APAC Tax Matters: November 2012

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Welcome to the eleventh edition of APAC Tax Matters.

In this edition our treaty reports concern new treaties concluded by Malaysia and Singapore and steps that both jurisdictions have taken in order to align the exchange of information articles in their treaties with internationally accepted standards. We also report on the conditions under which Singapore and Taiwan will exempt gains on disposal of shares from tax, and when Taiwan will not impose withholding on fees paid to a foreign entity for specific online database services. 

Our wrap up on Singapore concludes with good news on preferential tax allowances in respect of mergers and acquisitions, deductions for expenditure on qualifying market expansion activities and the announcement by the tax authorities that they will allow a taxpayer to claim capital allowances on plant and machinery used by persons other than the taxpayer (an item which will be of particular interest to taxpayers engaged in contract manufacturing arrangements). 

Our report from India includes news of a court ruling which provides welcome guidance on the conditions to be met in order for technical consulting service fees paid to a foreign contractor to be exempt from withholding tax under Indian double tax agreements. 

We also comment on the draft report by the Central Board of Direct Taxes (CBDT) on India’s implementation of a General Anti-avoidance Rule (“GAAR”).  Whilst implementation of the GAAR has been deferred until April 2013, our reporter notes that the CBDT’s draft report does not appear to satisfactorily address the concerns of all taxpayers. 

Lastly from India, in an application of anti-abuse principles absent the GAAR, we report on a recent ruling under which a buyback of shares by a Mauritius company was disregarded as being a tax avoidance device, the transaction being treated as a distribution chargeable to India’s dividend distribution tax.

Our report from Australia focuses on the draft report of the Business Tax Working Group and tax concessions that may require to be reduced in order to fund a reduction in Australia’s company tax rate.  Thin cap and interest deduction rules are cited as areas where concessions might be reduced.

From mainland China we have an update on the continued roll-out of China’s VAT Pilot and share some thoughts on potential issues for both taxpayers and tax bureaus. Whilst from Japan, we have a report on the reform of Japan’s consumption tax regime and the possibility that proposed rate increases may be suspended depending on “economic conditions”.

Hong Kong’s offshore regime is the subject of our Hong Kong (special administrative region of China) update where a recent decision by the Board of Review confirmed that the profits of a Hong Kong incorporated company will not be assessed to tax in Hong Kong if those profits are sourced offshore Hong Kong.

We round off this edition with reports from New Zealand on the areas which will receive greater attention by the tax authorities in their Compliance Focus for 2012, from Korea on proposals for applying the arm’s length principle to transactions between a Korean PE and its overseas head office, from the Philippines on upstream mergers, and lastly we have an update on Vietnam’s foreign contractors tax regime.

Chee Weng Lee
Managing Partner -Tax Markets,
Asia Pacific