Overview of the 2009 Conference:
Prepared by PricewaterhouseCoopers, India
Introduction & Context
The Foundation for International Taxation hosted its 15th Annual International Taxation Conference in
Mumbai on December 3-5, 2009. The objective of the Conference was to discuss and deliberate on
some of the key international tax developments and transfer pricing issues with a focus on the recent
developments in the Indian tax arena including the draft Direct Taxes Code. The conference also
brought together world class experts on international taxation to disseminate technical knowledge on
the subject and to provide a better understanding of global international tax practices, developments
and trends. It attracted over 450 delegates from over 20 countries, and included senior officials from
both Indian and foreign tax administrations, for two and half days of lively discussion and debate on
international tax and transfer pricing developments.
The Conference came at a time when the subject of international taxation is gaining in importance in
India, both among revenue officials and tax payers. Moreover, the recent release of the draft Direct
Taxes Code, with its path-breaking proposals on international tax, has served to further the interest in
this field. Several of these proposals, including the General Anti-Avoidance Rule (GAAR) and the
Advance Pricing Arrangement (APA) are based on the experiences of other countries. In this
backdrop, the Conference aimed to bring in a much needed international perspective on how these
countries have dealt with these provisions, and whether there are any lessons for India. It will not only
stimulate, but hopefully influence the debate on this field in India, as India proceeds to finalise the
Direct Taxes Code.
The Conference was constructed around a number of technical sessions spread over two and half
days. Each session was chaired by an eminent personality in the field of international taxation and
included presentations on relevant topics followed by vigorous debate and discussion.
HIGHLIGHTS OF PRE-CONFERENCE SESSION
Highlights of Day One
[ Session 1 | Session 2 ]
Highlights of Day Two
[ International Tax Structuring for Investing Abroad | Transfer Pricing Issues | Advanced Pricing Arrangements ('APA') and Complete Issues | Bilateral v. Unilateral APAs - Some Issues | Functions, Assets and Risks ('FAR') FAR Analysis - Significance and Practical Considerations | Transfer Pricing Issues in Recession Years | Business Restructuring Minimizing Tax Liabilities | Select Transfer Pricing Problems Involved In Inter-Company Services | Transfer Pricing - The Year In Review ]
Highlights of Final Session
[ Final Session | Conclusion ]
In addition to the regular sessions on December 4 and December 5, 2009, a separate half-day preconference
session was held on December 3, 2009 on the proposed draft Direct Taxes Code. This
session featured a briefing on the Draft Direct Taxes Code by select international tax experts (tax
heads of some of the Big 4 accounting firms in India) as well as an overview of the Government’s
position presented by Mr. Arbind Modi, the former Joint Secretary to the Government of India, as one
of the principal authors of the Code. Mr. Modi gave the rationale behind some of the most widely
debated provisions of the Code such as the treaty override provision, the residency test, the branch
profits tax and the GAAR.
The speakers also included Mr. Peter Blackwood from Deloittes India (ex-Australian Tax Office) and
Mr. Dale Hill from Gowling Lafleur Henderson LLP in Canada, who appraised the delegates of the
Australian and the Canadian experience with the General Anti-Abuse Rules, and the various
safeguards that had been put in place in those countries to ensure that it was not misused. The
session concluded with a question and answer session in which Mr. Modi addressed queries from the
delegates on various aspects of the Direct Taxes Code.
HIGHLIGHTS OF DAY ONE
The Conference began with a general session on International Tax Developments chaired by Mr.
Sohrab Dastur, Senior Advocate in India. This session featured presentations by Prof. Arvid Skaar,
International Tax Lawyer and Author, Norway, Prof. Michael Lang, Head of the Institute for Austrian
and International Tax Law, WU, Austria and Mr. Ned Shelton, Directors, Sheltons (International Tax
Counsel), Denmark on technical topics having relevance from an Indian and international taxation
Prof. Arvid Skaar gave a detailed and insightful presentation on recent developments in the concept
of “permanent establishments” and their attribution rules in international tax law. Specifically, his
presentation addressed scenarios under which the rendering of services in a cross-border context
could result in the service provider having a taxable presence in the country where the customer is
located. By drawing on principles enunciated in various European, Canadian and Indian case laws,
Prof. Skaar brought out the objective, subjective and functional tests that are required to be fulfilled
before an entity can be said to have a permanent establishment in another country. His presentation
was especially relevant in an Indian context, given the global reach of the Indian services sector, and
the increasing need to manage tax risks across multiple jurisdictions.
