1 Steve Towers /David Weisner/Kristy Ton May 9 – 10, 2012 International Tax Review Asia Tax Forum 2012 International Tax Developments: The Cross-Border Issues Making a Difference

©2012 Deloitte Global Services Limited 2 Agenda What hope for tax reform in the US? OECD developments: beneficial ownership, PE, intangibles 2011 Update to the UN Model Treaty and Commentary FATCA – It’s getter closer. What taxpayers need to know Recent international tax cases: the global top 10 Q & A

©2012 Deloitte Global Services Limited Elections Economy is driving election outcomes Economic issues driving 2012 elections  Only Roosevelt re-elected (1936) with unemployment rate >8.3%  Only Eisenhower re-elected (1956) with GDP growth <2% Top Five Issues of Concern to Voters % of Adults Surveyed Source: NBC/WSJ Survey, March 3, % 10% 20%

©2012 Deloitte Global Services Limited 4 Obama approval rating on the economy has improved  Obama had a negative 18 point rating in the fall  It’s currently a negative 7 point rating % of Adults Surveyed 2012 Elections Obama’s performance on the economy is up Source: NBC/WSJ Survey, April 2012 Obama Performance on the Economy

©2012 Deloitte Global Services Limited 5 Politicians usually in trouble with disapprovals > approvals Last August, Obama was looking like a “dead duck” (-10.2%) Today, he has a positive 1.2% rating Elections Obama’s approval ratings have improved significantly Obama Approval/Disapproval Average Ratings

©2012 Deloitte Global Services Limited 6 Romney out-polled Obama slightly last October (+0.5%) Now Obama is out-polling Romney (+3.1%) Charlie Cook’s assessment: Obama wins…50/50 race Elections Obama’s re-election looks likely today, but it’s a 50/50 race Obama vs. Romney, Average Polling Data

©2012 Deloitte Global Services Limited 7 Leadership in both Houses suffer with weak majorities Huge ideological struggle for elections ‒ Republican strategy: cut spending, no tax increases, rollback regulation ‒ Democratic strategy: grow jobs, protect entitlements, tax the wealthy Conventional wisdom/political analysts projections: ‒ House: Republican majority shrinks by 15 to 20 seats, but remains under GOP control ‒ Senate: Democrats lose 3 to 5 seats, but Republican majority 50/50 competitive chance 2012 Elections Election dynamics in Congress Party Alignment in the 112 th Congress House *Senate Democrats19051 Republicans24247 Independents (caucus with Ds)02 Margin of Majority ControlRepublicans +24Democrats +2 * 3 vacancies

©2012 Deloitte Global Services Limited % likely Obama wins (average of last eight polls) 60% likely GOP maintains majority in the House 50% likely that GOP takes majority in the Senate Scenario Probability (if election held today) Obama wins and GOP wins both Houses of Congress26% Obama wins and Congress remain under divided control (current situation) 34% Romney wins and Congress remains split or shifts to Democratic control 25% GOP or Democrats sweep control of Presidency and Congress 15% 2012 Elections Election dynamics in Congress

©2012 Deloitte Global Services Limited 9 GOP supports a territorial system with a low corporate tax rate, which Democrats oppose Other issues which may impact tax reform, i.e. long-term budget deficits, unemployment, environmental. If Obama wins and Congress is split or under GOP control  Obama will propose Tier 3 and protect it against a Republican attack  Congressional GOP will press Obama for a territorial system with a low corporate rate If Romney wins and Congress is split or under Democratic control  Romney will drive for a territorial tax system with a low corporate rate that Senate Democrats and GOP House Members will support  But, Romney will kill Tier 3 Unified control by one party, is unlikely 2012 Elections Impact on US Tax Legislative Reforms Note: LEV III reduces emissions from LD vehicles for MY17-25 by 70%. Tier 3 will nationalize LEV III and cut sulfur content in gasoline from an average of 30ppm to 10ppm

©2012 Deloitte Global Services Limited 10 Budget Control Act set a course to reduce the deficits, assuming expiring provisions are not extended If all the expiring provisions are extended, the deficits explode by factor of 4 Deficits and Debt Impact of alternative scenarios on deficits as percent of GDP Deficit Averaged -2.8% Annually FY Percent of GDP -8.7% -1.2% -3.0% -5.9% Source: CBO Deficit Projections Under Alternative Scenarios

©2012 Deloitte Global Services Limited 11 Budget Control Act reduces debt/GDP ratio by 16%, assuming expiring provisions are not extended  Assumption is flawed  Debt/GDP ratio explodes from 73% to 93% if provisions are extended Impact: enormous pressure to increase taxes Debt Projections Under Alternative Scenarios Percent of GDP Debt Averaged 37% Annually FY % Source: CBO Deficits and Debt Impact of alternative scenarios on debt as percent of GDP 76.3.% 93.2% 61.3%

©2012 Deloitte Global Services Limited 12 Tax Reform Tax reform will be discussed in context of deficit reduction and will be controversial  Obama/Democrats see it as a revenue raiser  Republicans see it as a way to cut tax rates and make the code more tax efficient Ways & Means Chairman Camp pushing his tax reform package ‒ Cuts the corporate rate to 25% ‒ Converts the global system to a territorial system ‒ Deems past foreign income subject to deferral repatriated and taxed at 5.25% ‒ Subjects intangibles to a 15% tax Business groups undecided on Camp proposal Tax reform likely will not be enacted before the November 2012 elections (more likely will not be settled until 2013 or later). However, Congress will need to address high-profile tax issues by year-end, including scheduled expiration of Bush 2001/2003 individual tax cuts and status of tax extenders such as CFC look-through. DANGER: deficit reduction in context of tax reform needs to raise revenue

©2012 Deloitte Global Services Limited 13 Revenues and Spending Under Budget Control Act, Percentage of GDP 15.3% 20.9% 12.2% 7.7% 12.0% 10.4% Tax Reform Deficit reduction will require increased revenue Source: CBO

©2012 Deloitte Global Services Limited 14 President Obama Business Tax Reform Framework President Obama’s Framework issued in February 2012 contained five key elements of business tax reform: 1.Broaden the base and reduce corporate tax rate from 35% to 28%. 2.Strengthen American manufacturing & innovation ‒ Increase domestic manufacturing income deduction to 10.7%, effectively reducing corporate tax rate on manufacturing income to 25% ‒ Expand, simplify and make permanent R&E tax credit ‒ Extend, consolidate, and enhance clean energy tax incentives 3.Strengthen international tax system – limit deferral of foreign earnings by imposing minimum tax on foreign earnings, tax excess IP returns and limit interest deduction on overseas investment. 4.Simplify and cut taxes for small businesses. 5.Eliminate or making permanent temporary tax provisions.

©2012 Deloitte Global Services Limited 15 House Ways & Means Chairman Dave Camp International Tax Reform Discussion Draft Reduce corporate tax rate to 25% (base broadening provisions to be determined). Shift to territorial based system ‒ 95% dividend received deduction (DRD) ‒ Subpart F inclusions on all accumulated E&P with 85% DRD. ‒ Previously untaxed earnings are taxed twice: As deemed repatriation of all accumulated E&P (85% DRD) Again when actually repatriated (95% DRD) ‒ Subpart F provisions maintained for FBCSI and FBCSvI (954(d)& 954(e); three alternatives for new subpart F categories to address base erosion – excess returns, low-tax foreign income (ETR < 10%), carrot & stick option ‒ Previously tax income rules repealed. ‒ FTCs repealed except for passive income (but not on exempted income).

