Mutual Agreement Procedure and Tax Arbitration in BRICS

Mutual Agreement Procedure and Tax Arbitration in BRICS Andrey Savitsky, Ph. D, Lead Researcher, BRICS Law Institute a. savitsky@bricslawinstitute. com September 13, 2018 – Yekaterinburg BRICS Law Institute: http: //bricslawinstitute. com BRICS Law Institute

Agenda I. Article 25 “MAP”: Tax Treaties Analysis II. Tax Arbitration: Tax Treaties Analysis III. MAP Case-Law IV. BEPS MLI BRICS Law Institute: http: //bricslawinstitute. com

I. Article 25 “MAP”: Tax Treaties Analysis q Most DTTs of BRICS states comprise “Mutual Agreement Procedure” article with some exceptions (there is no MAP in: Russia – UAE; India – Sierra Leone; China – Germany; South Africa – Grenada, Malawi, Sierra Leone, Zambia); q Generally, most DTTs follow Art. 25 of the UN Model – alternative A (no arbitration); q Usual deviations comprise: ü Reference to a “national” in cases of tax discrimination (Art. 24(1)); ü Limitation periods (no limits; 1, 2, 3, 5 years, domestic limitations); ü Tax Arbitration clause; ü Other unusual provisions (GATT, examples for communications, etc. ). BRICS Law Institute: http: //bricslawinstitute. com

I. Article 25 “MAP”: BRAZIL q Usually, Art. 25 MAP is addressed to a “resident” person; about 5 DTTs have reference to a “national” in tax discrimination case; q Limitation periods for a claim: ü No limitations – 22 DDTs; ü 2 years – 3 DDTs; ü 3 years – 3 DTTs; ü 5 years – 2 DTTs (India and the Netherlands); ü Domestic limitations – 2 DTTs (South Africa and Peru). q No Tax Arbitration clause. BRICS Law Institute: http: //bricslawinstitute. com

I. Article 25 “MAP”: RUSSIA q Usually, Art. 25 MAP is addressed to a “resident” person, about 45 DTTs have reference to a “national” in tax discrimination case; q Limitation periods for a claim: ü No limitations – 7 DDTs; ü 2 years – 9 DDTs; ü 3 years – 57 DTTs; q There is 1 effective DTT with the Netherlands comprising the Tax Arbitration clause. There are 3 DTTs with Belgium (2015), Switzerland Japan (2017)* providing for application of Tax Arbitration under condition the other Contracting State has inserted such provision in a DTT with the third states. BRICS Law Institute: http: //bricslawinstitute. com

I. Article 25 “MAP”: INDIA q Usually, Art. 25 MAP is addressed to a “resident” person, about 62 DTTs have reference to a “national” in tax discrimination case; q Limitation periods for a claim: ü No limitations – 5 DDTs (Egypt, Greece, Lybia, Turkey and UK); ü 2 years – 4 DDTs (Belgium, UAE, Canada, Italy); ü 3 years – 85 DTTs; ü 5 years – 1 (Brazil). q No Tax Arbitration clause. BRICS Law Institute: http: //bricslawinstitute. com

I. Article 25 “MAP”: CHINA q Usually, Art. 25 MAP is addressed to a “resident” person, about 94 DTTs have reference to a “national” in tax discrimination case; q Limitation periods for a claim: ü No limitations – 2 DDTs (Canada and UK); ü 1 year – Turkey; ü 2 years – 1 DDT (Italy); ü 3 years – 91 DTTs. q No Tax Arbitration clause. BRICS Law Institute: http: //bricslawinstitute. com

I. Article 25 “MAP”: SOUTH AFRICA q Usually, Art. 25 MAP is addressed to a “resident” person, about 61 DTTs have reference to a “national” in tax discrimination case; q Limitation periods for a claim: ü No limitations – 4 DDTs (Germany, Israel, Thailand UK); ü 2 years – 5 DDTs (Canada, Indonesia, Iran, Pakistan and Seychelles); ü 3 years – 62 DTTs; ü Domestic limitations – 2 DDTs (Brazil and Turkey). q There are 3 effective DTTs with the Netherlands, Switzerland Canada comprising the Tax Arbitration clause. BRICS Law Institute: http: //bricslawinstitute. com

I. Article 25 “MAP”: BRICS MATRIX Number of DTT BRAZIL RUSSIA INDIA CHINA SOUTH AFRICA “National” 5 45 62 94 61 No limitations 22 7 5 2 4 1 year - - - 1 - 2 years 3 9 4 1 5 3 years 3 57 85 91 62 5 years 2 - 1 - - Domestic limits 2 - - - 2 Tax Arbitration - 1(4) - - 3 BRICS Law Institute: http: //bricslawinstitute. com

