Please type out, no handwriting

International and Singapore Taxation

B Pte Ltd ("BPL") is a company incorporated and resident in Country B. Its principal activities consist of manufacturing widgets for sale to its end customers. Currently, BPL has its manufacturing plant and operations in Country B. The Board of Directors ("BOD") of BPL are considering the following investment options in Country C, where BPL has secured many end customers in the last two financial years: Option 1 A branch office shall be set up in Country C. Ten employees of BPL will be relocated to the branch in Country C to attend to customers' inquiries on BPL's widgets. Customers in Country C will contact these employees to place the orders who also have the authority to accept them. Option 2 A wholly-owned subsidiary in Country C shall be incorporated, with the sole purpose of conducting all the marketing activities for BPL's widgets using its marketing channels and attending to customers' inquiries. Any orders placed by these customers in Country C will be forwarded to BPL for negotiation and acceptance. The subsidiary will bear the marketing expenses and be compensated with an arm's length marketing service fee from BPL. You can assume that this subsidiary will be a tax resident in Country C if this option is chosen. BPL has another wholly-owned subsidiary, D Pte Ltd ("DPL"), which is incorporated and resident in Country D. For this purpose, DPL will purchase the widgets from BPL and resell them to customers in Country D. BPL also has another wholly-owned subsidiary, E Pte Ltd ("EPL") which is incorporated and resident in Country E. EPL functions as the Group Finance Company which will source for the most cost-effective external sources of funds and grants loans to other group companies. DPL is currently expanding its operations in Country D and requires funding for such expansion. There are two possible alternatives to make funds available to DPL in Country D. Alternative 1 EPL will borrow an interest-bearing loan from a bank located and resident in Country C [Note: such funds were from deposits placed by residents in Country C]. Using these borrowed funds, EPL will grant an interest-bearing loan to DPL. - Alternative 2 EPL will borrow an interest-bearing loan from BPL as the latter has surplus funds. Using the borrowed funds, EPL will grant an interest-bearing loan to DPL. The relevant tax information of the various jurisdictions are as follows: A All DTAs are identical to the OECD 2017 Model Tax Convention. You can also assume that all countries adopt the worldwide tax system for their tax residents and the ordinary credit method to mitigate against double taxation. Required: (a) In respect of the profits arising from the sales of widgets to the customers in Country C, discuss the tax implications for the relevant countries if: (i) Option 1 is adopted. (5 marks) (ii) Option 2 is adopted. (7 marks) (b) In respect of making the funds available to DPL, discuss the tax implications for the various parties if (i) Alternative 1 is adopted. (9 marks) (ii) Alternative 2 is adopted. (4 marks) You may assume that the quantum of the loans and the arm's length interest rates in each alternative are the same. In answering Part b(ii), you are not required to repeat any income tax implications that are identical in Part b(i)