©2012 Deloitte Global Services Limited 16 Territorial Tax System – Enzi vs. Camp On February 9, 2012, Senator Michael Enzi introduced an international tax reform bill (“U.S. Job Creation & International Tax Reform Act of 2012”) that adopts a territorial tax system and makes significant changes to the subpart F and foreign tax credit (“FTC”) regime. The bill has some similarities to the October 26, 2011, Discussion Draft release by House Ways and Means Committee Chairman Dave Camp (although it does not include a provision to lower the top corporate tax rate).

©2012 Deloitte Global Services Limited 17 Territorial Tax System – Enzi vs. Camp Comparison of key provisions of the participation exemption system EnziCamp DRD95% ETR on qualified dividends 1.75%1.25% Foreign taxes paid or accrued on qualified dividends No FTC or deduction Section 78 gross-upNot required One-year holding period requirement Required 10/50 companyEach 10/50 company may elect to be treated as CFC All or none 10/50 company may elect to be treated as CFC Tiered CFC structuresNo specific guidance except in the context of hybrid dividends but permanent extension of CFC look- through should produce similar effect as under Camp CFC to CFC dividends exempt from US tax to the extent 95% DRD is applicable if paid directly to 10% US shareholder

©2012 Deloitte Global Services Limited 18 Territorial Tax System – Enzi vs. Camp (Cont’d) Comparison of key provisions of the participation exemption system EnziCamp Hybrid dividends  Not eligible for 95% DRD  Hybrid dividends of tiered CFCs are treated as subpart F income  No FTC or deduction for any tax paid or accrued  Treated as US-source income N/A First-tier foreign branch Not treated as CFCTreated as CFC Deduction for foreign income derived from US-developed IP 50% deduction40% deduction provided under anti-base erosion Option C Undistributed pre earnings  Taxed under present law upon repatriation  Distributions on a first-in, first out basis  Taxed at 1.25% upon repatriation

©2012 Deloitte Global Services Limited 19 Territorial Tax System – Enzi vs. Camp (Cont’d) Comparison of key provisions of the participation exemption system EnziCamp Gain or loss on sales of foreign corporation stock  Section 1248 amount eligible for 95% DRD  Capital gain in excess of section 1248 amount taxed under current law  No deduction allowed for loss if the foreign corporation was a CFC during the 5 years preceding the sale  Sales of stock by upper-tier CFC in lower-tier CFC and electing 10/50 company – Gain: subpart F, eligible for DRD to the extent of dividend / Loss: E&P deduction disallowed  95% DRD applies to all gain recognized by US shareholder  DRD is available only if 30% or less of foreign corporation’s assets give rise to FPHCI during a 3-year testing period  Deduction for loss denied  Sales of stock by upper-tier CFC in lower-tier CFC and electing 10/50 company –Gain: subpart F / Loss: E&P deduction (as under current law)

©2012 Deloitte Global Services Limited 20 Territorial Tax System – Enzi vs. Camp (Cont’d) Comparison of key transitional provisions EnziCamp DRD70%85% ETR on deferred foreign earnings 10.5% if elect under section % (before FTC) % (upon repatriation) Foreign taxes paid or accrued FTC or deduction disallowed if elect under section 965 FTC or deduction disallowed on exempted dividends but allowed on taxable dividends Section 78 gross-upNot requiredApplicable to taxable dividends 10/50 companyNot eligible for DRDEligible for DRD Undistributed pre-2013 earnings  Section 965 election made at each CFC  If no 965 election, taxed under present law upon distribution  Distributions on a first-in, first out basis  Deemed inclusion of all accumulated deferred foreign income  PTI taxed at 1.25% upon repatriation

©2012 Deloitte Global Services Limited 21 Territorial Tax System vs. Obama’s Int’l Tax Reform Comparison of key modifications to Subpart F EnziCampObama 2013 Budget Proposals Section 956 (investment in US property) No changeRepealNo change Section 959 (PTI)No changeRepealNo change Section 954(d) (FBCSI)RepealNo change Section 954(e) (FBCSvI)RepealNo change Section 954(h) (active financing) Permanently extendSilentExtend for an additional year (to 12/31/2013 for calendar- year taxpayers) Section 954(c)(6) (look- through) Permanently extendSilentExtend for an additional year (to 12/31/2013 for calendar- year taxpayers) New subpart F categories  Low-tax foreign income (ETR <17.5%)  Qualified business income exception  Three alternatives  “excess returns” proposal w/o separate FTC basket  Low-tax foreign income (ETR<10%)  Carrot & stick option  Excess returns proposal w/ separate FTC basket  excess return = 50% mark-up over the CFC’s directly allocable costs, excl. interest and taxes  Low foreign ETR (10% floor, 15% ceiling)

©2012 Deloitte Global Services Limited 22 Territorial Tax System vs. Obama’s Int’l Tax Reform Comparison of key modifications to Foreign Tax Credits EnziCampObama 2013 Budget Proposal Section 902  Repeal 902 credits on dividends out of post E&P or pre-2013 E&P w/ section 965 election  Still relevant on dividends out of pre-2013 E&P w/o section 965 election RepealNo change Section 960Preserve w/ modification No change Section 901Allowed except w/h tax on exempted dividend No change Section 909PreserveEliminateNo change Section 78 gross-upApply to pre-2013 E&P w/o section 965 election & section 960 Apply to section 960 onlyNo change Separate FTC basketsPreserveEliminateNo change New FTC basketForeign intangible income N/AForeign base company excess intangible income

©2012 Deloitte Global Services Limited 23 Territorial Tax System vs. Obama’s Int’l Tax Reform Comparison of key modifications to Foreign Tax Credits (Cont’d) EnziCampObama 2013 Budget Proposal Cumulative tax poolsMaintain pools attributable to pre-2013 earnings w/o section 965 election EliminateRemove foreign taxes from tax pools when the associated E&Ps are eliminated Blending section 902 foreign tax pools N/A Limit 902 credits to the average rate of total foreign tax actually paid on the combined earnings of all of a group’s CFCs Allocation and apportionment of indirect expenses PreserveEliminateNo change WW interest expense allocation Accelerate the effective date to taxable years beginning 12/31/12 N/ALegislation enacted in 2009 and 2010 postpones the effective date to % taxable dividendsUS-sourceForeign-sourceN/A

©2012 Deloitte Global Services Limited 24 Territorial Tax System vs. Obama’s Int’l Tax Reform Comparison of key modifications to Foreign Tax Credits (Cont’d) EnziCampObama 2013 Budget Proposal Section 862(a)(6) (inventory purchased within US sold outside US) US- sourceForeign-sourceNo change (Foreign-source) Section 863(b)(2) (inventory produced in US sold outside US or produced outside US sold in US) US-sourcePartly US-source Partly foreign-source No change (Partly US-source Partly foreign-source) Extend section 338(h)(16) to certain asset acquisitions N/A Extend the application of section 338(h)(16) to any covered asset acquisitions (“CCA”), within the meaning of section 901(m), to prevent a seller from increasing allowable FTCs as a result of CCAs.

