Summary: 1. Australian case: Resource Capital Fund − Decision of a single judge of the Federal Court − Two issues: • Application of a double tax treaty to a partnership which is a hybrid entity • Application of the “land-rich company” rules in the Australian tax law − Taxpayer is a Cayman Islands limited partnership. More than 97% of the contributed capital is owned by US resident partners − Partnership sold shares in an Australian gold-mining company and derived a large capital gain − Under Australian tax law: the partnership is treated as a non-resident company − Under US tax law: the partnership is fiscally transparent − Australian tax authorities issued tax assessment to partnership − Federal Court concluded that tax assessments should be issued to the partners, not the partnership − Federal Court’s reasoning: • OECD Commentary on Art. 1 (application of double tax treaties to partnerships) should apply in interpreting Australia/US treaty • Thus, the Australia/US treaty applies to the partners, not the partnership • That conclusion is different from the Australian domestic tax law (which views the taxpayer as the partnership) • Due to the paramount force of the Australia/US treaty, the relevant taxpayer is changed from the partnership to the partners − Australia’s “land-rich company” rules do not apply, because the Australian gold-mining company was not sufficiently “land-rich” to be caught by the rules − The gold-mining company owned significant “non-land” assets, including: • Cash • Working capital • Derivatives • Plant & equipment • Importantly : valuable mining information • Goodwill • Tax losses For information: - Peter Madden (Sydney): pmadden@deloitte.com.au - David Watkins (New York): davwatkins@deloitte.com 2. Treaties (i) Hong Kong / Guernsey − signing completed on 22 April 2013 (ii) Korea / Bahrain − entered into force on 26 April 2013 3. India (i) Narrowing of “tolerance band” for calculating arm’s length range − Many countries use the interquartile range in applying the arm’s length principle − In contrast, India uses the arithmetical mean, and then allows a “tolerance band” of 5% − India’s approach generally causes a greater impact from the existence or omission of outliers − Indian Government announced on 15 April 2013 that the “tolerance band” will be narrowed to: • 1% for “wholesale traders” (not defined) • 3% for all others − Effective for the 2012-13 financial year For information: - Samir Gandhi (Mumbai): sagandhi@deloitte.com - Shanto Ghosh (Boston): shghosh@deloitte.com (ii) Transfer pricing adjustment: subsidiary issues shares to parent at an undervalue − On 26 April 2013, India’s Finance Minister told Parliament that 27 Indian subsidiaries of foreign parents have received TP adjustments for issuing shares to their parents at an undervalue − Shell and Vodafone have recently commenced court challenges For information: - Samir Gandhi (Mumbai): sagandhi@deloitte.com - Shanto Ghosh (Boston): shghosh@deloitte.com (iii) Finance Bill, 2013 − Introduced into Parliament and passed by the lower house on 30 April 2013 − Some changes made to the version published at the time of the Budget : for our Tax Alert on the changes, go to "www.deloitte.com/ap/dbriefs/bytes" − Most significant change concerns the concessional interest withholding tax rate of 5% 4. OECD: Draft Handbook on Transfer Pricing Risk Assessment − On 30 April 2013, OECD released, for public comment, a draft handbook on transfer pricing risk assessment − Comments ...
