Summary: 1. OECD Report: Aggressive Tax Planning based on After-Tax Hedging − Report issued by OECD this week − Considers mismatches between the tax treatment (timing or characterization) between the hedged instrument and the hedging instrument − Such mismatches, according to the OECD, provide the opportunity for international tax avoidance 2.Korea: Guarantee Fees − Taxpayer can choose any of the 4 alternative pricing methods to calculate the arm’s length guarantee fee in related party situations: i. Benefit approach (i.e., the fee equals the borrower’s benefit) ii. Cost approach (i.e., the fee equals the guarantor’s expected costs) iii. Cost-benefit approach (i.e., combination of (i) and (ii)) iv. Deemed arm’s length method 3. Treaties − Australia / Chile • Recently entered into force • PE definition: i. Aggregation of time period for services performed by two or more related companies ii. Contract-concluding agency PE: substantial negotiation of the essential parts of a contract − Interest: back-to-back loans arrangement − Dividends, interest and royalties: “purpose” rule − Non-discrimination article! 4. Cases − Korea: Lone Star Fund IV • Latest instalment in the on-going saga of Lone Star Funds and Korean companies • Tax authorities asserted “permanent establishment” by virtue of presence in Korea of “Lone Star” individuals who acted as directors of Korean advisory companies and portfolio companies • Seoul Administrative Court: No “permanent establishment”, because: i.The individuals, when in Korea, owed their fiduciary duties to the Korean advisory and portfolio companies ii.Key decisions on purchase and sale of shares in Korean portfolio companies were made in the U.S., not in Korea 5. In brief − Japan • Transfer pricing audits and general corporate tax audits can now be conducted together • Earnings stripping rules commence on 1 April 2013 − Hong Kong • Working group to find ways to promote Hong Kong as an IP hub − Philippines • Exemptions for international air and shipping carriers 6. “Till tax do us part” − Chinese married couples are divorcing in order to avoid capital gains tax on their second real estate property
