asia tax forum may 9-10, 2012 – raffles, singapore hot topics asia pacific taxation itr asia tax...

Asia Tax ForumMay 9-10, 2012 – Raffles, SingaporeMay 9-10, 2012 – Raffles, Singapore

HOT Topics Asia Pacific Taxation

ITR Asia Tax Executives Forum 2012

Raffles Hotel, May 9, 2011

Presented ByEric N. Roose (Moderator)Amit Gupta, Dell Computer

Pieter de Ridder, Loyens & LoeffWilliam Thomson, Time-Warner

Michael Velten, CLSA


2012 Asia Pacific Tax Environnent• The tax environment in Asia Pacific continues to be changing rapidly

and increasingly becoming more complex and challenging

• New tax rules/regulations continue to be introduced- with little or no prior notice- so broad in reach as to be uncertain in their application

- increasingly against international norms - and often with retroactive effect

• Increased tax compliance obligations in TP and documentaion

• Tighter increased tax reviews and more aggresive enforcement of the tax rules/regulations


HOT TAX TOPICS – Asia Pacific

• Indirect Share Transfers

• Beneficial Ownership Challenges

• General Anti-Abuse Rules (GAAR)

• Transfer Pricing Challenges

• Hong Kong Fund versus Singapore Fund – Comparison


Indirect Share Transfers• India

• China

• South Korea

• Indonesia


India- Indirect Share Transfer

• Vodafone Decision • GOI Response• Implications for Future


Vodafone Transaction. Hutchison Telecom

International LimitedCayman Island

Vodafone InternationalHoldings BVNetherlandsUSD $11.1

Billion

Purchase Sale K

Intermediate BVI Companies

Intermediate Mauritius/Indian Companies

Indian Telecom Target CompanyIndian Telecom Target Company

GDP India Inv. Cayman IslandGDP India Inv. Cayman Island Transfer of GDP India

Shares


Revenue’s Case

• Vodafone in substance purchased the Indian business of Hutchinson. Therefore, Vodafone, as the purchaser of an Indian business should have withheld tax

• Arguments:– Sale of GDP Cayman was a tax avoidance scheme– Court must look at substance as a whole (which was a sale

of an Indian business) and not the form of the transaction


Supreme Court’s Decision• Transaction was not a sham• Revenue cannot disregard form of the transaction• Substance of the transaction was the transfer of shares of a

Cayman Islands company and there was no transfer of rights or entitlements in India

• There is no provision in the Indian tax law to tax transfers of shares in a Cayman Islands company

• Therefore, Revenue has no right to impose withholding tax on Vodafone


Principles Derived from Decision• Revenue must view foreign investment transactions as a

whole and not look-through or dissect them into elements

• The form of a transaction can only be disregarded if it is a sham-transaction or tax-avoidance transaction


Principles Derived from Decision

• Relevant Factors in Determining the True Legal Nature of a Transaction– Duration of Holding Structure – since 1994– Period of Business Operation – long term– Generation of Taxable Revenues in India - yes– Continuity of Business on Exit – yes, by Vodafone


GOI Response• Revenue filed petition to ask the Supreme

Court to review its own decision. The appeal was summarily dismissed

• 2012 India Budget

–Indirect transfer provisions

–General Anti-Avoidance Rule (“GAAR”)

–Withholding Tax Provisions


Budget: Indirect Transfer Provisions• Budget Proposal to Levy Tax on Indirect Transfers

Key Changes in Budget – Definition of Capital Asset expanded to include “rights

to manage and control”– Definition of Transfer covers “any interest” in any

asset in any manner– Scope of income is deemed to accrue/arise in India

“through” transfer of assets situated in India

• Retroactive, with effect from April 1, 1962


China- Indirect Share Transfers

• Indirect Transfer Circular 698• Indirect Transfer Cases• Panel Discussion• Tax Planning


Circular 698 – Indirect Equity/Share Transfers

• Circular 698 effective date: January 1, 2008

• A may have to report the transaction, depending on the tax profile of B or profile of B’s jurisdiction