II. Tax Arbitration: RUSSIA – Netherlands 5. If after the procedures of paragraph 1 to 4 any dispute arising as to the interpretation or application of the Agreement in a particular case cannot be resolved by the competent authorities of the Contracting States in a mutual agreement procedure, the case may, if both competent authorities agree be resolved through an arbitration board created by the competent authorities and supplemented by independent persons and according to internationally accepted arbitration procedures. These procedures shall by mutual agreement be established between the competent authorities of both Contracting States. The decision of the arbitration board shall be binding on both Contracting States and the taxpayer or taxpayers involved with respect to that case. This paragraph will only apply after the competent authorities of both Contracting States have established the above-mentioned procedures. The Contracting States may release to the arbitration board, established under the provisions of this paragraph, such information as is necessary for carrying out the arbitration procedure. Such release of information shall be subject to the provisions of Articles 27 and 29. BRICS Law Institute: http: //bricslawinstitute. com

II. Tax Arbitration: SOUTH AFRICA – Netherlands 5. If any difficulty or doubt arising as to the interpretation or application of the Convention cannot be resolved by the competent authorities of the Contracting States in a mutual agreement procedure pursuant to the previous paragraphs of this Article within a period of two years after the question was raised, the case may, at the request of either Contracting State, be submitted for arbitration, but only after fully exhausting the procedures available under paragraphs 1 to 4 of this Article and provided the taxpayer or taxpayers involved agree in writing to be bound by the decision of the arbitration board. The decision of the arbitration board in a particular case shall be binding on both Contracting States and the taxpayer or taxpayers involved with respect to that case. The composition of the arbitration board and the arbitration procedures shall be determined by the competent authorities of the Contracting States. BRICS Law Institute: http: //bricslawinstitute. com

II. Tax Arbitration: SOUTH AFRICA – Switzerland 5. If any difficulty or doubt as to the interpretation or application of the Convention cannot be resolved by the competent authorities of the Contracting States in a mutual agreement procedure pursuant to the previous paragraphs of this Article within a period of three years after the question was raised, the case may, at the request of either Contracting State, be submitted for arbitration, but only after fully exhausting the procedures available under paragraphs 1 to 4 of this Article and provided the taxpayer or taxpayers involved agree in writing to be bound by the decision of the arbitration board. The arbitration board shall make a decision within one year after the case was submitted for arbitration. The decision of the arbitration board in a particular case shall be binding on both Contracting States and the taxpayer or taxpayers involved with respect to that case. The composition of the arbitration board and the arbitration procedures shall be determined by the competent authorities of the Contracting States. BRICS Law Institute: http: //bricslawinstitute. com

II. Tax Arbitration: SOUTH AFRICA – Canada 6. If any question, difficulty or doubt arising as to the interpretation or application of the Convention cannot be resolved or dealt with by the competent authorities as a result of the application of the provisions of paragraphs 1, 2 or 3, these questions, difficulties or doubts may, if the competent authorities agree, be submitted to an arbitration commission. The decisions of the commission shall be binding on the competent authorities. The composition of the commission and the arbitration procedures shall be determined by the competent authorities. BRICS Law Institute: http: //bricslawinstitute. com

III. MAP Case-Law: INDIA Herbalife International India Pvt. Ltd. v. ITO ITA No. 842 to 844 (Bang. )/2007 of 23 December 2009 Ø Taxpayer paid to the US resident „administrative service fees“ and treated them to be non-taxable in India. Ø Tax authorities charged withholding tax of 100% (90%) of the fees in India. Ø ITAT upheld the taxpayer since there was the MAP agreement treating the same service fees for previous tax periods as taxable only on 25% of them in India. See also: § Mc. Kinsey and Co. Inc. v. UOI, DDIT, DIT and Ors. , 13 April 2010; § Motorola Solutions India Pvt. Ltd. v. CIT, 11 October 2013; § UPS Worldwide Forwarding Inc. v. DIT, 25 October 2013, etc. BRICS Law Institute: http: //bricslawinstitute. com

III. MAP Case-Law: RUSSIA Ø Court upheld the taxpayer since the tax certificate without apostil is agreed with Cyprus under MAP (9 th Appellate Tribunal case № А 40 -124556/16); Ø Court considered that the agreement under MAP between Russia and Kazakhstan on acceptance of tax certificate without apostil is not applicable at the moment (9 th Appellate Tribunal case № А 40 -144798/16); Ø Court considered agreement under MAP between Russia and Norway on taxation of certain income of the Russian company (Murmansk Arbitration Tribunal case № А 42 -2441/2017); Ø Court considered agreement under MAP between Russia and Kazakhstan on the absence of a construction site PE in a given case (case № А 5019094/2014); Ø О проведении взаимосогласительной процедуры в рамках соглашения между РФ и Республикой Казахстан об устранении двойного налогообложения Письмо Минфина от 24. 04. 2018 № 03 -08 -05/27645 BRICS Law Institute: http: //bricslawinstitute. com

IV. BEPS MLI: BRICS MATRIX BRAZIL RUSSIA INDIA CHINA SOUTH AFRICA No Yes Yes Covered DTTs - 66 (BRA, IND, CHN, ZA) 93 (BRA, RUS, CHN, ZA) 102 (BRA, RUS, ZA) 76 (BRA, IND, RUS, CHN) MAP - - 16(5)(a) Corresponding Adjustments - 17(3)(a) - - Arbitration - - - BEPS MLI BRICS Law Institute: http: //bricslawinstitute. com

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