Prof. Michael Lang spoke on the concept of “beneficial ownership” in tax treaties. He discussed the
growing trend among countries of seeking to deny tax treaty benefits on dividends, interest and
royalties, on the ground that the recipient was a mere conduit and not the “beneficial owner” of the
income. He also highlighted the lack of clarity on the meaning of the term “beneficial ownership” and
elaborated on the divergent approaches adopted by various countries in this regard. In view of the
increasing use of intermediate holding companies in cross-border acquisitions, this presentation
provided much needed insight on the various safeguards and issues that would have to be examined
in detail before setting up complex cross-border holding, debt and Intellectual property holding
The final presentation of the Session was by Mr. Ned Shelton on “Recent Judicial Trends in Tax
Treaty Interpretation”. In his presentation, Mr. Shelton referred to the growing trend in many countries
to override tax treaties based on domestic anti-avoidance rules, anti-abuse doctrines, etc. and
analysed the impact of such domestic rules on customary international law. He also noted that in view
of the several unilateral measures applied under the domestic law of various countries, tax treaties
had become significantly less reliable than at any time in the past.
The session closed with a discussion session, where panellists emphasised on the importance of
obtaining timely local advice on the question of availability of treaty benefits.
The issue of source-based taxation is a contentious one. It is especially relevant in the Indian context,
given India’s strong penchant for strong source-based tax provisions in its tax treaties. However, the
need for India to revisit this approach is being increasingly felt, given India’s strong economic
performance over the last two decades and the resultant expansion of Indian entities abroad. With
this in mind, the second session of the Conference was devoted to discussing various issues affecting
The session was chaired by Mr. Dinesh Kanabar, Executive Director and Leader of the Tax Practice
of PricewaterhouseCoopers Pvt. Ltd. The session featured a presentation by Prof. Richard Vann from
the University of Sydney, on the allocation of taxing rights to source countries under tax treaties. It
also featured presentations by Mr. Girish Dave, Chief Commissioner of Income-tax (formerly Director
of Income-tax (International Tax), Mumbai) and Mr. Pinakin Desai, Partner, Ernst and Young India on
India’s positions on the OECD Model Convention.
Mr. Vann drew on the experience of the Australian Government and emphasised on the need for India
to take a long term perspective and to move from a source to a residence based tax system. He noted
that the gap between India’s foreign direct investment inflows and outflows was narrowing at a rapid
rate, and observed that it may therefore not be advisable for India to insist on a source-based
allocation of taxing rights in all its tax treaties.
In the first of his two presentations on India’s positions on the OECD Model Convention, Mr. Girish
Dave took the delegates through India’s positions on various provisions of the Model Convention, and
the implications of such positions on the taxation of foreign persons in India. He noted that the
positions articulated in India’s reservations to the OECD Model Convention could serve as a guide to
taxpayers on the likely approach of the Indian tax authorities and as an indication of India’s tax treaty
policy in future tax treaty negotiations / renegotiations.
Mr. Pinakin Desai spoke about the key issues that arose out of the Indian Government’s position on
the OECD Model Convention. He observed that many of India’s positions were not consistent with
well established judicial precedents and that they added to the uncertainties faced by non-residents in
The proceedings of Day One concluded with a lively discussion session on the allocation of taxing
rights under Model treaties. This session was chaired by Mr. Roger Wheeler, former Tax Head-
General Motors and Marcus Desax, Partner, Walder Wyss & Partners Ltd. Switzerland, and former
President of the International Fiscal Association.
HIGHLIGHTS OF DAY TWO
Day Two began with a special discussion session on “Advance Pricing Arrangements and other
Compliance Issues” with panellists having significant experience in Indian as well as foreign tax
In order to cater to a wider audience, concurrent sessions were held on Day Two on (a) International
Tax Structuring for Investing Abroad, and (b) Transfer Pricing Issues.
International Tax Structuring for Investing Abroad
Overseas investments by Indian companies are on the rise. A growing number of Indian companies
have embarked on acquisitions abroad with a view to accessing large markets and to build global
super-brands. This trend is not limited to any specific sector, but is spread across a wide spectrum of
However, expanding across multiple jurisdictions is not without its fair share of challenges. In
particular, the need to efficiently structure the investments to manage tax costs and to efficiently
repatriate profits assumes significance. With this in mind, two sessions of the Conference were
devoted to a discussion on tax structuring for investing abroad. They were chaired by Mr Jairaj
Purandare, Senior Executive Director at PricewaterhouseCoopers in India and Mr Nishith Desai,
founder of Nishith Desai Associates in India respectively.
