Dispute Resolution: How to obtain reasonable outcomes 8-9 May 2013 Chair: Mukesh Butani – Taxand India Panelists: Chinapat Vissutipat – Taxand Thailand David Weisner – Citigroup Gokul Chaudhri – Taxand India

1.Developments on Managing Disputes 2.Administrative & Judicial Litigation: Fresh Rules 3.New Methods to Avoid the Courtroom 4.Strategies for Jurisdictions where Court is Most Likely 5.Key Court Cases and Learnings for Taxpayers 6.Taxand’s Take 7.Key Contacts & About Taxand Contents

Developments on Managing Disputes 8-9 May 2013

India Protracted litigation straining Court infrastructure Retrospective amendments unsettling settled positions Special courts/ bench, e-courts for tax disputes, international tax & transfer pricing Introduction of APA Introduction of Dispute Resolution Panel Advance Rulings open to challenge Developments on Managing Disputes 1 3

1 4 Other key developments in Asia Targets of tax collection not consistent with economic reality Ever increasing data requests even on simple transactions

Developments on Managing Disputes 1 5 Thailand Trend of current tax collection Deficit government budget Incremental tax disputes Administrative level: Tax collectors Judicial level: tax court and Supreme Court Alternative tax dispute resolution Conciliation process in tax court No tax arbitration methods No associate judge

Administrative & Judicial Litigation: Fresh Rules 8-9 May 2013

India Strict rules of evidence Effectiveness of ADRs (AAR/MAP/APA) Effectiveness of DRP Planning, preparation and legal counsels/ firm’s advice Impact of GAAR Administrative & Judicial Litigation: Fresh Rules 7 2

Experience in other countries: Australia – New transfer pricing rules Australia – Risk rating taxpayers Korea – “Selling” of APAs 8 2 Administrative & Judicial Litigation: Fresh Rules

9 2 Thailand Tax assessment: No burden of proof Burden of proof in court: Shift to taxpayer Flexible court hearing: Continuing procedures Conciliation on facts: Not on tax laws Anti-avoidance rule: TP/TC/TS/CFC/GAAR Administrative & Judicial Litigation: Fresh Rules

New Methods to Avoid Courtroom 8-9 May 2013

New Methods to Avoid the Courtroom 11 3 New Methods to Avoid the Courtroom Alternative forms of dispute resolution Arbitration Conciliation Mediation MAP APA Settlement

New Methods to Avoid the Courtroom 12 3 New Methods to Avoid the Courtroom India Is MAP an option? Reality check: Roughly 150 – 200 MAPs between India and US only on TP Impasse between Indian and US CA for past 12 – 18 months India’s views on OECD and UN chapter on transfer pricing has increased the anxiety levels APA – A smooth beginning so far Guidelines notified on August 31, 2012 Encouraging response: around 150 pre-filings

3 13 New Methods to Avoid the Courtroom Country specific experiences Australia – Franchise issues Korea – MAP

Thailand Negotiation: Administrative level Facts and business knowledge Settlement to reduce penalty and surcharge Avoid wasting time and lawyer’s cost No way out after tax assessment Unable to negotiate during tax appeal Conciliation in tax court: Only facts issue 14 3 New Methods to Avoid the Courtroom

Strategies for Jurisdictions Where Court is Most Likely 8-9 May 2013

Strategies for Jurisdictions where Court is Most Likely 16 4 Strategies for Jurisdictions where Court is Most Likely Timely expert advice and engaging counsels Preparing for uncertainty and dispute life cycle Strategies for mitigating interest and penal exposure Keeping management informed – governance issues Endeavor for early disposal Media management

4 Strategies for Jurisdictions where Court is Most Likely 17 Strategies for Jurisdictions where Court is Most Likely India Evaluation of alternative remedies Strategy for stay of demand Avoiding multiple parallel proceedings Mitigating penalty exposure – robust documentation and disclosure Filing caveats Tribunal to state High Court and Supreme Court – facts vs substantial question of law

4 Strategies for Jurisdictions where Court is Most Likely 18 Strategies for Jurisdictions where Court is Most Likely Other country experiences Australia – Choosing a law firm wisely. Law firms considered “intermediaries”. Korea – Keeping it simple

