1. BRICs and Double Taxation Conventions Douglas Rankin Andrew Dawson

2. What should DTCs do? Mitigate double taxation Mitigate fiscal evasion Remove/reduce barriers to trade and investment Provide certainty of tax treatment

3. Mitigating Double Taxation DTCs share out taxing rights States concede taxing rights given by domestic law Source state / residence state taxation

4. What do UK DTC users want? Low/zero w/t on passive income Limited source state taxation of business profits in line with OECD standard Ditto services income, capital gains, leasing, other income Arm’s length standard for transfer pricing

5. Brazil’s treaty policy Dividends No w/t concession in a DTC Rates above OECD norm Branch profits tax No zero rate for pension funds, direct investors

6. Brazil’s treaty policy Interest 15% rate ( OECD 10%, UK pref 0%) No relief where interest paid to a pe in third state Definition catches non-interest income

7. Brazil’s treaty policy Royalties w/t rates of 10,15% (OECD, UK 0%) wide definition to include leasing and technical fees…see Protocols to DTCs

8. Brazil’s treaty policy Capital Gains Extensive source state taxation Share sales are caught

9. Brazil’s treaty policy Services OECD non-members position on article 5 “Brazil does not agree with the interpretation provided for in paragraphs 42.11 to 42.48 of the Commentary on the taxation of services, especially in view of the principle of taxation at the source of payments in its legislation”..July 2008

10. Brazil’s treaty policy Services Full taxation if payment is made from Brazil Pe requirement displaced Immaterial where work is carried out Similar position on electronic commerce

11. Brazil’s treaty policy No article 9(2) Source state taxation of other income Tax sparing ……..more…

12. UK experience Talks in late nineties Air and Shipping Agreement 2007 informal discussions Precedents

13. Experience of others “We have reviewed several of the tax treaties recently ratified between Brazil and other countries. Many of the provisions included in those treaties would NOT be helpful to US companies if they were included in a US/Brazil treaty” “A treaty without reasonable accommodations similar to recent US tax treaty practice …could be a step backwards” NFTC to US treasury, July 2008

14. Brazil taxation policies: prospects for change Treaty policy linked to general taxation policy External pressure Internal pressure Expectations

15. CHINA DIVIDENDS 10% RATE No zeros Direct investors INTEREST 10% RATE Limited zeros

16. CHINA ROYALTIES Broad definition No zeros Mitigation for leasing Attachment to technical fees

17. CHINA Capital Gains Gains on share sales Substantial participation Property companies Other Income Source state taxation

18. CHINA SERVICES Source state taxer Days of presence UN Model IPS Old article 7

19. CHINA Transfer pricing ALP ….. Article 9(2) APA program MAP …Arbitration OECD work/ SAT bulletins

20. Russia Existing UK-Russia DTA 1994 Close to OECD –Dividends 10% –Interest: residence state only –Royalties: residence state only –No day counting services PE –Corresponding adjustment in Article 9

21. Russia (cont) But –Subject to tax test in dividends article –Some Russian DTAs have lower rates Russian model –Higher withholding rates –Article 9(2)? Arbitration? –Day counting services provision? –No recent DTAs with comparable countries

22. India UK-India DTA 1993, replaced 1981 DTA –A lot of source state taxation –90 day services PE; stock of goods –Service PE if in connection with oil etc –Domestic law restrictions on PE expenses –Wide royalty and technical fees provisions –Withholding on passive income of 15% –Capital gains taxed with no restrictions

23. Indian DTA interpretations Non-recognition of partnerships Relegation of POEM Aggregation of separate projects to form PE Article 5(2) examples are a priori PEs, etc Narrowing of scope of prep & aux in Article 5(4) Representative office concludes contracts Easy to conclude contract & be a dep. Agent Indian affiliated service company often a PE

24. Indian DTA interpretations (cont.) Service PE even if services performed outside India Satellite’s footprint can be a PE Mobile phone roaming agreement creates a PE A cable or pipeline can be someone else’s PE Commentary’s circumscription of royalties are all wrong “Process” in Article 12 is a wide concept Equipment leasing includes services

25. India – prospects for change? Present position suits a large capital importer Difficult not to be in India, but…? Growth, development, capital exporting? Courts a restraint on extreme interpretations

26. BRICs and the OECD Russia, India and China all observers to OECD Observers not required to agree OECD principles Brazil has shown limited interest in OECD OECD looking for enhanced engagement Implications for OECD product and influence