• B’s Jurisdiction/B’s Tax Profile? - effective tax rate not more than 12.5% - foreign income not subject to tax

• B may be disregarded

• Transaction treated as a transfer of PRC Co subject to Chinese tax

C

Before After

A

B B

PRC Co PRC Co

Sell


Recent China Enforcement Cases• Jiangdu 2010 – Classic Case• Shenzhen 2010 – Transfer by a Foreign Individual• Shantou 2011 – Internal Reorganization Transfer• Guiyang 2011 - Transfer of Intermediate

Company Respected for Treaty Purposes • Ningbo 2011 – Transfer to Chinese JV Partner• Kunshan 2011 – Transfer to Foreign JV Partner• Qidong 2012 – Public Company Transfer to Public

Company


Jiangdu 2010 - Classic Indirect Transfer T Co. was established in Jiangdu and jointly owned

by a Hong Kong company (“H Co.”) and a Chinese

resident company. H Co. holds a 49% equity

interest in T Co.

H Co. is a wholly-owned subsidiary of a foreign

company (“S Co.”) that is ultimately owned by a well

know US private equity fund

On January 14, 2010, S Co. transferred all its equity

interest in H Co. to another foreign company (“B

Co.”), which is in turn owned by a company in the

U.S.

The tax authorities in Jiangdu discovered the deal

through public channels, requested the relevant

transfer documents and concluded that H Co.

should be disregarded due to lack of substance

under Circular 698

The tax authorities made a tax assessment of RMB

173 million and on May 18, 2010, the tax was paid

by S Co.

Before TransactionS Co.

H Co.H Co.

100%

49%Mainland China

Hong Kong

B Co.100%

H Co.H Co.

T Co.

49%

Foreign Country

T Co.

After Transaction

Foreign Country

Hong Kong

Mainland China


Shenzhen 2010 – Indirect Transfer by a Foreign Individual

H Co. was established by a Hong Kong individual with a

capital injection of HKD 10,000

In 2000, H Co. set up T Co. in Shenzhen. T Co. is engaged

in the logistics business and owns a number of warehousing

facilities

After a 10-year operation, T Co. had become a very

successful company with greatly appreciated real properties

In 2010, the Hong Kong individual transferred 100% equity in

H Co. to B Co., which is a unrelated Singapore company, for

a consideration of more than RMB 200 million

The Shenzhen tax authorities deemed the transfer to be the

transfer of T Co.

The RMB17.7 million tax was paid recently

This is the first case involving the taxation of indirect transfer

by a foreign individual

Interesting question: Should the tax rate be 10% or 20%?

H Co.H Co.

T Co.

Individual

100%

T Co.

H Co.H Co.

B Co.

Before Transfer

After Transfer

Hong Kong

Mainland China

Hong Kong

Mainland China

Singapore

17


Shantou 2011 – Internal Indirect Transfer T Co. was established in Shantou in June 2004 and

acquired by G Co. in February 2008

After a series of share transfers, T Co. was indirectly

held by P Co. through A Co., AA Co., AAA Co. and G

Co.

Both AA Co. and AAA Co. were set up in BVI in July

2009

In November 2010, A Co. transferred AA Co. to W

Co., which is a wholly owned subsidiary of H Co.

H Co. is a Hong Kong listed company, the major and

controlling shareholder of which is P Co.

W Co. paid the purchase price of RMB 80 million

In November 2010, the Shantou tax authorities

learned about the transaction through the internet

In February 2011, the Shantou tax authorities ruled

that the transfer should be deemed to be the transfer

of the T Co.

In March 2011, the RMB7.2 million tax was paid

Before Transfer

AAA Co.

G Co.

100%

100%

Mainland China

Hong Kong

100%

Hong Kong

BVI

T Co.

AA Co.

A Co.

100%

100%

Foreign Country

P Co.

T Co.

G Co.

AAA Co.

AA Co.

H Co.H Co.

W Co.W Co.

P Co.

