THESE days everybody seems to be speaking on behalf of the developing countries but for such countries themselves. The OECD seems to champion their cause by constantly haranguing that these countries now are part of the decision making process relating to international taxation 'on an equal footing' apparently by virtue of their being part of the inclusive framework. The United Nations committee formed specifically to look after the interest of the developing countries seem to be in awe of the OECD. Besides, it is understaffed, poorly financed and much of its recommendations emanate from subcommittees that are also mostly dominated by representatives (specialists/business) of developed countries . Efforts at elevating the status of the committee at the UN came unstuck because of lack of financing. Now, another player has come on the filed – it is called the platform for collaboration, which is a combination of the bureaucracies of four players - World Bank, IMF, OECD and UN. There are no government representatives in the platform much less from developing countries.

According the World Bank website, in April 2016 a joint effort was launched by the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the United Nations (UN) and the World Bank Group (WBG) to create a Platform designed to intensify the cooperation between these organizations on tax issues. It is stated that the said platform formalizes regular discussions between the four international organizations on the design and implementation of standards for international tax matters , strengthens their ability to provide capacity-building support to developing countries, and helps them deliver jointly developed guidance . Iinteresting to note that the paltform is also supported by the governments of Luxemburg, Switzerland, and the United Kingdom.

According to a concept paper that was developed, considering the fact that the aim of these organisatons is to support governments in addressing the tax challenges they face,the platform will provide a structured framework for

"1. Producing concrete joint outputs and deliverables under an agreed work plan, implemented in collaboration by all or selected IOs, and leveraging each institution's own work program and comparative advantage. The outputs may cover a variety of domestic and international tax matters.

2. Strengthening dynamic interactions between standard setting, capacity building and technical assistance (experience and knowledge from capacity building work feeding into standard setting and vice-versa, including timing of implementation).

3. Sharing information on activities more systematically, including on country level activities."

It is mentioned that G-20 has requested for 8 toolkits to be developed and that it has already produced one paper titled: Options for Low Income Countries' Effective and Efficient Use of Tax Incentives for Investment and one more titled- Enhancing the Effectiveness of External Support in Building Tax Capacity in Developing Countries.

Thus, while the work of the platform so far has been rather non-controversial, the recent ongoing work relating to the development of a toolkit for taxation of indirect transfers has generated considerable debate. The platform had called for comments on its first draft. There were some stinking comments from many including one from the government of India. Before going into the details of the report put out by the platform, some preliminary points may be noted.

The platform is supposed to develop a toolkit. A tool is something that helps you to do a particular activity and a toolkit is a set of tools. The idea of developing a toolkit and that too for daft 'developing countries' is that the recommendations will help administrations of such countries to easily apply the principles set in there. Ideally, such toolkit should be easy of comprehension and should not further compound the confusion. Unfortunately however, the language used in the paper is dense and it raises more questions than provides answers.

The topic is taxation of indirect transfer and should be of interest to India. In fact, in the context of the BEPS project, the UN had asked for comments from the developing countries as to the issues that such countries considered as important from the point of view of base erosion and many developing countries had flagged the taxation of offshore indirect transfers as one of such topic. Since this was not dealt with by the OECD in its lengthy project, the G-20 had requested the platform to develop such a toolkit. The UN is working separately in the context of the extractive industries.

It may be recalled that the first serious look at the issue of indirect of valuable assets arose from out of the famous Vodafone case in India. The draft report mentions as such. In fact, the report mentions three cases- of which two relate to telecom business- Vodafone and Zain. Vodafone case is well known by now. The Zain case has also an Indian connection and concerns our very own Bharti Airtel group. In this case, as presented in the report, in 2010, a Dutch subsidiary of Bharti Airtel International BV purchased from Zain International BV, a Dutch company, the shares of Zain Africa BV another Dutch company for US$10.7 billion, which in turn owned the Kampala-registered mobile phone operator Celtel Uganda Ltd. The Uganda Revenue held Zain International BV liable for the corresponding capital gains tax, amounting to US$85 million. In contrast to the decision of the Supreme Court in Vodafone, Uganda's Appeals Court, overturning an earlier ruling by the High Court of Kampala, ruled that the revenue did have the jurisdiction to assess and tax the offshore seller of an indirect interest in local assets. (In Vodafone, the Bombay HC had ruled in favour of the revenue and this was overturned by the Supreme Court, leading to the retrospective amendments in the provisions relating to capital gains and business connection etc.) This issue apparently remains unresolved in the Zain dispute.

