International Tax – The Emerging Landscape UN Model Convention – Present and Proposed Work

Current Membership ( ) "Developing country# experts (15)"Developed country# experts (10) Morocco Belgium* Egypt Italy* South Africa Spain* Nigeria Germany* Ghana Senegal Norway* Switzerland* China Malaysia United States* Republic of Korea* New Zealand* India Japan* Pakistan Bulgaria Barbados # Though nominated by countries, Chile* Members serve in their own Mexico* capacity Brazil * Denotes OECD Member July 7, UN Model Convention – Present & Proposed Work T.P.OSTWAL & ASSOCIATES

Special features of UN Model – Islamic financing issues addressed. – Rate not specified. Article 11 (Interest) July 7, 2012 UN Model Convention – Present & Proposed Work T.P.OSTWAL & ASSOCIATES 3 Option to have Article 14 Dispute Resolution – Option of Arbitration

UN Model Convention Present work -In relation to services separate sub-committee is presently working on -Various options are under debate (eg: PE, Gross Taxation, FTS, etc.) -Manual for Negotiation of Tax Treaties for developing countries July 7, UN Model Convention – Present & Proposed Work T.P.OSTWAL & ASSOCIATES

Paragraph 3 of the UN Model Commentary on Article 9 Old Mandate: – "3. With regard to transfer pricing of goods, technology, trademarks and services between associated enterprises and the methodologies which may be applied for determining correct prices where transfers have been made on other than arm’s length terms, the Contracting States will follow the OECD principles which are set out in the OECD Transfer Pricing Guidelines. These conclusions represent internationally agreed principles and the Group of Experts recommend that the Guidelines should be followed for the application of the arm’s length principle which underlies the article." July 7, Present Work UN Model Convention – Present & Proposed Work T.P.OSTWAL & ASSOCIATES

Paragraph 3 of the UN Model Commentary on Article 9 Now it will: – The records of the 2011 Annual Session of the Committee will note that the recommendation may need to note that the Guidelines are for guidance only and that three Members have expressed reservations. – But acknowledge agreement on Arm’s Length and – Makes clear no change to direction of UN Transfer Pricing Manual July 7, Present Work UN Model Convention – Present & Proposed Work T.P.OSTWAL & ASSOCIATES

Subcommittee on Transfer Pricing – Practical Issues New Mandate: – develop a practical manual on transfer pricing, based on the following principles: a) That it reflects the operation of Article 9 of the United Nations Model Tax Convention, and the Arm’s Length Principle embodied in it, and is consistent with relevant Commentaries of the UN Model [i.e. "recommendation" of following the OECD Guidelines]. b) That it reflects the realities for developing countries, at their relevant stages of capacity development. c) That special attention should be paid to the experience of other developing countries [i.e. South- South sharing of experiences]; and d) That it draws upon the work being done in other fora. July 7, Present Work UN Model Convention – Present & Proposed Work T.P.OSTWAL & ASSOCIATES

Transfer Pricing Manual Complete draft manual for adoption to the 2012 Tax Committee Annual Session (October 15-19). Integrated into renewed UN (and hopefully other) capacity building efforts. Working Drafts on our Website – comment welcome. July 7, Present Work UN Model Convention – Present & Proposed Work T.P.OSTWAL & ASSOCIATES

Transfer Pricing Manual Areas of focus: – What sort of approach might be appropriate for a developing country at its particular stage of development, in line with its own sovereign priorities? – TP should be understood as a journey – how should it be planned – a staged approach? initial focus areas? – Integration with other aspects, e.g. general investment promotion policy. – Can arm’s length principles (ALP) approach be addressed in a way that better works for Developing Countries(especially by allowing focus of limited resources on areas of greatest concern at a point in time, and by reducing levels of data seeking and crunching required for each individual case) and still be ALP? – How do we most fairly deal with the imprecision and complexity of ALP and distribute its burdens? July 7, Present Work UN Model Convention – Present & Proposed Work T.P.OSTWAL & ASSOCIATES

Transfer Pricing Manual On going project: - Sub-Committee Meetings held in Kuala Lampur, New Delhi, Tokyo, Johannesburg & Shanghai -Work is divided in following ten chapters: -Chapter 1 Introduction -Chapter 2 Business Framework - Chapter 3 Legal Environment -Chapter 4 Capability Building -Chapter 5 Comparability -Chapter 6 TP Methods -Chapter 7 Country Practices -Chapter 8 Documentation -Chapter 9 Audits and Risk Assessment -Chapter 10 Dispute Resolution -Glossary -Annexures July 7, Present Work UN Model Convention – Present & Proposed Work T.P.OSTWAL & ASSOCIATES

Major Differences -Reference to formulary apportionment & fixed margin method not acceptable to majority members -Importance given location savings, locational saving advantages, market premium and how measure them -Give importance to bargaining power and its control over risk – Fully explained through examples -Treatment of losses is dealt with in a more practical manner -Like India, Sixth Method is also proposed -Arbitration in Dispute Resolution is given as an option July 7, Present Work UN Model Convention – Present & Proposed Work T.P.OSTWAL & ASSOCIATES

Proposed Work -Intangibles -Business Restructuring -Services -Cost Sharing will be continuing July 7, UN Model Convention – Present & Proposed Work T.P.OSTWAL & ASSOCIATES

THANK YOU T.P. Ostwal & Associates Chartered Accountants 4th FLOOR, BHARAT HOUSE, 104 MUMBAI SAMACHAR MARG, FORT, MUMBAI Tel No.: Fax No.: MOBILE THANK YOU T.P. Ostwal & Associates Chartered Accountants 4th FLOOR, BHARAT HOUSE, 104 MUMBAI SAMACHAR MARG, FORT, MUMBAI Tel No.: Fax No.: MOBILE July 7, UN Model Convention – Present & Proposed Work T.P.OSTWAL & ASSOCIATES