The sessions saw experts from key investment destinations such as the United States, the European
Union, Switzerland, China and Latin America make presentations on key features of the tax systems
of their respective countries and various structuring considerations that need to be borne in mind
when investing there. Other topics addressed by the speakers included an overview of tax rates,
availability of tax holiday benefits, hybrid instruments, common holding and investment structures etc.
Speakers also emphasised on the need to take into account factors such as anti-treaty shopping
provisions, CFC regulations, domestic anti-avoidance rules as well as the availability of tax credits.
The session also featured a presentation by Shefali Goradia of BMR Advisors on Indian tax and
regulatory considerations while investing abroad. Keeping with the global theme of the conference,
Mr. Pranav Sayta of Ernst and Young then spoke on the tax and regulatory aspects that global
investors need to bear in mind while investing in India.
Transfer Pricing Issues
Virtually a full day was devoted to the discussion and presentations on Transfer Pricing Issues as a
parallel session on Day Two. After a high level panel discussion on advance pricing arrangements
(APA), the two sessions were chaired by Uday Ved, Head of tax – KPMG and Samir Gandhi, Head of
Transfer Pricing at Deloittes in India.
Advanced Pricing Arrangements ('APA') and Complete Issues
Considering that the proposed introduction of the APA program in the Indian legal system has been of
significant interest to the taxpayers and the tax authorities, the conference had a detailed panel
discussion on the subject. The panel had a mix of speakers from the industry (Mr. Roger Wheeler -
former tax head, General Motors), the profession (Mr. Mukesh Butani – Partner, BMR), and several
foreign and Indian tax experts.
The focus of the discussion was to provide an insight into the APA program - need, procedure,
underlying benefits, associated costs / risks. It included as an example the Canadian APA program.
Summarizing the procedure, the panel highlighted that while providing certainty in tax liability of the
transaction for a defined period, Canadian APA program was a cooperative process which could be
renewed after the expiry of the initial term with a possibility of a “rollback” of the terms and conditions
of an APA to open tax years.
While giving due recognition to the advantages offered by the program, the panel unanimously agreed
that divulging sensitive information by the taxpayer to the tax authorities could pose a risk in the event
of non-conclusion of the APA program. For the Indian APA program to achieve the desired results,
the panel recommended that the program should be viewed as a business contract by both the
taxpayer and tax authorities with each party fulfilling its respective obligations in the best possible
Bilateral v. Unilateral APAs - Some Issues
Continuing the focus on the APA topic, Mr. Matthew Frank, Senior Tax Counsel – General Electric
Corporation, United States, provided a brief perspective on the bilateral and unilateral APAs. Frank
indicated that while the objective of a unilateral APA was to attain certainty of tax liability in the
particular jurisdiction, bilateral APA aims at providing relief from economic double taxation. He also
mentioned that bilateral APA is relatively costlier and time consuming process as compared to the
unilateral program. His presentation also outlined a brief statistics of the bilateral / unilateral
programs in few countries such as US, Canada, Korea and Australia.
The presentation was concluded with the thought that a bilateral APA should be resorted to by MNCs
having operations across countries with stakes involved being significantly higher and unilateral APAs
should be used to attain certainty in the defined jurisdiction.
Functions, Assets and Risks ('FAR') FAR Analysis - Significance and Practical Considerations
Mr. Shyamal Mukherjee – Head of Transfer Pricing, PwC India, presented his perspective on the use
of FAR analysis in transfer pricing studies. Explaining the process, Mr. Mukherjee indicated that it
involved an in-depth analysis and review of transactions, related functions, assets, risk and the
underlying documents such as agreements and business plans. The process not only facilitates an
appropriate comparability analysis but also provides significant business planning opportunities such
as conversion from a full fledged manufacturer to a contract manufacturer.
Mr. Mukherjee highlighted the significance of a FAR analysis in specific cases such as marketing
intangibles, high value services, business restructuring, profit attribution to permanent establishment
(‘PE’), business restructuring and management fees. In the context of marketing intangibles, giving a
reference to Glaxo US case, he pointed out that a FAR analysis helped in determining the beneficial
owner of intangibles by analyzing factors such as contribution of parties in the development process,
active decision making and the business and commercial expediency of marketing efforts.
