SWICOP is a multinational mining company based in Switzerland. SWICOP operates in an office building in Switzerland that houses $50$ other multinational companies that are managed by one secretary and one administrator. SWICOP is owned $100\%$ by Glencore Ltd$,$ a mining company that is based in Australia. SWICOP owns $100\%$ shares of its subsidiary mining company in Liberia, called LIMCOP. In terms of the contractual agreement signed between LIMCOP of SWICOP, LIMCOP would carry out all the mining activities, but SWICOP would bear all the financial and business risks associated with the mining operations. LIMCOP$$s employees controlled and oversaw the mining operations, they sourced and invoiced products needed for mining, and they took care of the mining inventory, marketing, and sale of the minerals. Switzerland and Liberia signed a double tax treaty which entered into force on $9$ June $2019.$ This treaty replaces the earlier one which was signed in $1954.$ Liberia levies corporate tax at a rate of $30\%$ for mining operations. Liberia has an anti$-$avoidance provision which provides in section $95(1)$ of Liberia$$s Income Tax Act $($Chapter $323$ of the laws of Liberia$)$ provides that: "Where the Commissioner$-$General has reasonable grounds to believe that the main purpose or one of the main purposes for which any transaction was affected $($Whether before or after the commencement of this Act$)$ was the avoidance or reduction of liability to tax for any charge year, or that the main benefit which might have been expected to accrue from the transaction within the three years following the completion thereof, was the avoidance or reduction of liability to tax, he may, if he determines it to be just and reasonable, direct that such adjustments shall be made as respects liability to tax as he considers appropriate to counteract the avoidance or reduction of liability to tax which would otherwise be affected by the transaction$$ Liberia also has Income Tax $($Transfer Pricing$)$ Regulations which were issued in $2018.$

These regulations apply the arm$$s length principle and follow the OECD Transfer Pricing Guidelines of $2017.$ The following activities were carried out:

$$ LIMCOP produced $100,000$ tonnes of copper which was sold to SWISCOP at the value of $$990$ million. LIMCOP paid taxes in Liberia amounting to LRD $70$ million.

$$ SWISCOP extended a loan to LIMCOP to finance its mining activities at a rate of $20\%$ because SWICOP bears all the business and financial risk associated with the mining activities and that LIMCOP was operating at a loss. The prime interest rate at which Liberia$$s commercial banks loan money to customers is $10\%.$

$$ SWISCOP developed a design model that is used for the hydraulic excavating operations of mines. Since the design model was based on Switzerland$$s mining model, LIMCOP carried out some research and development to adapt the design model to suit the Liberian mining system. LIMCOP pays royalties to the tune of $$28$ million annually to SWICOP for the use of its design model.

Liberia Revenue Authority $($LRA$)$ issued a revised assessment of the taxes paid by LIMCOP. Assume that you are Mr$.$ Cooper employed by KLC$,$ a Domestic Tax Consulting Advisers. LRA commissions you to provide tax advice on the following:

$($a$)$ LRA asserts that LIMCOP has not paid the right amount of taxes in Liberia. Explain the grounds upon which LRA should base its arguments.

$($b$)$ LRA rejects the financing structure between SWISCOP and LIMCOP. Discuss the grounds upon which LRA should reject the financing structure.

$($c$)$ Explain the OECD BEPS recommendation for addressing excessive interest deductions.

$($d$)$ Explain how the OECD BEPS recommendations $($which are now included in the $2017$ OECD Transfer Pricing Guidelines$)$ would help Liberia address the transfer pricing issues that arise from the contractual agreement signed between LIMCOP and SWISCOP, whereby LIMCOP would carry out all the mining activities but SWISCOP would bear all the financial and business risk associated with the mining operations.

$($e$)$ LRA rejected the deduction for royalty payments paid by LIMCOP to SWISCOP. Concerning the OECD Model Tax Convention and the $2017$ OECD Transfer Pricing Guidelines about intangibles which were updated in light of the OECD BEPS Project, discuss the grounds upon which LRA would reject the royalty payments.