The other case cited in the report involves a petroleum company. In 2009, Ecopetrol Colombia and Korea National Oil Corp purchased a Houston-based company whose main asset was Petrotech Peruana, a Peruvian company holding the license from Petrotech International, a Delaware based company. In the absence of a specific provision taxing offshore indirect sales, the transaction involving a potential gain of US$482 million remained untaxed, triggering a Congressional investigation in Peru that eventually led to a change in the law allowing taxation( subject to some conditions) of all offshore indirect sales of resident companies.

The report mentions that the revenue implications in all the three cases were substantial. Considering the unilateral approach adopted by some countries in responding to the issue that differed widely, both in terms of which assets are covered and the legal approach taken, the authors of the report thought that there was is a need for a more uniform approach to the taxation of such offshore indirect transfers since a greater coherence could help secure tax revenue and enhance tax certainty. (This premise has also come for criticism from civil society members).

It examined the issue from an economic perspective and found a strong case in principle, for a wide class of assets, for the taxation of such transfers by the country in which the asset is located. More controversially however, the report analysed the OECD and UN Model conventions and took the position that most of the existing tax treaties concerned themselves with the taxation of indirect transfers involving immovable properties. It examined Articles 13(4) of the OECD 2017 Model and also the proposed 2017 UN Model that deal with the situations where the underlying assets that are transferred are immovable properties. The report rightly points out that as of now, in so far as this particular provision is concerned there is no difference between the OECD and the UN Model.

Summing up the various issues involved in indirect transfer, the final assessment of the platform in this regard was as follows: "The arguments are not all in one direction, but on balance favor allocating taxing rights with respect to capital gains associated with transfers of immovable assets to the country in which the assets are located, regardless of whether the transferor is resident there or has a taxable presence there. In equity terms, this mirrors the generally recognized right in relation to direct transfers; in efficiency terms, it provides one route to the taxation of location specific rents-highly imperfect, but potentially valuable when preferred instruments are unavailable or weak-and fosters neutrality between direct and indirect transfers. Not least, it can pre-empt the evident risk of domestic political pressures leading to uncoordinated measures that jeopardize the smooth and consensual functioning of the international tax system and give rise to tax uncertainty."

The report did not find a convincing reason to make a differentiation between movable and immovable properties: "The rationale, in terms of economic principle, for limiting this treatment to immovable assets is unclear. Much current practice is already sharply at odds with this; while primary taxing rights are frequently given to the source country in relation to immovable property but to the residence country in the case of equity participation in other businesses, there are some notable exceptions, such as the cases of Peru and India discussed later…" Nevertheless, the report ultimately ended up by doing precisely that and suggested limiting the source country taxing rights to immovable properties only albeit with an artificial expansion of the term immovable property.

The report proposed a minimal definition along with an extended definition of immovable property as follows:

"immovable property" includes a structural improvement to land or buildings, an interest in land or buildings or an interest in a structural improvement to land or buildings, and also includes the following - (a) a lease of land or buildings;

(b) a lease of a structural improvement to land or buildings;

(c) an exploration, prospecting, development, or similar right relating to land or buildings, including a right to explore for mineral, oil or gas deposits, or other natural resources, and a right to mine, develop or exploit those deposits or resources, from land in, or from the territorial waters of, Country L (Source country); or

(d) information relating to a right referred to in paragraph (c).

(e) A right granted by or on behalf of the government (whether or not embodied in a license) to be a supplier or provider of: (i) goods (such as radioactive material); (ii) utilities (such as electricity or gas); or (iii) other services (such as telecommunications and broadcast spectrum and networks), countrywide or within a geographic area of Country L."