Explaining the theory that “risks follow people and functions”, he explained that a FAR analysis helps
in determining appropriate return for an entity based on the level of functions (routine or strategic)
functions performed by its personnel. Continuing the discussion, Mr. Mukherjee indicated that FAR
analysis is a key for business restructuring in that it helps in identification of the relevant functions,
assets and risks that need to be restructured to achieve the desired financial results.
Advocating a need for an appropriate adjustment for differential risk profile of the comparables and
the tested party, Mr. Mukherjee concluded his presentation on the note that a robust FAR analysis is
the foundation of a sound transfer pricing analysis. Taking a clue from the Supreme Court ruling in the
case of Morgan Stanley and the OECD report on attribution of profits to PE, he emphasized the
significance of FAR analysis for determining the quantum of profits attributable to a PE.
Transfer Pricing Issues in Recession Years
Mr. Robert Ackerman, America Leader Transfer Pricing, E&Y, United States presented his thoughts
on the impact of the recent economic recession on businesses and corresponding transfer pricing
strategies. He presented an overview of issues such as loss, excess inventory, cash flow constraint,
reduced capacity utilization and extraordinary costs. Indicating that in such times the fundamental
assumption of transfer pricing, e.g. steady conditions of overall profitability, costs and revenues is not
met. He presented his view that the documentation of business and commercial reasons is of vital
importance to justify and defend the business outcomes.
Mr. Ackerman indicated that a good functional and industry analysis will help the taxpayers in
identifying the right comparables. To defend transfer pricing in recessionary times, he suggested that
the taxpayers could consider different transfer pricing methods and profit level indicators from those
traditionally employed. He also stressed on the need to make appropriate comparability adjustments
such as market, capacity, working capital, unforeseen economic events, etc. and suggested use of
regression analysis to make adjustments to comparables. While suggesting the maintenance of
contemporaneous documentation, he suggested that MNCs should review their transfer pricing
policies to better balance and support the results of the affiliates.
Mr. Ackerman advocated the use of “Reactive” and “Proactive” transfer pricing tactics by the MNCs.
“Reactive” tactics include making changes to the existing mechanism such as use of a stair-step type
of royalty structure v fixed royalty. “Proactive” tactics include identification of new avenues such as
imputing charges for intangibles otherwise given free of costs, guarantee fees and royalty. Presenting
his concluding thoughts, Mr. Ackerman highlighted that the recession can be used as an opportunity
by the MNCs for business restructuring by leveraging on the low IP valuations.
Business Restructuring Minimizing Tax Liabilities
As a stand-in speaker, Mr. Darpan Mehta – Director, BMR Advisors, India gave the presentation for
Mr Michael Murphy, Director, Alvarez & Marsal LLC, United States. He presented his thoughts on the
objectives, determinants and planning ideas around business restructuring. While highlighting that
cost saving is the inherent driver for such a change, he presented illustrations of business
restructuring such as outsourcing of manufacturing and services R&D, creation of back offices,
centralization of management, etc. He indicated that Effective Tax Rate (“ETR”) is one of the key
determinants for companies planning such restructuring which in turn is affected by the jurisdiction of
the various components of the supply chain. He indicated that a tax effective business restructuring
could be achieved by appropriately identification and movement of functions, assets and risks.
Mr. Mehta concluded the presentation with an advice to the MNCs to develop a robust global transfer
pricing plan in advance and to use the restructuring event to manage ETR rather than viewing the
same as a compliance requirement.
Select Transfer Pricing Problems Involved In Inter-Company Services
Mr. Robert Green – Partner, Skadden, Arps, Slate, Meagher & Flom LLP, United States, discussed
issues in certain inter-company transactions such as business restructurings, costs arising from
downsizing operations (plant closures / employee layoffs), location savings, stewardship activities and
treatment of pass through costs due to recessionary times.
In the context of the business restructurings, Mr. Green highlighted that the movement of functions
and risks could pose a risk of creating a PE and the MNCs need to give due consideration to them
while planning such restructurings. On the downsizing aspect, he gave a perspective that given that
such decisions are taken at the headquarters level, the tax authorities in the jurisdiction of the
affiliates might refuse deduction of associated costs in the hands of the affiliate.