100%

100%

100%

100%

After Transfer

18


Guiyang 2011 – Indirect Transfer BVI Co. was established by a Hong Kong

Company

BVI Co set up a Hong Kong branch and received a

HK Certificate of Tax Residency in 2009

T Co dividends enjoyed a reduced dividend

withholding tax under the Hong Kong - Mainland

PRC DTA

In 2010, the Hong Kong Company transferred 100%

equity in BVI Co. to B Co.

The Guiyang tax authorities deemed the transfer to

be the transfer of T Co. claiming BVI Co was just a

shell company

WHT of RMB31.5 million tax was paid

Interesting that the Guiyang tax authority respected

the BVI Co for purposes of the reduced WHT under

the DTA but not for purposes of the indirect transfer.

19

BVI Co.BVI Co.

T Co.

100%

T Co.

H Co.H Co.

B Co.

Before Transfer

After Transfer

Offshore

Mainland China

Hong Kong

Mainland China

Singapore

HK Seller

HK Branch


Ningbo 2011 – JV Partner Indirect Transfer

BVI Co. was established by a German Company

T is engaged in business in Ningbo

In 2011, German Company transferred 100% equity

in BVI Co to PRC Buyer, giving PRC Buyer effective

100% control over T Co,

Xiangshan tax authorities deemed the transfer to be

the transfer of T Co. pursuant to Circular 698

RMB 4.23 million tax was paid

60%

BVI Co.BVI Co.

T Co.

100%

T Co.

BVI Co.BVI Co.

PRC Buyer

Before Transfer

After Transfer

Offshore

Mainland China

Hong Kong

Mainland China

German Seller

PRC Buyer40%

100%

100% effectively

BVI Co Shares


Kunshan 2011 – JV Partner Indirect Transfer

50%

US Group and Taiwan Group established a

Mauritius Company to hold their 100% joint interest

in T Co

In 2011, Taiwan Group sold its 50% interest in

Mauritius Co.

Kunshan tax authorities claimed that because the

Mauritius Co had no substance and was not formed

for any reason other than to hold T Co, they could

ignore that company under Circular 698 and treat

the transfer of Mauritius Co shares as a transfer of

T Co shares subject to 10% WHT

In August 2011, the RMB 44 million tax was paid

50%

21

Before Transfer

HoldCo.A

Mauritius Co.Mauritius Co.

Mainland China

Mauritius

100%

T Co.

Foreign Country

US Group

HoldCo.B

Taiwan Group

After Transfer

100% 100%

Sell


Qidong 2012 – Public Company Indirect Transfer

100%

An Overseas Listed Chinese Real Estate Company

sold its 49% in BVI Co, an intermediary company

with no employees or assets other than shares of

Holdco.

Similarly, Holdco had no employees or assets other

than the shares of T Co 1 and T Co 2, the PRC

mainland companies.

Qingdong tax authorities claimed that because the

BIV Co and HoldCo had no substance and were

not formed for any reason other than to ultimately

hold T Co 1 and T Co 2, they could ignore those

companies under Circular 698 and treat the

transfer of BIV Co shares as a transfer of T Co 1

and T Co 2 shares subject to 10% WHT

In 2012,RMB 300 million tax was paid

22

49%

Before Transfer

BVI CoBVI Co

HoldCo.HoldCo.

Mainland China

Offshore

100%

T Co 1.T Co 1.

Foreign Country

Overseas Listed Co Overseas

Listed Co

After Transfer

Sell

T Co 2T Co 2


Beyond Circular 698• Vodafone – China Mobile Case

• Application of Circular 601 to capital gains tax relief claims


China Indirect Equity/Share Transfers Panel Discussion

• Given the enforcement approach taken to Circular 698, where does this leave the “traditional” offshore indirect transfer approach?

• What level of substance is needed to address a Circular 698 challenge?

• Is this also a challenge for MNC strategic investments?

• Practically, how is Circular 698 being addressed in M & A transactions?– By Buyers– Bu Sellers

• What does this all mean for China exit strategies? Direct sale approach?


