P O S TG RA D UA T E P RO G R A M ME I N L AW T AX TRE ATI ES AND CURRENT ISSUES I N I NTERN ATI ONAL T AX ATI ON LLP065C ASSESSMENT ESSAY JULY 2009 STUDENT NUMBER:…………………………………. STUDENTS MUST ATTACH THIS COVER SHEET TO THE FRONT OF THE COURSEWORK. THE QUESTION IS ON THE BACK OF THIS SHEET. PLEASE DO NOT WRITE YOUR NAME ANYWHERE ON YOUR ANSWER. DATE OF SUBMISSION: 31st July 2009 PLACE OF SUBMISSION: POSTGRADUATE REGISTRY CALCUTTA HOUSE ONLY FOR SUBMISSION OF COURSEWORK PROCEDURE – PLEASE SEE THE LLM GREEN HANDBOOK FOR 2008-09. YOUR ATTENTION IS SPECIFICALLY DRAWN TO THE OFFENCES OF PLAGIARISM, CHEATING AND COLLUSION MAXIMUM WORD LIMIT: 5,000 WORDS (NOT INCLUDING FOOTNOTES AND BIBLIOGRAPHY). Each essay must be submitted with its own cover sheet. This coversheet, with the question on the reverse side, should be attached to the front of your work. You are required to attach the University coversheet with your barcode to the front of your work. To download the University coversheet with your barcode, see page 18 of the LLM Course Handbook for 2008-09. Keep a copy of your essay in electronic form and also a paper copy. PLEASE DECLARE THAT THE WORD LIMIT HAS NOT BEEN EXCEEDED BY STATING THE NUMBER OF WORDS USED IN THE BOX BELOW: …………..WORDS ANSWER A) and B) A) The newly formed state of Oceania wishes to conclude tax treaties with a number of countries, including the UK. As a developing country, Oceania is in urgent need of inward investment and accordingly plans to put in place tax holidays for foreign enterprises and also very low or zero rate withholding taxes on dividends, interest and royalties. Cibelle, the director of the Tax Treaty Division of the Oceania Internal Revenue Department has asked you to critically advise her on the following: the judicial approach to tax treaty interpretation in the UK; whether Oceania should include in its tax treaties articles which apply to ‘tax sparing’ and ‘treaty shopping’; whether the OECD Model or the UN Model tax treaty is the most appropriate model for Oceania tax treaties to follow? B) Cibelle has been informed that Omega plc (‘Omega’), a UK telecom company with subsidiaries throughout the world, is planning to expand into the Oceania mobile phone market. Omega will initially send a small sales team to Oceania in 2010 and, assuming this is successful, then in 2011 Omega will open an office in Oceania with around ten staff including a regional director, to carry out market research, advertising, public relations and to handle customer queries. Omega project that annual profits from Oceania will be $20m in 2010, $55m in 2011 and peak at around $225m in 2014. If these projected profit figures are achieved, then in 2014 Omega will establish a Oceania subsidiary company, OmegaFree Ltd. (‘OmegaFree’), which will handle 80% of Omega telecom sales in Oceania although around 20% will continue to be handled by Omega plc from the UK. However, OmegaFree will have to pay a royalty of 40% (for the use of special Omega patented mobile technology) on all its gross telecom income to OmegaExtra Ltd, incorporated in the Cayman Islands, a wholly owned subsidiary of Omega plc. OmegaFree will also have to pay head- office expenses of around 20% of its gross income to Omega plc. Cibelle advises you that the usual telecom royalty fee in the region is 10% – 25% and that Oceania has transfer pricing legislation identical to that of the UK. Advise Cibelle on the possible Oceania tax liability of Omega and OmegaFree regarding their telecom operations in Oceania in the above circumstances. Cibelle plans to send Leo, who has recently joined the Oceania Internal Revenue Department, on secondment to the UK Inland Revenue to gain experience. Leo is a resident of Oceania and will stay in London from 1 January – 31 August 2010. In addition, Daniel, an inspector employed by the UK Inland Revenue International Division in London since 1995, will be seconded to the Oceania Internal Revenue Department from 1 January 2010 – 31 July 2011. Cibelle wishes to be advised on the residence for UK income tax purposes of Leo and Daniel during their respective secondments. For B) assume that there is UK-Oceania tax treaty in place in 2009 identical to the relevant articles of either the OECD or UN Model Tax Treaty. Where necessary, assume that the Oceania tax system is essentially identical to the UK tax system.