©2012 Deloitte Global Services Limited 25 Territorial Tax System vs. Obama’s Int’l Tax Reform Comparison of miscellaneous proposals EnziCampObama 2013 Budget Proposal Thin capitalizationSilentDisallow US net interest deduction if (1) the US corporation is overleveraged compared to the worldwide affiliated group (the “relative leverage test”), and (2) the US corporation’s net interest expense exceeds an unspecified percentage of adjusted taxable income (the “ATI test”), using section 163(j) rules. The lesser of the amounts determined under these tests is the amount disallowed. Interest disallowed could be carried forward. Limit earnings stripping by inverted companies

©2012 Deloitte Global Services Limited 26 Territorial Tax System vs. Obama’s Int’l Tax Reform Comparison of miscellaneous proposals (Cont’d) EnziCampObama 2013 Budget Proposal Treatment of partnership SilentGrant Treasury broad authority to issue regulations providing 95% DRD treatment to partnership of which US corporation own more than 10% interest. Tax gain from the sale of a partnership interest on a look-through basis by treating the sale or exchange of partnership interest as ECI to the extent the gain or loss attributable to ECI property Deferral of deduction allocable to unremitted foreign earnings N/A Defer foreign-related interest deductions until the foreign earnings are subjected to US taxation. Deductible interest = (CY dividends + subpart F inclusions) Post-86 E&Ps x (CY + deferred foreign-related interests)

©2012 Deloitte Global Services Limited 27 Territorial Tax System vs. Obama’s Int’l Tax Reform Comparison of miscellaneous proposals (Cont’d) EnziCampObama 2013 Budget Proposal Prevent the use of leveraged distributions from related foreign corporations to avoid dividend treatment N/A To the extent a foreign corporation (funding corporation) funds a second, related foreign corporation (distributing corporation) with the principal purpose of avoiding dividend treatment on distributions to a US shareholder, the US shareholder’s basis in the stock of the distributing corporation will not be taken into account for the purpose of determining the treatment of the distribution under section 301.

©2012 Deloitte Global Services Limited 28 Territorial Tax System vs. Obama’s Int’l Tax Reform Comparison of miscellaneous proposals (Cont’d) EnziCampObama 2013 Budget Proposal Limit income-shifting through outbound transfer of intangibles Remove the incentive for moving IP offshore by providing 50% deduction for foreign income derived from US-developed IP under the territorial system Remove the incentive for moving IP offshore by providing 40% deduction for foreign-source intangible income under anti-base erosion Option C under the territorial system Amend section 367, 936 & Add workforce-in-place, goodwill & going concern value to the list of IP - Provide IRS with authority to value transfer of IP to achieve a more reliable result or a realistic alternative Provide tax incentives for locating jobs and business activity in the US and remove tax deductions for shifting jobs overseas N/A Create a new general business credit equal to 20% of the eligible expenses paid or incurred in connection with insourcing a US trade or business while disallow deductions for expenses paid or incurred in connection with outsourcing a US trade or business.

©2012 Deloitte Global Services Limited 29 Tax Reform Comparison of Tax Reform Proposals Proposals House Republican (Camp) Senate Republican (Enzi) Governor Romney (R) President Obama (D) Corporate tax rate25%35%25%28% AMTTBD Repealed InternationalTerritorial Minimum ETR on foreign earnings Base Erosion Principle3 options: “excess returns” proposal Low-tax foreign income (ETR <17.5%) TBDCFC income not subject to min tax Low-tax foreign income (ETR<10%) Qualified business income exception Carrot & stick option Timing of taxationImmediately under Subpart F TBDImmediately under Subpart F

©2012 Deloitte Global Services Limited 30 Agenda What hope for tax reform in the US? OECD developments: beneficial ownership, PE, intangibles 2011 Update to the UN Model Treaty and Commentary FATCA – It’s getter closer. What taxpayers need to know Recent international tax cases: the global top 10 Q & A

©2012 Deloitte Global Services Limited 31 OECD developments : permanent establishment 12 October 2011 : proposed changes to Commentary on Art. 5 issued for public comment (by 10 February 2012) Sub-group of Working Party 1 Final changes to be included in next update of the Model Convention & Commentary (scheduled 2014) Included ̵ “At the disposal” : principles & factors ̵ Contract manufacturing (but no reference to toll manufacturing) ̵ Home office ̵ Secondment : cross-reference to Commentary on Art. 15(2) (but no reference to Art. 5(3)(b), UN model treaty) ̵ Examples elaborating on existing Commenta ry Not Included ̵ Logistics company’s warehouse ̵ Cloud computing ̵ Situations in which subsidiary’s employees could be deemed to be employees of parent (Rolls Royce) ̵ Express rejection of “Sidney Robert’s view” re agency PE 1 ¹ Sidney I. Roberts, “The Agency Element of Permanent Establishment : The OECD Commentaries from the Civil Law View”, 1993/ 9&10 Intertax.

©2012 Deloitte Global Services Limited 32 OECD developments : beneficial ownership Current OECD Commentary on Arts. 10 (dividends), 11 (interest), and 12 (royalties) explains the meaning of “beneficial owner” in terms of two alternative disqualifying conditions –Agency or nominee –Conduit company acting like mere fiduciary or administrator First disqualifying condition (agency or nominee): introduced into Commentary in : OECD Report: “Double Taxation Conventions and the Use of Conduit Companies” Second disqualifying condition (conduit company acting like a mere fiduciary or administrator): introduced into Commentary in April 2011: proposed changes to Commentary issued for public comment (by 15 July 2011)

©2012 Deloitte Global Services Limited 33 Proposed changes Existing Commentary 4 key notions Not narrow technical sense First disqualifying condition Second disqualifying condition Look through New Commentary (after proposed changes) 8 key notions Not narrow technical sense (amended) Domestic law meaning relevant (if consistent) First disqualifying condition Second disqualifying condition Look through Full right to use and enjoy the income unconstrained by a contractual or legal obligation Cross-reference to anti-avoidance rules Contextual meaning In summary A 1B

©2012 Deloitte Global Services Limited 34 Proposed changes (cont’d) Full right to use and enjoy the income unconstrained by a contractual or legal obligation “In these various examples (agent, nominee, conduit company acting as a fiduciary or administrator), the recipient of the dividend is not the ‘beneficial owner’ because that recipient does not have the full right to use and enjoy the dividend that it receives and this dividend is not its own; the powers of the recipient over that dividend are indeed constrained in that the recipient is obliged (because of a contractual, fiduciary or other duty) to pass the payment received to another person. The recipient of a dividend is the ‘beneficial owner’ of that dividend where he has the full right to use and enjoy the dividend unconstrained by a contractual or legal obligation to pass the payment received to another person. Such an obligation will normally derive from relevant legal documents but may also be found to exist on the basis of facts and circumstances showing that, in substance, the recipient clearly does not have the full right to use and enjoy the dividends; also, the use and enjoyment of a dividend must be distinguished from the legal ownership, as well as the use and enjoyment, of the shares on which the dividend is paid.” (proposed new paragraph 12.4 to Commentary on Art. 10, all new text; bolding added) 5 Sentence #1 Sentence #2 Sentence #3

©2012 Deloitte Global Services Limited 35 OECD developments : intangibles Working Party 6 : Transfer Pricing Aspects of Intangibles –Leading to a revision of Chapters VI and VIII of the OECD Transfer Pricing Guidelines Meeting with Business representatives, 7-9 November 2011: –Definitional approach –Goodwill and going concern –Brands and brand value –Ownership issues –Synergies Future