South Korea- Indirect Share Transfer

Netherlands Company

A CompanyKorea

Established 1998

A CompanyKorea

Established 1998

B Company Korea

Established 2003

B Company Korea

Established 2003

Korean Real Estate Holdco

Acquired after B Co Established

Korean Real Estate Holdco

Acquired after B Co Established

100%

50% 50%


Supreme Court Indirect Transfer Decision

• Issue: Does the real estate acquisition tax apply to the Netherlands Parent Company for the purchase of the Korean Real Estate Holdco by A Co and B Co, by treating Netherlands Parent Company as a “controlling shareholder" of the Korean Real Estate Holdco?

• Lower Court Decision: No

• Supreme Court Decision: Yes• Rationale: Substance over Form Principle


Indirect Transfer Decision • Factors Relevant to the Supreme Court to Disregard the

FORM:1. the reason and purpose of acquiring the Korean Holdco shares; 2. sources of the funds used to acquire the Korean Holdco shares; 3. the management and disposition of the company shares; and 4. the capability of Belgium Holdco, the registered owners, and their relationship with

actual owners (i.e., the Lonestar LPs).

• Majority Decision: “Netherlands Co provided all the funds for acquiring the shares of Korean Real Estate HoldCo, managed the whole process of acquiring, maintaining, and disposing, and had the complete control over the Cayman and Belgium subsidiaries which had no other business activities, thus practically controlling the shares of Korea Real Estate Holdco”


Foreign investor

INDONESIA

HOLDING

INDONESIA Indirect Share Transfer


Sale of shares of the foreign holding companyMoF Regulation No. 258/PMK.03/2008 of 31 Dec 2008

Art. 18(3b) & 18(3c) Law 36, 2009

5% income tax of the proceeds if the foreign holding company is located in a tax haven country and is a conduit company who

holds non-listed shares of an Indonesian company

Also: if there is a ‘special relationship’ between the companies and the sales price for the shares was not ‘at arm’s length’


Beneficial Ownership Challenges• China• India• South Korea• Indonesia


China Benefical Ownership Challenges

Article 47 (jo 102) of the Enterprise Income Tax Law is the general anti-avoidance article in the law

Circular 81, Definition of Tax ResidenceCircular 601 (“Beneficial ownership circular”) of August 2009 and Circular 124 with the Form as of 27 Oct. 2009

Circulars 1 and 2 of 2009 (dealing with GAAR)


Foreign investor

CHINA

HOLDING

Dividends, interest or royalty payments: tax treaty benefits?

Circular 601


Beneficial ownership – Circular 601

BO is any person who owns or has control and dominion over the income or the rights or assets giving rise to income

BO must be engaged in substantive business activities Substance over form concept Negative factors according to circular 601 are:

Applicant has the obligation to pay or distribute all or a substantial part of the income (> 60%) to a third country resident within a prescribed time (eg 12 mths)

Applicant has no or hardly any business activities in that country Assets, size and personnel not in line with the income received No real rights of control nor business risks for applicant Income not taxable or low tax rate

Back-to-back loans or royalty flows Burden of proof on taxpayer that the above does not apply


China – Beneficial Ownership

• Pre-approval required for non-residents to enjoy treaty benefits

• Application Form for Claim of Treaty Benefit (Circular 124, Oct 2009)

• Supporting documents need to be attached to the application

• The Form asks for certain information in the past year:

- number of employees of the Non-Resident- principal activities of the Non-Resident- nature and amount of payment to associated parties- information on the shareholders of the Non-Resident - reason for qualifying for the treaty benefit- attach Tax Residence Certificate or Corporate Registration Certificate for Hong Kong companies


China - Beneficial Ownership

• Circulars 601, 124 have now been put to the test

• E.g. the payment of dividends in 2010 from China to say Hong Kong

• WHT rate on dividends is 5% under the China/HK treaty vs 10% (no treaty)

• Additional WHT of 5% is a real tax cost

• Whether and when the additional 5% is creditable for US tax purposes:

- will the US IRS allow the additional 5% WHT paid as a foreign tax credit?- timing of claiming credit depends on the US foreign tax credit position, and whether dividends flow back to the US

• To avoid creating a bad precedent for future dividend payments

-


China - Beneficial Ownership• Historical Structure – Investment holding vs. Operating company

• Structure has generally been acceptable for treaty purposes provided Investment Holding Co is tax resident in that particular country

• Shift towards having Substance in Holding Companies

• Some local tax bureau applies the Circular 601 requirements rather strictly

• Ignoring factors such as:

- business reasons for estabishing the Holding Company - Holding Company was established a long time ago- Holding Company holds multiple investments in China

• Is the application of the rules 601 being fair or over-reaching?


