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TAX TREATIES AND ISSUES IN INTERNATIONAL TAXATION

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					          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.

				
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