©2012 Deloitte Global Services Limited 36 What is the relevance of the OECD Commentary in Asia Pacific? Only substantive, multi-lateral double tax treaty guidance available ̶ UN Commentary? 90% the same as OECD Commentary Views of non-members are included in OECD Commentary, including : China, Hong Kong, India, Indonesia, Malaysia, Philippines, Thailand & Vietnam. With the exception of India, areas of disagreement are relatively few OECD members disagree with, or don’t apply, OECD Commentary, at times ̶ Disagreements vs. interpretation issues ̶ Substance over form / GAAR ̶ Consider : Zimmer, Dell, Roche

©2012 Deloitte Global Services Limited 37 Relevance of OECD Commentary in Asia Pacific ParagraphTopicDisagreements² with OECD Commentary IndiaMalaysiaVietnam9 other AP jurisdictions 1 18Twelve months test not applicable to short term sites or projects 1.1Introduction to elimination of Art & 5.4Example of painter and consultant 8Leasing of tangible or intangible properties may not constitute PE 10Leasing of ICS equipment may not constitute PE 12 & 42.25Examples constituting a priori PE 23Scientific research exclusion in the list of examples indicating preparatory or auxiliary 25Substantial negotiations of an enterprise through office and employees constitute PE OECD Commentary to Art. 5 Disagreements 1 Note: Other Asia Pacific jurisdictions are : Australia, China, Hong Kong, Indonesia, Japan, Korea, New Zealand, Philippines, Thailand. (OECD members & non-members) ² Or position reserved

©2012 Deloitte Global Services Limited 38 Relevance of OECD Commentary in Asia Pacific OECD Commentary to Art. 5 (cont’d) Disagreements ParagraphTopicDisagreements² with OECD Commentary IndiaMalaysiaVietnam9 other AP jurisdictions 1 33Mere participation or attending negotiations of contracts should not constitute contract- concluding agency PE 42Member of an MNC group engaged in manufacturing / providing services on behalf of another group company may constitute a PE 42.2Website may not constitute a PE 42.3Hosting of website on a server should not constitute a PE & 42.15Furnishing of services only in source state & 42.46Tax rights when services are furnished by non- residents outside state 42.19Fees paid for services : net vs. gross taxation 1 Note: Other Asia Pacific jurisdictions are : Australia, China, Hong Kong, Indonesia, Japan, Korea, New Zealand, Philippines, Thailand. (OECD members & non-members) ² Or position reserved

©2012 Deloitte Global Services Limited 39 Relevance of OECD Commentary in Asia Pacific OECD Commentary to Art. 5 (cont’d) Disagreements ParagraphTopicDisagreements² with OECD Commentary IndiaMalaysiaVietnam9 other AP jurisdictions Minimum level of presence not necessary for taxing services 42.31Physical presence of individual not essential for taxation of furnishing of services & 42.43No PE for services on two different projects for a single customer. Provision of services through employees of separate enterprise 42.44Example of services for the same or connected projects 5.5Satellite footprint in the space of source country may not constitute a PE 9.1Foreign network not at the disposal of the home network operator 26.1Undersea cables and pipelines lying in source country may not constitute a PE 1 Note: Other Asia Pacific jurisdictions are : Australia, China, Hong Kong, Indonesia, Japan, Korea, New Zealand, Philippines, Thailand. (OECD members & non-members) ² Or position reserved

©2012 Deloitte Global Services Limited 40 Relevance of OECD Commentary in Asia Pacific ParagraphTopicDisagreements² with OECD Commentary ChinaIndiaMalaysia9 other AP jurisdictions Payments for distribution rights 11.2Provision of services will generally fall under Art Payments for computer software for own use 8.2, 9.1, 9.2, 9.3, 10.1, 10.2, 14, 14.1, 14.2, 14.4, 15, 16, 17.3 Payments for property transfers; transponder leasing; telecom roaming agreements; spectrum licences; distribution rights; computer software; digital products OECD Commentary to Art. 12 Disagreements 1 Note: Other Asia Pacific jurisdictions are : Australia, Hong Kong, Indonesia, Japan, Korea, New Zealand, Philippines, Thailand, Vietnam (OECD members & non-members) ² Or position reserved

©2012 Deloitte Global Services Limited 41 Agenda What hope for tax reform in the US? OECD developments: beneficial ownership, PE, intangibles 2011 Update to the UN Model Treaty and Commentary FATCA – It’s getter closer. What taxpayers need to know Recent international tax cases: the global top 10 Q & A

©2012 Deloitte Global Services Limited Update to the UN Model Treaty & Commentary 2011 Update to UN Model double tax treaty & Commentary launched on 15 March 2012 (first update for 10 years) Significant changes to the Commentary on Art.1 Although the OECD Commentary to Art. 1 does discuss (and generally endorses) the use of domestic law or treaty-based anti-avoidance rules to combat treaty “abuse”, the 2011 Update adds significant original content to the UN Commentary on this issue

©2012 Deloitte Global Services Limited 43 UN Commentary to Art. 1 : Examples of improper use of tax treaties NumberExamples Dual residence and transfer of residence 1Movement of individual’s residence 2Movement of company’s residence 3Movement of shareholder’s residence Treaty shopping 4* Direct conduit 5* “Stepping-stone” conduit Triangular cases 6Third country permanent establishment (“PE”) Attributing profits or income to a specific person or entity 7Thin capitalization 8Base company 9Directors’ fees 10Attribution of interest to a tax-exempt or government entity 11* Non arm's length transfer prices NumberExamples Hiring of labor 12* Short-term hiring Artistes and sportspersons 13* Star companies Transactions that modify the treaty classification of income 14Conversion of dividends into interest 15Allocation of price under a mixed contract 16Conversion of royalties into capital gains 17Use of derivative transactions Transactions that seek to circumvent thresholds found in treaty provisions 18Ownership threshold Time limit for certain PEs 19Art. 5(3) planning Thresholds for the source taxation of capital gains on shares 20Land-rich company * Straightforward idea

©2012 Deloitte Global Services Limited 44 Agenda What hope for tax reform in the US? OECD developments: beneficial ownership, PE, intangibles 2011 Update to the UN Model Treaty and Commentary FATCA – It’s getter closer. What taxpayers need to know Recent international tax cases: the global top 10 Q & A

©2012 Deloitte Global Services Limited 45 FATCA Background “Foreign Account Tax Compliance Act” or “FATCA” was signed into law on March 18, 2010 as a revenue raiser for the “Hiring Incentives to Restore Employment Act” or “HIRE” Various effective dates. FATCA withholding on U.S. source income begins on January 1, Objective is to combat offshore tax evasion by U.S. persons who invest ‒ Directly through financial accounts maintained offshore ‒ Indirectly through ownership of foreign entities FATCA works by requiring foreign financial institutions (“FFIs”) and non- financial foreign entities (“NFFEs”) to provide this information FATCA’s lever is a NEW 30% withholding tax levied on “withholdable payments” to non- participating FFIs and NFFEs

©2012 Deloitte Global Services Limited 46 FATCA Background: Withholding as an Enforcement Tool 30 Percent FATCA withholding Imposed on “withholdable payments”, including ‒ U.S. source income from securities ‒ Interest on bank deposit accounts maintained in the United States or in a foreign branch of a U.S. bank ‒ Gross proceeds from the sale/redemption of U.S. securities When made to foreign financial institutions (FFIs) or non-financial foreign entities (NFFEs) ‒ Does not apply to payments made to individuals Unless ‒ the FFI enters into an agreement with the IRS (a participating FFI) ‒ the NFFE discloses the identity of its U.S. owners or certifies to non-US ownership to the withholding agent