China - Beneficial OwnershipPractical considerations to mitigate the risk of denial of treaty benefit –

• Ensure the recipient qualifies as a “resident” for treaty purposes

• Meet basic substance requirements

- Physical local office- Local directors, majority local residents- Locally held board meetings- Locally based employees - Sufficient capitalization- Local bank account- Locally maintained books and records- Some form of business activities (or have Operating Co to invest into China)

• Good relationship with the local tax bureau & regular communications help


India – Beneficial Ownership• ‘Beneficial Ownership’ under proposed GAAR will be questioned:

– Corporate structure maybe disregarded– Treaty benefits denied– Place of residence and/or situs of an asset can be reassigned

• Authority of Advance Rulings has recently upheld the Mauritius tax treaty benefit in the case of Ardex Investments Mauritius Ltd

• Recently the Bombay High Court has in the case of Aditya Birla Nuvo Ltd held that Mauritius entity was only a ‘permitted transferee’ of its US parent company, hence the beneficial owner was the US parent:– Interesting thing to note is that Article 13 of Mauritius India tax treaty

doesn’t mention “beneficial owner”, it just mentions “resident” of a contracting state

GAAR WILL SHIFT THE FOCUS TO SUBSTANCE OVER FORM


South Korea - Beneficial Ownership

• Lone Star Case• Panel Discussion


Korea Supreme Court - Lone Star.

LS Fund LP Bermuda

LS Fund LPUS

Star HoldingBelgium

Star HoldingBelgium

Star Tower HoldcoKorea

Bermuda Holdco

100%

100%

100%BUYERS

Singapore


Supreme Court Decision• Main Issue: Whether the Korea-US Tax Treaty instead of the Korea-Belgium Tax

Treaty should apply to the transaction based on the substance over form principle under which the US limited partnership would be treated as a beneficial owner?

• Decision: Star Holdings did not engage in any ordinary business activities in Belgium and was inserted solely for tax avoidance purposes (i.e., the claim the capital gains block) with regard to the investment in Korea. Therefore, Star Holdings was not the "seller", in substance, under the Korea-Belgium Tax Treaty since Star Holdings only acted as a nominal party to the transactions in Korea solely for the benefit of the original investors who should be treated as the real parties to the concerned transactions in Korea

• New Korea WHT Regime.


Secondary Issue: US LP is NOT a Pass Through

• Issue: whether individual income tax was due from the the limited partnerships, (i.e. not treating the plaintiffs as foreign corporations under the Corporate Income Tax Act)?

• Decision: a US limited partnership under the US law is a for-profit organization which operates funds with its own investment purposes and holds separate assets distinguished from its owners', and thus should be treated as an entity separate from its owners with its own rights and duties.

• Therefore, a US limited partnership should be taxed as a foreign corporation under the Corporate Income Tax Act.


Foreign investor

INDONESIA

HOLDING

Tax treaty benefits under Indonesia’s tax treaties?

