International Taxation

Case Study Questions

QUESTION $1$

Mr$.$ James Bond, a resident of country $C,$ has set up a shell company in a tax haven country D$.$ This shell company, Company X $($D$)$ Pte Ltd has then invested into a mining business in country A by setting up a subsidiary called Company X $($A$)$ Pte Ltd$.$ Company X $($A$)$ Pte Ltd has both place of incorporation and central management and control in Country $x$ and was able to receive exploration and mining license for precious metals from the Government of Country A$.$ After the successful discovery of nickel, Company X $($A$)$ Pte Ltd sold its mining license to a resident of country B for $$500$ million. After the sale was concluded, Company X $($A$)$ Pte Ltd transferred all of its sale proceeds to Company X $($D$)$ Pte Ltd and deregistered its company In Country A$.$ Company X $($D$)$ Pte Ltd now plans to invest $$400$ million into countries that provides tax free incentives and $Mr.$ Bond expects to receive dividends soon.

The Tax profile for countries are as follows:

Country A and B has a DTA which has the following rules:

Permanent Establishment $($PE$)$ taxed on business profits by source country.

Interest, Dividends and royalty taxed at $15\%$ by the source country.

Capital Gains only taxed in source country.

Country B has ratified Multilateral Instrument $($MLI$)$ while Countries A and C are still in process to ratify.

Country $C$ do not tax inward and outward dividends.

With the exception of Country D$,$ all countries have a very robust rule on anti$-$avoidance such as general anti$-$avoidance. Country D does not impose any taxes.

Required:

$($a$)$ Using the facts provided, explain which scheme has been created by Mr$.$ Bond and what are taxation consequences of these. General answers will be marked down as you will have to apply the above facts in your answer $[15$ Marks$]$

$($b$)$ How can Country A$,$ B$,$ C and D respond to the scheme created by Mr$.$ Bond. $[15$ Marks$]$