©2012 Deloitte Global Services Limited 47 The Role of Withholding Under Present US Tax Law 30 Percent U.S. Non-resident tax Is a flat rate tax that imposed on foreign persons Applies to U.S. source dividends, interest, royalties and other “income”, unless a reduced rate or an exemption applies Does not apply to gross proceeds or gains from the sale of securities Does not apply if FATCA withholding applies 28 Percent backup withholding Applies to noncompliant U.S. non-exempt recipients Can apply to any payments that are reportable on Forms 1099 ‒ U.S. source and foreign source income ‒ Gross proceeds from the sale/redemption of securities Is a credit against the federal tax liability of U.S. taxpayers

©2012 Deloitte Global Services Limited 48 Illustration of Application of Passthru Payment Rule FATCA may apply for US indirect investments. Foreign Bank makes investment in Participating FFI, which in turn invests in various US and non-US portfolio investments that generate US and non-US source investment income, respectively, and eventually proceeds from the exit. If Foreign Bank does not enter in an agreement with the IRS, 30% tax would be withheld on payments from Participating FFI to Foreign Bank “related” to US investments of the Participating FFI determined as a function of US/total assets ratio of the Participating FFI. Foreign Bank US Portfolio Investments Participating FFI Non-US Portfolio Investments Income from FFI of US$ 10M US Withholding Tax of US$ 1.8M (US$ 10M x 60% x 30%) Passthru Payment Percentage = 60%

©2012 Deloitte Global Services Limited 49 Initial Guidance on Passthru Payments Why? –The primary purpose behind the passthru payment concept is to prevent an FFI to be used as a blocker for US persons trying to avoid US tax by making indirect investments in US assets. –The IRS also noted that the passthru payment rule is to encourage FFIs to enter into FFI agreements (i.e., a passthru payment paid to a PFFI is not subject to FATCA’s withholding requirement, whereas a passthru payment paid to a non-participating FFI would be subject to FATCA withholding). What is it? –A passthru payment is defined in the statute and it includes withholdable payments from direct US investment and other payments from an indirect US investment through a PFFI. Withholdable Payment Non- withholdable Payment Passthru Payment Percentage Direct US InvestmentIndirect US Investment

©2012 Deloitte Global Services Limited 50 Foreign Financial Institution (FFI) Defined Under FATCA, the term FFI is quite broad Includes any foreign entity that Accepts deposits in the ordinary course of a banking or similar business Is in the business of holding financial assets for the account of others Is engaged primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest in such securities. FFI Examples: non-U.S. banks, custodian banks, securities brokers and dealers, hedge funds, collective and family investment vehicles. Includes personal investment corporation (“PIC”) holding solely passive assets – the PIC is an FFI.

©2012 Deloitte Global Services Limited 51 Non-Financial Foreign Entity (NFFE) Defined An NFFE that has one or more “substantial” U.S. owners (other than exempt U.S. owners) is considered a U.S. owned NFFE Substantial ownership means more than 10 percent of: Vote or value of a corporation’s stock Profit or capital interest in a partnership Beneficial interest in a trust if any grantor is a non-exempt US person Example: A closely-held manufacturing company Exempt U.S. owners include A corporation the stock of which is regularly traded on an established securities market and any of its affiliates Any tax-exempt organization under IRC section 501(a) or an individual retirement plan Any bank, any REIT or any RIC Any common trust fund, charitable lead or remainder trust

©2012 Deloitte Global Services Limited 52 New Way to Categorize Client Accounts Need to determine whether to treat An individual account holder as a U.S. person or a foreign person An entity account holder as ‒ a U.S. person ‒ A foreign financial institution (FFI) ‒ An excepted foreign organization (e.g., a foreign government) ‒ A non-financial foreign entity (NFFE) An FFI as ‒ A participating FFI ‒ A deemed-compliant FFI or ‒ Non-participating FFI An NFFE as ‒ A U.S. owned NFFE (having a substantial US owner) ‒ An excluded NFFE ‒ A recalcitrant account Observation: Presents a new and completely different way to categorize client accounts and service providers

©2012 Deloitte Global Services Limited 53 Indicia of Potential U.S. Status Searches for U.S. indicia are used to identify U.S. persons that own accounts An account holder has indicia of U.S. status if he: 1. Is a U.S. citizen or resident 2. Was born in the U.S. 3. Has a U.S. residence or mailing address; 4. Has a U.S. telephone number 5. Has provided standing instructions to transfer funds to a U.S. based account 6. Has granted power of attorney over the account to a person with a U.S. address 7. Has a “care of” or hold mail address that is the sole address of account holder

©2012 Deloitte Global Services Limited 54 Account due diligence rules for FFIs Account TypeIndividuals:Entities: Pre-existingPre-existing individual accounts Pre-existing entity accounts NewNew individual accountsNew entity accounts BalanceIndividualEntity De-minimus$50,000$250,000 High Value$1,000,000

©2012 Deloitte Global Services Limited 55 Account due diligence rules to identify U.S. account holders Individual Accounts (only applies to FFIs, not USFIs) New individual accounts Review all of the information provided at the opening of the account, including identifying information collected under AML/KYC rules If an indicator of U.S. ownership is found, obtain additional documentation or treat the account as held by a recalcitrant account holder

©2012 Deloitte Global Services Limited 56 Account due diligence rules to identify U.S. account holders Entity Accounts Pre-existing entity accounts $250,000 or less – Excluded from review, until account balance exceeds $1,000,000. Must collect documentation sufficient to establish account holder’s FATCA status (e.g., U.S. entity, Participating FFI, Active non-financial foreign entity (NFFE), Passive NFFE) Passive NFFEs – Must identify substantial U.S. owners ‒ Balance more than $1,000,000 – Must obtain information regarding substantial U.S. owners ‒ Balance not more than $1,000,000 – May rely on information collected for AML New individual accounts Must collect documentation sufficient to establish account holder’s FATCA status (e.g., U.S. entity, Participating FFI, Active non-financial foreign entity (NFFE), Passive NFFE) Review all of the information provided at the opening of the account, including identifying information collected under AML/KYC rules

©2012 Deloitte Global Services Limited 57 Client Management Issues for FATCA Compliance Certain products and services may no longer be available to certain clients New clients must provide extensive personal information beyond current requirements (Relationship Manager’s role expanded) Clients must waive privacy rights and grant permission for personal and account information to be reported to the IRS Recalcitrant accounts may require closure against client wishes

©2012 Deloitte Global Services Limited 58 Reporting requirements – a phased approach Calendar YearReporting Due Reporting Requirement to U.S. Accounts September 30, 2014 Required to report only name, address, TIN, account number, and account balance with respect to U.S. accounts identified as of June 30, March 31, 2015 Required to report only name, address, TIN, account number, and account balance 2015 March 31, 2016 Required to report only name, address, TIN, account number, account balance, and income paid 2016 March 31, 2017 Required to report name, address, TIN, account number, account balance, income paid, and gross proceeds 2017 March 31, 2018 All of the reporting for calendar-year 2016 as well as foreign passthru payments 1 In the case of a U.S.-owned foreign entity, the information must be reported for the entity as well as the name, address, and TIN for each substantial U.S. owner.