Indonesia – Beneficial Ownership


Indonesia Tax Regulations

Regulations 61 and 62 (November 2009) Regulations 24 and 25 (April 2010) Tax form and questionnaire – DGT1


Indonesia Tax Regulations

Regulation 61 deals with form procedures for claiming tax treaty protection

Regulation 62 deals with the substantive conditions for tax treaty benefits

Updated Regs 24 and 25 are a relaxation of Regs 61 and 62


Scope of the Indonesian Tax Regulations Payments of income where the tax treaty

requires the recipient to be the Beneficial Owner Dividends Interest Royalty payments Service fees Rental fees

Not: Business Profits article cases Not: capital gains


No DTA if ‘abuse’

Economic benefit is with someone else

Economic substance is different from legal

There is no economic substance

Cannot satisfy the safe harbour tests

Art. 4(2) Safe harbour tests which consider a party not to abuse the DTA

Regulation 62


Indonesia – Safe Harbors Listed companies whose shares are traded

regularly Banks/financial institutions Companies who satisfy the following

conditions: Not created for Indonesian tax treaty reasons Management: adequate authority to make decisions Employees Active business The income is ‘subject to tax’ in country of recipient Not more than 50% of the Indonesian income will be paid to another

party under an obligation


General Anti-Abuse Legislation

■India: GAAR to limit treaty benefits

■China: circulars 81, 601 and 698 issued in 2009. Article 47.

■Indonesia: article 18 of the Income Tax Law, regulations 61 and 62 issued in 2009 and updated in 2010 to limit treaty benefits. Disclosure requirements to obtain treaty benefits

■Australia: Draft Determination on access to treaty benefits. ATO pursuing a recent disposal by a PE fund through the courts

■South Korea: in 2005 with International Tax Circular Anti-Treaty Shopping measures & blacklist tax legislation. New Withholding Tax Regime.

■Japan: revising tax treaties to include Limitation of Benefits and anti-abuse provisions


India General Anti Avoidance Rule (GAAR).Main purpose or one of the main purposes of an arrangement is to

obtain a tax benefit

AND

Not at arms length

Misuse/abuse of tax provisionsOR

Lacks commercial substanceOR

Not for bonafide purposesOR

Impermissible Avoidance Arrangement

The Consequences could be ..... Next page

BURDEN OF PROOF IS ON THE TAX PAYER


India General Anti Avoidance Rule (GAAR).Consequences if an arrangement is Impermissible

Avoidance Arrangement

Look through and disregard any corporate

structure

Denial of tax treaty benefit

Recharacterize equity-debt,

income-expenses

Disregard/ Recharacterize

whole or part of the arrangement

Reallocate amongst the parties accrual/receipt of capital,

revenue, expenditure, deduction, etc.

Place of residence, situs of an asset or transaction can be

reassigned


Asia Transfer Pricing Regimes

• Before 2006 – Japan, Korea, India and Australia

• Now – only Philippines is yet to issue (final) transfer pricing guidelines


Nature of transfer pricing enforcement

• Legislating the arm’s length standard for related party transactions (Hong Kong remains an exception)

• Empowerment of tax authorities to adjust non-arm’s length transactions

• Transfer pricing specific penalties (vis-a-vis general tax penalties)

• Transfer pricing disclosures that form part of the annual income tax return filing (used for tax audit selection purposes)

• Transfer pricing documentation requirements• Dedicated transfer pricing teams who perform transfer

pricing targeted audits.


More Recent Developments• Refinements to transfer pricing regimes to address decisions of the

courts (e.g. Australia and India)• New or revised transfer pricing information disclosure forms (e.g.

Australia, Malaysia, Indonesia and Thailand)• Move to introduce procedures for Advance Pricing Agreements or

“APAs” (e.g. Indonesia, Hong Kong and India)• More resources devoted to transfer pricing by the tax authorities

(e.g. Australia and China)• Increased sharing of knowledge and information between the tax

authorities • Clearer transfer pricing guidance provided at the OECD level as has

been seen with the update to OECD Transfer Pricing Guidelines to address comparability and business restructuring and the continued work on intangibles.


Overall Observations on Asia TP• Transfer pricing continues to be a key focus for tax authorities in

Asia• While there are increased transfer pricing compliance requirements

and a continued tax audit focus, there is no uniform approach to transfer pricing in Asia. This makes it hard from a tax management perspective and increases the risk of economic double taxation

• There is need to set appropriate transfer pricing policies, based on facts, both of which need to be reviewed at appropriate junctures

• While there may be challenges doing so, there is also a need to be prepared to change a transfer pricing policy if it is no longer supported by the facts. This is particularly true of policies that were set at a time in which transfer


Where to Establish Asia Funds?

