Created attachment 83743 [details]
example with margins, borders and padding

In ODF1.2 the spacing around paragraphs is done with the properties
fo:margin, fo:border and fo:padding. [chapter 20.198, 20.176, 20.210] They have no own definitions, but take the definitions from $7 in XSL http://www.w3.org/TR/2001/REC-xsl-20011015/. And XSL uses directly the definitions from CSS2. And there we find the "Box model" http://www.w3.org/TR/CSS2/box.html. So in turn AOO should render paragraphs as defined in this "Box model".

1.
The margin area is transparent. In chapter 8.2 in CSS2 "Margin backgrounds are always transparent."
Error: Writer extends the paragraph background into the top-margin, see first page of attached document.

2.
The properties margin, border and padding are independent usable.
Error: Writer removes padding, when no border exists, see second page of attached document. The last text there should have a padding.

I have found several issues with descriptions from a user point of view. I will set them as duplicate to this. But the problems described there should be considered when working on this issue.