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Taxand's Take - Your regular update on the latest issues affecting multinationals
Welcome to the second edition of Taxand's Take - your regular update on the latest tax issues affecting multinationals. Taxand's Take has taken over from Taxand's Quarterly newsletter which has been running for several years. Accessible online this topical newsletter will be sent to you every two months. And Taxand's Take will give you just that - informed opinion on the latest tax changes and how they affect you.
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FEATURE: Trends in Executive Compensation Strategies and Design
In the aftermath of the economic meltdown there continues to be strong public resentment of excessive bonuses for executives of banks and public companies. The failure to take risk management principles into account in setting up executive compensation packages has been identified as a contributing factor to the financial crisis. Government regulators are imposing strict disclosure requirements and there is an international trend toward greater regulation of executive compensation practices. Shareholder advisors are establishing governance guidelines and "say on pay" requirements and there is generally increased shareholder engagement in the process. All of this has heightened accountability for directors and compensation committees in setting the compensation strategies for their companies. Taxand Canada investigates examples of design strategies for executive compensation packages that satisfy the shareholder governance standards and regulatory requirements, as well as mitigate the disincentives and costs of adverse tax treatment.
US: New Withholding Tax Regime will result in Heavy Burden on Non-US Entities with US Investments
On 18 March 2010, President Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act. Foreign financial institutions, foreign non-financial entities, and US based multinationals will face significant new burdens as a result of the US's newly adopted withholding and reporting regime. At its core, the new regime requires all foreign intermediaries, foreign investment vehicles and other foreign entities to disclose their US account holders and investors (both direct and indirect, i.e., looking through tiers of foreign entities) and provide certain information. Non-compliance will result in a 30 percent withholding tax on all US dividends, interest payments and gross proceeds from the sale of certain stock and securities.
Taxand US examines the statutory changes and identifies the compliance challenges non-US firms will face as the law requires that foreign entities make changes to the way they operate in the United States and abroad.
MALAYSIA: Goods & Services Tax (GST) - Changes for Malaysia
The Malaysian Government announced its intention to introduce GST into the Malaysian tax framework in December 2009, and the GST legislation was expected to have been enacted as law in March/April 2010. However, in an unexpected turn of events, the introduction of GST has been deferred pending further studies by the Government on the impact of GST, etc. GST has been mooted for several years and was initially to have been introduced with effect from 1 January 2007. However, its introduction at the time was postponed until the recent December 2009 announcement. The further deferral which has recently been announced creates some uncertainty as to when GST will be introduced, but the general expectation is that the Government will introduce GST as there is a need for an alternative sustainable source of tax revenue.
GST will replace the existing sales tax and service tax regimes and is expected to be imposed at the rate of 4%, which will be one of the lowest, if not the lowest rate amongst countries which have a GST or Value Added Tax (VAT) system. Taxand Malaysia investigates the impact of the GST regime when this is introduced and recommends how businesses can prepare so they can benefit.
CHILE / US: Income Tax Treaty Signed
On 4 February 2010, after more than a decade of negotiations, US Treasury Secretary Geithner and Chilean Finance Minister Velasco signed the first bilateral income tax treaty between the United States and Chile. On signing the new treaty, the two governments also agreed to the provisions of a protocol to the treaty that incorporates some important modifications and definitions. Each country must still ratify the treaty before it will enter into force. Taxand Chile and Taxand US provide an overview of the ratification process and the effective date of the new treaty. Taxand Chile and Taxand US also summarise some of the key provisions of the new treaty with respect to interest, dividends, royalties, capital gains, and permanent establishment. Finally, Taxand Chile and Taxand US identify the impacts and benefits for multinationals looking to structure cross-border investments between Chile and the US as a result of this new treaty being signed.
UK: Transfer Pricing Audits on the Rise
UK transfer pricing audits have been increasing steadily over the past decade. The trend is expected to continue in 2010, with some 1,000 outstanding cases at present related to UK transfer pricing. However, despite increased audit activity, the UK tax authorities are taking a measured approach to the selection of audits. This is encouraging for the many businesses that are making reasonable efforts to comply with the UK legislation.
Taxand UK explains the 'gate' process undertaken by UK Tax Inspectors in selecting and pursuing UK transfer pricing audits. Being aware of these procedures will help businesses decide on which resources to allocate to this area of UK taxation.
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SPAIN: R&D - Getting the most out of tax benefits for R&D and royalty income.
In recent times many companies have been forced to focus their energies almost exclusively on their immediate concerns aroused by the economic crisis: drop in revenue, cash and credit shortages, excess capacity, etc. However, as the end of the crisis seems to be drawing closer companies need to plan realistically for their future. In this context optimising their investment in R&D and other intangibles will rank high in their agendas.
The Basque Country (an autonomous region of northern Spain) can offer many opportunities to companies developing and owning intangibles: qualified personnel, a well established entrepreneurial tradition and business infrastructure, and subsidies and interest free loans. The Basque Country also enjoys autonomy to enact its own tax legislation, and it has used this to offer a unique set of tax benefits to R&D activities and to the licensing of intangibles. Spain discusses the tax treatment of intangibles under Basque autonomous corporate income tax legislation and the tax saving opportunities it provides for businesses.
The information contained in this document is intended only to be a guide. It must not be relied on in, or applied to, specific situations without previously seeking proper professional advice. Even though all reasonable care has been taken in its preparation, Taxand and all the members of this network do not accept any liability for any errors that it may contain or lack of update before going to press, whether caused by negligence or otherwise, or for any losses, however caused, or sustained by any person. Descriptions of, or references or access to, other publications within this publication do not imply endorsement of them. As provided in the US Treasury Department Circular 230, this tax newsletter is not intended, or written by any Taxand member firm, to be used, and cannot be used, by a client or any other person or entity for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
Taxand member firms have produced this tax newsletter in connection with the marketing of our tax services relating to matters discussed therein. Each taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor. Taxand is a global network of tax advisory member firms. Each member firm is a separate and independent legal entity responsible for delivering client services.
(C) Taxand Economic Interest Grouping 2010