Taking about the issue of location savings, Mr. Green gave a reference to Compaq’s case in US on
the subject and pointed that as of now there is no unanimity among the tax authorities across the
globe and it would be in the interest of the MNCs to justify the transfer pricing by maintaining robust
In conclusion, he mentioned that each transaction needs an in-depth analysis to justify the treatment
from a transfer pricing perspective.
Transfer Pricing - The Year In Review
Ms. Ellinore Richardson – Partner, Borden Ladner Gervais LLP, Canada and Mr Al Meghji, Partner,
Osler. Hoskins Harcourt LLP, Canada jointly presented an overview of the transfer pricing approaches
adopted in the US, UK and Canada. They presented the US perspective by discussing the case of
Xilinx Inc. v C.I.R. wherein the treatment of employee stock option for transfer pricing analysis was
considered. The UK perspective was presented by discussing the case of DSG Retail v. HMRC
wherein the concept of relative bargaining power was deliberated.
Describing the Canadian transfer regulations, they mentioned that they were broadly in line with the
OECD provisions. In this context, they discussed the case of GlaxoSmithKline v. Revenue which
dealt with the comparison of import prices of branded API with the local API. They also discussed the
recent case of General Electric Capital Canada Inc. v. The Queen wherein the issue of payment of
guarantee fee by the Canadian subsidiary to the US parent was under consideration. They also gave
a latest update that the case has been decided in favour of General Electric.
They concluded the presentation by discussing the recent changes to the transfer pricing guidelines
proposed by the OECD.
Recent Judicial Decision & Developments in Transfer Pricing in India
One of the highlights of the conference was the presentation made by Ms. Alpana Saxena – Director
of Income-tax (Transfer Pricing), Indian Revenue Services on the recent developments in the Indian
transfer pricing arena.
Ms. Saxena presented the department’s perspective on certain fundamental transfer pricing issues
and summarized the recent rulings in recent cases on the said issues. As a part of her presentation,
she inter alia covered the following issues:
- Transfer pricing rules v capital gains provisions
- Would transfer pricing rules apply to exempt income
- Parameters for comparability analysis
- Choice of profit level indicator
- Maintenance of the prescribed documentation
- Contemporaneous data for comparability analysis
- Burden of proof
- RBI permission v. Arm’s Length Price – Here Ms. Saxena held that an approval from RBI (such a
automatic approval of royalty payments) cannot be considered to be justification for the arm’s
- Penalties for transfer pricing adjustment
- Reopening of cases of preceding years based on transfer pricing order
Ms. Saxena also discussed the recent developments in the Indian transfer pricing regulations in the
form of introduction of safe harbour provisions, Dispute Resolution Panel and the developments
proposed by the recently issued draft Direct Tax Code. Ms. Saxena concluded that the said changes
are a welcome step that will help the Indian transfer pricing regulations move towards maturity.
HIGHLIGHTS OF THE FINAL SESSION
The final session comprised two panel discussions in which Mr. S.S.N. Moorthy, Chairman, Central
Board of Direct Taxes, India presided. The first discussion was structured as a question and answer
session with the Transfer Pricing Directorate of Government of India. In addition to Mr. Moorthy, this
session featured senior officials from the Transfer Pricing Directorate who shared their perspective on
recent transfer pricing audit methodologies and developments and answered queries put forward by
The Conference concluded with a panel discussion on the Draft Direct Taxes Code with selected
conference speakers and delegates chaired by Mr. T.P. Ostwal and moderated by Mr. Govindraj
Ethiraj, editor-in-chief of Bloomberg UTV India. In the discussion, various speakers emphasised the
need for India to ensure certainty and stability in its tax system. It was generally agreed that the Code
was a step in the right direction, even though several speakers raised concerns about provisions such
as the treaty override rule, the General Anti-avoidance rule, the residency rule, etc.
In response, Mr. Moorthy noted that several detailed representations had been received by the
Government in respect of the draft Code, and said that these representations were being looked into
by the Government.
The Conference brought together a number of high-level speakers and delegates from various countries and diverse backgrounds and provided a very useful forum for an exchange of viewpoints
and experiences. The result was a series of brilliant presentations, lively discussions and a brisk
exchange of ideas. Now in its 15th year, the Conference is firmly established as one of the leading
international tax conferences in Asia and perhaps the world.
Then next conference is scheduled in Mumbai on December 2-4, 2010.