©2012 Deloitte Global Services Limited 59 Timelines – phased implementation FFIs and USFIs each have their own timeline Phased implementation starting in 2013, and ending no earlier than 2017 Some systems and procedures need to be ready on Jan 1, 2013 Major key dates: January 1, 2013 – USFIs need new account procedures in place July 1, 2013 – Participating FFIs should have signed agreement in place with the IRS January 1, 2014 – FATCA withholding commences on withholdable payments July 1, 2014 – Need to certify due diligence is complete on high value accounts September 30, 2014 – First FATCA account reporting is due January 1, 2017 – FATCA withholding scheduled to commence on foreign passthru payments

©2012 Deloitte Global Services Limited 60 Legal Issues for Implementation FFI is required to seek a waiver of applicable bank secrecy, confidentiality, data collection or other information disclosure prohibitions from the U.S. account holder that might otherwise prohibit or limit FATCA reporting, and close accounts in certain circumstances. Local Privacy Laws Conflict with Local Laws Burden on FFI Account Opening Documentation Transactional Documentation

©2012 Deloitte Global Services Limited 61 Impact to MNCs (NFFEs) Impact on the Treasury Function “Stealth” Foreign Financial Institutions that might be part of Consolidated Group Impact to Accounts Payable and other Departments Legal Documentation Changes

©2012 Deloitte Global Services Limited 62 Loans: Gross-Up “The Borrower shall not be required to make an increased payment to a Finance Party under paragraph (a) above for (i) a Tax Deduction imposed by reason of such Finance Party’s failure to comply with any certification, identification, information, documentation or other reporting requirement if such compliance is required by law, regulation, administrative practice or an applicable treaty as a precondition to exemption from, or reduction in the rate of, deduction or withholding of any Tax Deduction, (ii) a Tax Deduction imposed by reason of such Finance Party’s failure to comply with Clause 14.7 or (iii) any U.S. federal income withholding tax imposed under FATCA.”

©2012 Deloitte Global Services Limited 63 ISDA “Foreign Account Tax Compliance Act. (a) For purposes of any Payer Tax Representation, the words “any Tax from any payment” shall not include any tax imposed under Sections 1471 and 1472 of the Internal Revenue Code of 1986, as amended (or the United States Treasury regulations or other guidance issued or any agreements entered into thereunder) (“FATCA Withholding Tax”); (b) for the avoidance of doubt the parties agree that for purposes of Section 2(d)(i) the deduction or withholding of FATCA Withholding Tax is required by applicable law; and (c) the definition of “Indemnifiable Tax” shall not include any FATCA Withholding Tax.”

©2012 Deloitte Global Services Limited 64 Offering Circular “We intend to structure our investments so that we will not be required to withhold 30% FATCA withholding tax earlier than 2017 although no assurances can be given in this regard. Pursuant to the FFI Agreement we intend to enter into, beginning no earlier than 2017, we will be required to withhold 30% FATCA withholding tax on certain dividends that we pay to foreign financial institutions that have not entered into an FFI Agreement (including Name of Depository) if it does not enter into an FFI Agreement) or to Shareholders that do not verify their status under the FATCA rules, to the extent such dividends are foreign passthru payments.”

©2012 Deloitte Global Services Limited 65 Offering Circular “The application of FATCA to an investment in our Shares will depend on: whether the foreign financial institutions through which you hold our Shares, including (name of depository) and any broker, have entered an FFI Agreement, which is outside of our control; and whether you verify your status under the FATCA rules to us or to the foreign financial institution through which you hold our Shares.”

©2012 Deloitte Global Services Limited 66 Treasury/IRS Guidance Needed Statutory provisions are not self-implementing Guidance is expected to be published in waves IRS must draft an agreement for foreign financial institutions Expect revisions to Form W-8 series Preliminary guidance published 8/27/2010 in Notice Additional guidance published 04/09/2011 in Notice Further guidance published 07/14/2011 in Notice Proposed regulations published on 02/08/2012 Written or electronic comments sent by April 30, Public hearing scheduled for May 15, Final regulations need to be published Any delay in Treasury/IRS guidance puts pressure on the effective date and narrows the window for building needed systems and procedures

©2012 Deloitte Global Services Limited 67 Agenda What hope for tax reform in the US? OECD developments: beneficial ownership, PE, intangibles 2011 Update to the UN Model Treaty and Commentary FATCA – It’s getter closer. What taxpayers need to know Recent international tax cases: the global top 10 Q & A

©2012 Deloitte Global Services Limited 68 #10 Ford (UK) Use of non-discrimination article in UK/US treaty to achieve transfer of tax losses between 2 UK companies, even though they did not have a common UK holding company (which UK tax law required at that time). Art. 24(5), OECD model treaty: “Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of the first-mentioned State are or may be subjected.” [Emphases added] US UK UK Co 1 US Co Profits UK Co 2 Losses

©2012 Deloitte Global Services Limited 69 #9 George Anson (UK) Delaware LLC characterised as a company for UK tax purposes (lower tribunal had characterised it as a partnership) Property interest in LLC’s assets vs. non-discretionary entitlement to dividends UK US Div. LLC George Anson Profits

©2012 Deloitte Global Services Limited 70 #8 Li & Fung (Hong Kong) Customers contract with HK Co for the provision of “supply chain” and “logistics” services (eg. locating suppliers, placing orders with suppliers (on behalf of customers), quality control inspections, arranging for shipment, etc.) Fee = 6% of sales price. Many of the services are performed (outside HK) by foreign affiliates of HK Co. Fee = 4% of sales price. HK Co argued that its 6% fee income was sourced outside HK and thus is tax- exempt. Court of Appeal : HK Co wins Follows ING Baring case (Court of Final Appeal, 2007): in determining the source of profits, the focus should be on the important profit-producing activities, and not on any antecedent or incidental activities. Service contract (A) $ Customers HK Co Foreign Affiliates Service contract (B) $ HK Offshore

©2012 Deloitte Global Services Limited 71 #7 Fabrikant / Columbia Sportswear (India) Art. 5(3)(d), India/US treaty: exception from PE status for “the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise …..for the enterprise” Both US companies have a purchasing office in India, Columbia Sportswear to purchase sports clothes and Fabrikant to purchase diamonds Columbia Sportswear: PE. Fabrikant : No PE. US India Sale Suppliers US Co Office

©2012 Deloitte Global Services Limited 72 #6 Share buy-back case (India) India Co undertook share buy-back with Mauritius Co. Share buy-back is not subject to dividend distribution tax (DDT), but is subject to the tax on capital gains. Ruling sought that Mauritius Co is exempt under Art. 13, India / Mauritius treaty. AAR : This is a “colourable device” (ie. sham or tax avoidance transaction). Thus, its tax treatment should be based on substance, not form. In substance, this is a dividend payment, and thus India Co would be liable for DDT. 49% US Co Mauritius Co Sing Co India Co [publicly listed] 25% 2% Share buy- back India Offshore

©2012 Deloitte Global Services Limited 73 #5 Total Return Swap case¹ (Switzerland) Danish Bank entered into several TRSs (involving shares in Swiss companies) with counterparties in the EU and the US. As a hedge, Danish Bank acquired the corresponding amount of the underlying Swiss shares. Swiss domestic tax law : 35% DWT Switzerland / Denmark treaty (at the relevant time), Art. 10: ̶ 0% DWT ̶ No “beneficial ownership” condition Div. Bank Counter- parties Swiss Companies TRS Third countries Switzerland Denmark Total Return Swap (TRS) Short-term (3-6 months) Bank pays amount equivalent to: ̶ Appreciation in share portfolio ̶ Dividends from share portfolio Counterparty pays amount equivalent to: ̶ Depreciation in share portfolio ̶ LIBOR plus margin on principal ¹ Case A-6537 / 2010