Hong Kong versus

Singapore


Hong Kong versus Singapore

0.0% 10.0% 20.0% 30.0% 40.0% 50.0%

Hong Kong

Singapore

Taiwan

Malaysia

China

Thailand

Japan

India

16.5%

17.0%

17.0%

25.0%

25.0%

30.0%

41.0%

42.2%

|Both have low corporate tax rates


Hong Kong versus SingaporeHong Kong vs. Singapore

Tax system Pure Territorial Quasi-territorial

Corporate tax rate 16.5% 17%(Partial exemption scheme for first SGD 300,000)

Income received All foreign-source income is exempt All foreign source income is exempt unless remitted to Singapore; there are foreign exemption provisions for foreign-dividends, branch profits and service income, subject to conditions

Capital gain Exempt Exempt

Withholding tax Dividends: None

Interest: None

Royalties: 4.95%/16.5%

Dividends: None

Interest: 15%

Royalties: 10%

Tax incentives Few Many

Both have attractive taxation systems


Hong Kong

vs. Singapore

· In 2009, only 5 comprehensive income tax treaties

·But signed 12 new tax treaties in 2010-12

2003 2005 2006 2007 2008 2010

12

10

8

6

4

2

0

·Signed 5 new treaties in 2010

· 63 comprehensive income tax treaties in force treaties in force

Hong Kong’s Tax Treaty Network


Hong Kong’s Tax Treaty Network

6 Copyright © 2010 Deloitte Development LLC. All rights reserved.

• Rapidly expanding treaty network:– 11 treaties signed in 2010-11:

– 14 treaties currently under negotiation or awaiting ratification:

• Updating “Exchange of Information” articles in existing treaties


Tax Treaty Comparison - JapanIncome Item Hong Kong Treaty Singapore Treaty

Dividends 5% (for 10% owners), but low rate is N/A to dividends paid by a Japan TMK

5% (for 25% owners) and low rate is applicable to dividends paid by a Japan TMK

Capital Gains Yes, but not for RPHCo stock gains

Yes, including RPHCo stock if ownership less than 25%

Other Income No Yes

Interest 10% 10%

Remittance Requirement

No Yes


Hong Kong Fund Taxation • Hong Kong Funds Taxation

– Full territorial system and no dividend WHT – Hong Kong Source Profits includes “Hong Kong profits/income”

• Taxation of the Offshore Fund– Offshore Funds historically had Agent PE risk from HK based fund manager– Central management and control test in Hong Kong– Exemption from HK profits taxation for specified transactions– Specific transactions – traded securities, but maybe not private transactions or debt

• Taxation of Onshore Fund– Full taxation – no exemption

• Taxation of the Fund Manager• Application of HK Tax Treaties to Offshore Funds managed by HK

Fund Managers


Singapore Fund Taxation• Singapore Funds Taxation

– Semi-territorial system and no dividend WHT

• Taxation of the Offshore Fund– Offshore Funds historically had Agent PE risk from Singapore based fund

manager– Exemption from profits taxation for specified transactions– Specified transactions – very broad

• Taxation of Onshore Fund– Exemption from profits taxation for specified transactions– Specified transactions – very broad

• Taxation of fund manager• Application of Singapore Tax Treaties to Offshore Funds

managed by Singapore Fund Managers


Hong Kong vs Singapore Funds: Panel Discussion

• What tax factors favor Hong Kong or Singapore as a Fund location?

• What non-tax factors favor Hong Kong or Singapore?• What is degree of assistance you believe we can get

from the Singapore Competent Authority in a treaty covered dispute?

• Future trends?


Questions?


Thank you• For a soft-copy of the PPT presentation, please contact

the Moderator, Eric Roose: [email protected]

Your Panelists:

• Pieter de Ridder [email protected]• Amit Gupta [email protected]• Michael Velten [email protected]• William Thomson [email protected]

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