

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