©2012 Deloitte Global Services Limited 74 #5 Total Return Swap case (Switzerland) (cont’d) Argued by Swiss tax authorities : 0% DWT rate should not apply because ̶ Danish Bank not “beneficial owner” of dividends (and “beneficial ownership” condition should be “read into” Art. 10) ̶ Danish Bank is committing “treaty abuse” Div. Bank Counter- parties Swiss Companies TRS Third countries Switzerland Denmark Total Return Swap (TRS) Short-term (3-6 months) Bank pays amount equivalent to: ̶ Appreciation in share portfolio ̶ Dividends from share portfolio Counterparty pays amount equivalent to: ̶ Depreciation in share portfolio ̶ LIBOR plus margin on principal

©2012 Deloitte Global Services Limited 75 #5 Total Return Swap case (Switzerland) (cont’d) Federal Administrative Tribunal: “Beneficial ownership” condition might possibly be “read into” Art. 10 – Tribunal did not have to decide this point, as it concluded that Danish Bank is the “beneficial owner” of the dividends Danish Bank satisfies the “beneficial ownership” condition, because : -Lack of interdependence between the dividends paid by the Swiss companies and the Danish Bank’s obligations under the TRS: 1)The Danish Bank was not obligated to acquire the shares in the Swiss companies – it decided to do so in order to hedge its position 2)Regardless of whether the Danish Bank received the dividends from the Swiss companies, it was obligated to make the relevant payments under the TRS Div. Bank Counter- parties Swiss Companies TRS Third countries Switzerland Denmark Total Return Swap (TRS) Short-term (3-6 months) Bank pays amount equivalent to: ̶ Appreciation in share portfolio ̶ Dividends from share portfolio Counterparty pays amount equivalent to: ̶ Depreciation in share portfolio ̶ LIBOR plus margin on principal

©2012 Deloitte Global Services Limited 76 #5 Total Return Swap case (Switzerland) (cont’d) Federal Administrative Tribunal: Danish Bank does not commit “treaty abuse”, because : ̶ If there is no explicit “treaty abuse” provision in the treaty, then “treaty abuse” occurs only if the company engages in no genuine economic or commercial activity ̶ The Danish Bank has premises, employees and a wide commercial activity, and thus there is no “treaty abuse”. Thus, 0% DWT rate applies Div. Bank Counter- parties Swiss Companies TRS Third countries Switzerland Denmark Total Return Swap (TRS) Short-term (3-6 months) Bank pays amount equivalent to: ̶ Appreciation in share portfolio ̶ Dividends from share portfolio Counterparty pays amount equivalent to: ̶ Depreciation in share portfolio ̶ LIBOR plus margin on principal

©2012 Deloitte Global Services Limited 77 #4 Rolls Royce (India) Facts Rolls Royce Plc (Rolls Royce UK) was tax resident in the UK. It sold certain parts and equipment to customers in India Rolls Royce India Limited (Rolls Royce India), a wholly owned subsidiary of Rolls Royce UK, was also tax resident in the UK. It provided various services to Rolls Royce UK through its office in India for cost-plus remuneration Services provided by office of Rolls Royce India to Rolls Royce UK included marketing, negotiating, and facilitating the selling of products Issues PE under Art. 5, UK/India treaty? Calculating profit attributable to PE Offshore India 100% Services Customers Rolls Royce Plc., UK Rolls Royce India Limited, UK Sale of spares / equipment Office

©2012 Deloitte Global Services Limited 78 #4 Rolls Royce (India) (cont’d) High Court judgment Art. 5(1) –Individuals who are formally employed by Rolls Royce India act as if they are employees of Rolls Royce UK. They should thus be treated as employees of Rolls Royce UK. Therefore, the office of Rolls Royce India (which is used every day by those individuals) is “at the disposal” of Rolls Royce UK –Activities conducted by those individuals are not preparatory or auxiliary, but a core activity Offshore India 100% Services Customers Rolls Royce Plc., UK Rolls Royce India Limited, UK Sale of spares / equipment Office

©2012 Deloitte Global Services Limited 79 #3 Velcro (Canada) Canada Co X Co Roys.Lic. Netherlands Canada Original Situation Canada Co X Co Roys.Lic. Netherlands Antilles Canada Restructure X Co Y Co Netherlands X Co migrates tax residence from Netherlands to Netherlands Antilles X Co assigns licence agreement to Y Co (subsidiary of X Co)     Canada Co X Co Roys.Lic. Netherlands Canada Y Co Post-Restructure Situation Netherlands Antilles (Under Assignment Agreement) (90% x A) (Original Licence Agreement) Sub- Lic. Roys. (A)

©2012 Deloitte Global Services Limited 80 #3 Velcro (Canada) (cont’d) Canada Co X Co Roys.Lic. Netherlands Canada Y Co Post-Restructure Situation Netherlands Antilles (Under Assignment Agreement) (90% x A) (Original Licence Agreement) Sub- Lic. Roys. (A) Purpose of assignment was to transfer the management of licensing royalty streams to Y Co. Amaco Management Services BV, an arm’s length corporation, conducted in large part the management of Y Co. Y Co’s main activities: ̶ holding shares in subsidiaries ̶ providing loans to subsidiaries ̶ managing royalty streams When Y Co receives royalties from Canada Co, these receipts were intermingled into Y Co’s other accounts and used for a variety of Y Co’s purposes, at Y Co’s sole discretion – for example: ̶ making of loans ̶ payment of operational expenses ̶ payment of professional fees Y Co was contractually obliged to pay X Co its royalties (ie. 90% of the royalties received from Canada Co) 30 days after the receipt of the Canada Co royalties.

©2012 Deloitte Global Services Limited 81 #3 Velcro (Canada) (cont’d) Canada Co X Co Roys.Lic. Netherlands Canada Y Co Post-Restructure Situation Netherlands Antilles (Under Assignment Agreement) (90% x A) (Original Licence Agreement) Sub- Lic. Roys. (A) Court decision Applied the rule from Prevost case: “When corporate entities are concerned, one does not pierce the corporate veil unless the corporation is a conduit for another person and has absolutely no discretion as to the use or application of funds put through it as conduit…” [emphasis added] From Prevost, there are four elements in considering beneficial ownership: ̶ possession ̶ use ̶ risk ̶ control Y Co has each of those four elements Although Y Co has limited discretion, it does have some discretion. It is not the case that, per Prevost, it has “absolutely no discretion”. Thus, Y Co is the beneficial owner of the royalties paid by Canada Co, for the purposes of the Canada / Netherlands treaty.