Thus, the report seemed to restrict its recommendation for taxing capital gains arising out of indirect trnasfers only to the cases of immovable property for which enabling provisions already exist in the tax treaties and at times in the domestic laws as well.

It may be recalled that Article 13 (5) of the UN Model that does not exist in the OECD Model, gives power of taxation to source countries in respect of gain on the disposal of shares by a non-resident arising on shares of a company that is itself resident in the source country. However, it notes that this treaty provision extends only to shares in companies resident in the source country. That is, it only applies to offshore direct ownership in such companies. This requirement makes Article 13(5) rather easy to plan around. The report therefore takes the view that Article 13(5) is unnecessary if the definition of gains covered in Article 13(4) is sufficiently broad to include those arising on location specific rents clearly linked to national assets - such as telecommunication licenses-as well as traditional "immovable assets," such as real estate. It also mentions that article 13(5) is not often actually found in the tax treaties.

As mentioned earlier, public comments were invited on the platform's recommendations. While some challenged the locus standi of the platform in standard setting, the government of India made a very strong point relating to this aspect of the report. More particularly with reference to the emphasis on indirect transfers from immovable properties, the Government of India maintained:

"10. India does not agree with conclusions of the draft report that the primary issue relates to taxation of immovable property, or that the 'key issue' is the appropriate definition of "immovable", which are clearly not based on the detailed discussion and economic analysis included in the rest of preceding draft. India would like to point out that the issues related to taxation of capital gains from immovable property have already been dealt with in the BEPS project and are currently in the process of implementation in the MLI. The definition of 'immovable property' is also available in Article 6 of the Model Conventions as well as their Commentaries on Article 6. Hence, restricting the conclusions and recommendations to capital gains from immovable property will convert this report into a meaningless exercise .

10.1 Accordingly, India strongly urges the platform for collaboration on taxes,which was constituted on the request of G-20 to address the challenges faced by developing countries that were not taken up during the BEPS project , to focus equally on the capital gains from indirect transfer of movable assets, to the extent the capital gains from the direct transfer of those asset are taxable under Article 13 (5) of the model conventions or analogous provisions in the treaty."

India has also questioned other aspects of the report but we do not discuss the same here. However, there is one more interesting tussle that may be highlighted. The platform had given the example of the Vodafone case. The India government response also pointed out that its understanding of the case was not absolutely correct and suggested a different language:

The platform has since responded to the various comments/criticisms and has now come up with a revised version. As for the concerns raised by India and also of the BEPS Monitoring group that had recommended that the scope of the report should be broadened to include indirect transfers of all kinds of assets, without limitation to immovable assets and that, all countries should be urged to sign the MLI including article 9(4), without reserving on this inclusion of UN/OECD article 13(4), the platform did not accept the same. It has also not altered the language of its understanding of the Vodafone case.

Very surprisingly, some of the organisations representing business interests including USCIB and International Chamber of Commerce were also not happy with the report and had questioned its locus- standi observing that the draft proposes significant shifts in taxing rights and articulates new policy considerations; that changes in taxing rights between source and residence countries should be resolved among countries in multilateral fora, not by the staff of the international organisations in a document intended to provide guidance. The platform has responded as follows:

"The revised draft explains the role of the requested toolkits by the Platform - that is, that no standards are set here, and that the toolkits do not represent the official views of any of the Partner organizations, but rather constitute staff analyses.

The revisions try to make clear that the allocation of primary taxing rights to source countries in the case of indirect transfers of immovable property derives from existing model treaty practice, expanded most recently in the BEPS process embodied in the multi-lateral convention; and has been also embodied in various forms, less or more expansively, in many countries' domestic laws already.

The draft does explore an expansion of the definition of "immovable property" to anchor the concept of taxing rights in an economic basis (i.e., location specific rents derived from traditionally defined "immovable property" or from the grant of other rights by governments that yield location specific rents). The draft proposes several alternative definitions that countries could use whether or not they wish to expand the concept to a greater or lesser extent. This is a fundamental part of the economic analysis provided, which it is hoped could yield greater certainty in the adoption of taxing rights."