4 19 Strategies for Jurisdictions where Court is Most Likely Thailand Litigation team Appropriate tax lawyer / tax litigator / tax advisor Supporting tax team in the courtroom Tax appeal is not a tax deferral Pay tax first: To reduce monthly surcharge Refund tax paid after winning the case: With interest 1% per month (12% per year) Burden of proof Documentation with reasonable grounds

Key Court Cases & Learnings for Taxpayers 8-9 May 2013

Key Court Cases & Learnings for Taxpayers 21 5 Key Court Cases & Learnings for Taxpayers India Sanofi Pasteur Holding (Andhra Pradesh HC Ruling) Nokia Networks OY (Delhi HC Ruling) LG Electronics (Special Bench Delhi Tribunal Ruling)

Sanofi Pasteur Holding Court re- affirms principle of legitimate tax planning within four corners of law – Vodafone followed No unilateral Treaty override Treaty shopping – sighted as an additional factor to attract foreign investments Importance of underlying commercial substance Impact of GAAR in treaty interpretation 5 22 Key Court Cases & Learnings for Taxpayers

Nokia Networks OY Software payments not taxable as royalty under treaty Acknowledged distinction between “copyright” & “copyrighted article” Retrospective amendments cannot be read into treaty Matter sub-judice before Supreme Court 5 23 Key Court Cases & Learnings for Taxpayers

LG Electronics TP adjustment on excessive AMP upheld Factors – need for proper comparables, FAR profile, business model, business and product life cycle etc Battle to continue before multiple forums MNC’s in India need: to be more cautious while undertaking FAR analysis / selection of comparables to maintain proper documentation incorporating detailed functional analysis to review their current arrangements with AEs on AMP 5 24 Key Court Cases & Learnings for Taxpayers

Other countries’ experiences: Australia – TPG case Australia - Project Wickenby cases continues Korea - Supreme Court endorses application of domestic “substance over form” principle to deny tax treaty benefits Korea – Look out for cases on management service fees 5 25 Key Court Cases & Learnings for Taxpayers

26 5 Thailand Pizza Hut Inc. (Marketing expense of franchise) ABB (Subsidy as a deemed dividend) NEC (Share premium as a subsidy) Key Court Cases & Learnings for Taxpayers

27 5 Key Court Cases & Learnings for Taxpayers Pizza Hut Inc. (Marketing expense of franchise) Controlling power of franchisor in marketing collateral Marketing costs linked to gross sales and paid by franchisee directly to 3 rd party suppliers Withholding tax on marketing (franchise) expense 15% on marketing costs paid / Late penalty and surcharge

28 5 Key Court Cases & Learnings for Taxpayers VAT on marketing (franchise) expense 7% on marketing costs paid / Late penalty and surcharge Tax interpretation by the Supreme Court Tax avoidance: Substance over form

29 5 ABB (Subsidy as a deemed dividend) Key Court Cases & Learnings for Taxpayers

30 5 Key Court Cases & Learnings for Taxpayers NEC (Share premium as a subsidy) NEC Thailand: 67% of total shares owned by NEC Engineering Thailand and 33% owned by NEC Japan Retained loss with negative NBV of shares Increase capital of THB 410,000,000 NEC Japan: 1 preference share (par 1,000) with share premium (409,999,000) Central Tax Court’s view: Substantial transaction: Subsidy

Taxand’s Take 8-9 May 2013

Taxand’s Take 32 6 Taxand’s Take Choice of Counsels / law firms for expert advice and representation Planning ahead Efficacy of alternate dispute resolution mechanisms Strategise how to approach under APAs Effective housekeeping – robust documentation Gearing up for changing tax landscape

Key Contacts Key Contacts & About Taxand 33 7 Mukesh Butani Taxand India E. T David Weisner Citigroup E. T Chinapat Visuttipat Taxand Thailand E. T Gokul Chaudhry Taxand India E. T

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Global Coverage Key Contacts & About Taxand 35 7 From 9 to 48 countries in just 7 years 59 ITR awards won since % recommended in World Tax 2012 ArgentinaIrelandPuerto Rico AustraliaItalyRomania AustriaJapanRussia BelgiumKoreaSingapore BrazilLuxembourgSouth Africa CanadaMalaysia Spain ChileMalta Sweden ChinaMauritiusSwitzerland ColombiaMexicoThailand CyprusNetherlandsTurkey DenmarkNorwayUK FinlandPakistanUkraine FrancePanamaUSA GermanyPeruVenezuela GreecePhilippines IndiaPoland IndonesiaPortugal

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