©2012 Deloitte Global Services Limited 82 #2 Vodafone (India) Key Direction of shareholding or loan. Thus, A  B means that A owns shares in B or A has lent to B Interposed entities omitted = India Offshore HTI BVI (BVI) Vodafone (Netherland s) Mauritius IHCs Hutchison Essar Ltd (HEL) (India) Transfer of only share 52% CGP Investment s (Holdings) Ltd (Cayman) 3 GSPL (India) Has the Option to acquire 15% HTIL (Cayman) Loans Direct & indirect = = = SPA Supreme Court “Look at” the structure or transaction on an holistic basis and in context – ie. do not apply a “dissecting approach”:  If genuine commercial business structure or transaction: legal form is respected in determining tax liability  If sham or tax avoidance scheme: Revenue can apply “substance over form” and /or “piercing of corporate veil” principles to determine tax liability Holding companies, including SPVs, are a common and acceptable structure in regard to company law, takeover code and income tax Azadi Bachao Andolan case (capital gains exemption under Art. 13 of India / Mauritius treaty) endorsed

©2012 Deloitte Global Services Limited 83 #1 Roche Vitamins Europe Ltd (Spain) Spain / Switzerland treaty Art. 5(1) : “For the purposes of this Convention, the term ‘permanent establishment’ means a fixed place of business in which the business of the enterprise is wholly or partly carried on.” Art. 5(4) : “A person acting in a Contracting State on behalf of an enterprise of the other Contracting State – other than an agent of an independent status to whom paragraph 5 applies – shall be deemed to be a permanent establishment in the first-mentioned State if he has, and habitually exercises in that State, an authority to conclude contracts in the name of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise.” Art. 5(5): “An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such persons are acting in the ordinary course of their business.” Spain Swiss Co Spain Co Switzerland Marketing contract CM contract CM contract: Spain Co manufactures & sells goods to Swiss Co Cost plus 3.3% Marketing contract: Spain Co designated as Swiss Co’s agent to promote the sale of particular products and to “represent, protect and promote” the interests of Swiss Co. No authority to conclude contracts. Fee = 2% of sales

©2012 Deloitte Global Services Limited 84 #1 Roche Vitamins Europe Ltd (Spain) (cont’d) Supreme Court Swiss Co has a PE in Spain, under both Art. 5(1) (fixed place of business : Spain Co’s premises) and Art. 5(4) (agency of Spain Co) of Spain / Switzerland treaty Key aspect of facts : All the activity of Spain Co was directed, organised and managed by Swiss Co ¹ Cited on earlier slide Spain Swiss Co Spain Co Switzerland Marketing contract CM contract CM contract: Spain Co manufactures & sells goods to Swiss Co Cost plus 3.3% Marketing contract: Spain Co designated as Swiss Co’s agent to promote the sale of particular products and to “represent, protect and promote” the interests of Swiss Co. No authority to conclude contracts. Fee = 2% of sales

©2012 Deloitte Global Services Limited 85 #1 Roche Vitamins Europe Ltd (Spain) (cont’d) How can this decision be rationalised? Art. 5(1) : employees of Spain Co are de facto employees of Swiss Co? Art. 5(4) : “Sidney Roberts” view of agency PE¹? Application of “substance over form”? OECD Commentary on Art. 5, para 10: “The business of an enterprise is carried on by the entrepreneur or persons who are in a paid-employment relationship with the enterprise (personnel). This personnel includes employees and other persons receiving instructions from the enterprise (eg. dependent agents). The powers of such personnel in its relationship with third parties are irrelevant. It makes no difference whether or not the dependent agent is authorised to conclude contracts if he works at the fixed place of business….” ¹ Cited on earlier slide Spain Swiss Co Spain Co Switzerland Marketing contract CM contract CM contract: Spain Co manufactures & sells goods to Swiss Co Cost plus 3.3% Marketing contract: Spain Co designated as Swiss Co’s agent to promote the sale of particular products and to “represent, protect and promote” the interests of Swiss Co. No authority to conclude contracts. Fee = 2% of sales

©2012 Deloitte Global Services Limited 86 Global top 10 #1Roche Vitamins Europe Ltd (Spain) : PE #2Vodafone (India) : Anti-avoidance #3Velcro (Canada) : Beneficial ownership #4Rolls Royce (India) : PE #5Total Return Swap case (Switzerland) : Beneficial ownership #6Share buy-back case (India) : Anti-avoidance #7Fabrikant / Columbia Sportswear (India) : PE #8Li & Fung (Hong Kong) : Source #9George Anson (UK) : Entity characterisation #10Ford (UK) : Non-discrimination article

87 Questions & Answers

©2012 Deloitte Global Services Limited 88 Biographies Kristy P. Ton is Director of Tax, Asia for Corning with whom she has worked since August As Director of Tax, she is responsible for all tax matters relating to Corning’s businesses in Asia. Kristy began her career at PricewaterhouseCoopers and prior to joining Corning, she was tax counsel at ConocoPhillips. Her primary area of practice is US international and local country tax planning with a focus on cross-border structuring for financing, reorganizations, mergers and acquisitions, and derivative transactions. Kristy has extensive experience and knowledge of local country tax and tax audits in areas relating to withholding taxes, determination of permanent establishment and benefits under income tax treaties. Geographic areas in which she has had responsibility include North Asia (Japan, Korea, Taiwan, China), Southeast Asia (Singapore, Indonesia, Malaysia, Thailand), Australia, India, Western Europe (UK, Ireland, Finland, Denmark, Sweden, Norway, Germany, Switzerland, Netherlands, Belgium, Luxembourg), and Central Eastern Europe(Czech Republic, Slovakia, Hungary). Kristy received a B.A. (cum laude) and a M.B.A. (cum laude) from the University of Dallas, a J.D. from Loyola University School of Law and a L.L.M. in Taxation from the University of Houston. She is a member of the Texas State Board of Public Accountancy and the Louisiana State Bar and a Board member of TEI – Asia Chapter. Kristy P. Ton, CPA, JD, LLM Director of Tax – Asia Region Corning Inc.

©2012 Deloitte Global Services Limited 89 Biographies David Weisner US Tax Counsel for Asia Pacific Citigroup David Weisner is based in Hong Kong and is US Tax Counsel for Asia Pacific for Citigroup. He handles the tax issues for variety of businesses throughout Asia Pacific. Prior to joining Citigroup in 2003, David worked at Fidelity Investments in Boston as international tax counsel. Prior to Fidelity Investments, David worked for White & Case, a New York based law firm, and Deloitte & Touche, a big 4 accounting firm. David is a member of the Illinois Bar. David is President of the Asia Chapter of the Tax Executive Institute (TEI), on the executive committee of the Capital Market Tax Committee (CMTC), on the tax committee for the Hong Kong chapter of Alternative Investment Management Association (AIMA) and leads the FATCA subcommittee for the Hong Kong Association of Banks (HKAB).

©2012 Deloitte Global Services Limited 90 Biographies Steve Towers Asia Pacific Leader – International Tax Tel: Deloitte Singapore Steve Towers is the Asia Pacific leader of Deloitte’s international tax practice. He is a senior international tax partner with over 30 years of experience in international tax planning for multinational corporation (MNCs). Steve has worked in the Deloitte Touche Tohmatsu offices in Sydney, Melbourne, London, New York, and Singapore. He has substantial experience in advising MNCs on corporate structuring and restructuring, real estate investment structuring, mergers and acquisitions, hybrid instruments, transfer pricing, use of double tax treaties, permanent establishment issues, and tax aspects of supply chain planning. A large part of his current practice involves the leadership of Asia Pacific regional tax projects. Steve is a frequent public speaker on international tax issues affecting investment within Asia-Pacific. He has been listed (since 1998) in the current edition of “The World’s Leading Tax Advisors” (Euromoney). Steve is a member of the Institute of Chartered Accountants in Australia. He is a former Chairman of the International Fiscal Association (Singapore Branch). He is a member of the board of directors of the Tax Academy of Singapore. Steve has Bachelor of Economics and Bachelor of Laws degrees from the Australian National University, and a Master of Laws (first class honors) degree from the University of Sydney.

©2012 Deloitte Global Services Limited 91 About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

©2012 Deloitte Global Services Limited 92