1. C h a l l e n g e U s

2. Panel discussion on the UN Model Convention Chairman: Mr. G. E. Veerabhadrappa, Chairman, ITAT Speakers: Mr. Pramod Kumar, Member, ITAT Prof. Roy Rohatgi Mr. T. P. Ostwal Ms. Shefali Goradia, Partner, BMR Advisors IFA, Mumbai July 6-7, 2012

3. All rights reserved History of the UN Model Convention 1967: Economic and Social Council of the UN requested Secretary-General to set up an ad hoc group comprising experts and tax administrators nominated by Governments, but acting in their personal capacity, both from developed and developing countries to explore ways and means for facilitating the conclusion of tax treaties between developed and developing countries and formulation of guidelines and techniques 1979: Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries was published 1980: The United Nations Model Double Taxation Convention between Developed and Developing Countries was published December 1997: The Eighth Meeting of the Group of Experts held in Geneva established a Focus Group to proceed with the revision and update of both the UN Model Double Taxation Convention and the Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries. | 3Panel discussion on the UN Model Convention

4. All rights reserved History of the UN Model Convention 1999: Amended and consolidated draft of the UN Model Convention was adopted 2000: Examination by Steering Committee 2001: Revised UN Model Convention published after taking into account globalization and changes to international tax policies 2011: UN Model Convention updated | 4Panel discussion on the UN Model Convention

5. All rights reserved Salient amendments in the 2011 UN Model Convention Amendment to Article 25 (Mutual Agreement Procedure) providing for mandatory binding arbitration when a dispute arising under a treaty cannot be resolved under the usual Mutual Agreement Procedure (MAP) New version of Article 26 (Exchange of Information) which confirms and clarifies the importance of exchange of information under the UN Model New Article 27 (Assistance in Collection of Taxes) concerning assistance in the collection of taxes, which provides the rules under which states may agree to assist each other in tax collection, along the lines of the corresponding provision in the OECD Model Tax Convention Modified Article 13 (Capital Gains) dealing with taxation of capital gains, which now addresses possible tax evasion Updated commentary to Article 5 (Permanent Establishment), addressing cases where countries wish to delete Article 14 (Independent Personal Services) and deal with income, formerly dealt with by Article 14, in Articles 5 and 7 (bringing it in line with the OECD Model, in which Article 14 was already deleted in 2000) | 5Panel discussion on the UN Model Convention

6. All rights reserved Spectrum for taxation of services under the UN MC Article 14 - Independent Personal Services Article 15 – Dependent Personal Services Article 18 – Pensions & Social Security payments (Alternative A ) Article 5(6) and 7 – Insurance Article 16 – Director’s fees Article 17 – Artistes and Sportspersons Article 19 – Government service Article 21 – Other Income Article 8 – Shipping (Alternative A) Articles 5(1) and 5(2) and 7 – Business Profits Article 5(3)(a) and 7 – Construction and related services Article 5(3)(b) and 7 – Furnishing of services (including consultancy services) Article 18 – Private Pension payments Residence country taxation Panel discussion on the UN Model Convention| 6 Source country taxation Threshold based taxation Permanent Establishment taxation Taxation of fees for technical services not dealt with in the UN MC or the commentary to the UN MC

7. All rights reserved General principles for taxation of services Source principle Threshold principle Base erosion principle Enforcement principle Net basis of taxation principle Allocation of taxing rights amongst the following:  Country of residence of recipient  Country where the activity is performed (physical performance)  Country where the payment is received  Country where the services are used  Country where the payer is a resident | 7Panel discussion on the UN Model Convention

8. All rights reserved Taxation of fees for technical services Increased cross-border flow of services High value transactions Recipient of services constitutes a source Technical fees are tax deductible in the source country Possible characterizations under the current UN MC Business Profits  Basic PE  Construction PE Independent Personal Services Other income | 8Panel discussion on the UN Model Convention

9. All rights reserved Various approaches being considered Sub-committee on Services created in 2009 in the 5 th Annual Session of the United Nations Committee of Experts on International Cooperation in Tax Matters Sub-committee is mandated to address the issue of tax treatment of services in general in a broad way including related aspects and issues Sub-committee to prepare proposals for taxation of fees for technical services for consideration during the 8 th Annual Session in October 2012 The following alternatives are being considered in the context of taxation of fees for technical services  Revision to Commentary to include discussion on treatment on technical fees but no change to the MC  Revision to Commentary to include discussion and suggest alternative taxing frameworks but no change to the MC  Reduction of threshold for service PE and IPS articles  Revision to Article 12 (Royalties)  Include a separate article  Revision to Article 21 (Other Income)  Deeming subsidiary to be a PE | 9Panel discussion on the UN Model Convention

10. All rights reserved Issues / open questions Should there be a difference in the taxing framework for goods and services?  Services are intangible  Not all services will require a fixed place for rendering them  Value of services high although they could be delivered in a relatively short period of time If yes, which services should be subjected to the distinct taxing framework?  All technical services  Technical services that are ancillary or subsidiary to the application  Technical assistance  Know-how (‘Make available’ type of services)  Show-how  Non-technical services (commercial, marketing, management, financial, etc) and related consultancy services  Electronic services Should entities who are in the business of rendering services be covered by this taxing framework? | 10Panel discussion on the UN Model Convention

11. All rights reserved Issues / open questions How can the term ‘technical services’ be defined?  Based on the definition under the Act  Based on the India-US tax treaty?  OECD 2002 Report:  Technical fees often refer to a consideration for any service, other than to an employee of the person making the payments, of a technical, managerial or consultancy nature  Technical services are specialist skills or technical knowledge generally based on applied science or craftsmanship required to provide the service  A managerial service would involve functions related to how a business is run as opposed to functions involved in carrying on that business  Consultancy services are advisory services generally provided by a consultant or professional person for a fee  The use of technology to develop the service or deliver it does not make it a technical service How should technical services be taxed?  Gross basis  Net basis  How should mixed contracts be dealt with? | 11Panel discussion on the UN Model Convention

12. All rights reserved Issues / open questions Where on the spectrum discussed earlier should the taxation of technical services lie, considering the following parameters?  Allocation of taxing rights: Developed nations versus developing nations  Use of factors of production in the source state  Base erosion  Role of transfer pricing  Reciprocal cross-border flow of services | 12Panel discussion on the UN Model Convention