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Taxand's Take - Your regular update on the latest issues affecting multinationals
Welcome to the latest edition of Taxand's Take - your regular update on the topical tax issues affecting multinationals. Accessible online this newsletter is 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.
UK - Survey on UK Competitiveness: Slicing the Foreign Investment Pie
There is a strong correlation between reductions in effective tax rates and increases in foreign direct investment (FDI). We are constantly reminded of the Government's flagship competitiveness measure to cut the rate of corporation tax to 23 per cent by 2014. However, it is clear that this initiative alone will not have the desired effect of encouraging investment. Taxand UK recently surveyed a number of Tax Directors (primarily UK based multinational groups with turnover in excess of ?1billion) to understand the impact fiscal policy has on a country's competitiveness.
TRANSFER PRICING - Cross-Border Transfer of Cash Pooling Activities
A recent decision of the Administrative Court of Paris may have set a cat among the pigeons. For the first time in France, a tax judge held that the transfer of cash pooling activities from a French cash pool leader to a foreign group entity without any compensation should be considered as an indirect transfer of profits and accordingly confirmed the validity of the French tax authorities' tax reassessment. Although this decision may be superseded by a subsequent decision of the Administrative Court of Appeal or the Supreme Administrative Court, it illustrates how the French tax authorities are sensitive to business restructuring issues and not only dealing with autonomous activities but with intra-group activities as well. Taxand France takes an in-depth look at this unprecedented case and what it may mean for businesses considering restructuring in the future.
CANADA - Canada's Tax Advantage
Forbes magazine recently ranked Canada as the best country in the world in which to do business, up from its fourth place ranking in 2010. A significant contributor to Canada's improved ranking was "substantial improvement" in the competitiveness of Canada's tax system. Taxand Canada considers the tax advantage for multinationals investing in Canada as a result of improvements to the Canadian tax system.
NETHERLANDS - New R&D Incentive in the Netherlands
The 2012 Tax Plan introduced a new tax incentive the research & development deduction ("RDA"). The Proposed incentive is introduced to stimulate capital intensive research and development (R&D) activities in Netherlands and is expected to come in effect from 1 January 2012. The new tax incentive is an addition to the already existing tax incentives on R&D costs. The latter includes reduction of wage tax for employee expenses related to R&D, immediate deduction of investment costs related to development of intangible assets and finally the Innovation Box regime. Under the Innovative Box regime, income from qualifying intellectual property is taxed at a reduced effective rate of 5%. Taxand Netherlands analyses the implications of the proposed incentive for the investment climate in Netherlands.
GERMANY - Amendments to the German Anti-Treaty-Shopping Rules
Foreign entities holding shares in German corporations like an AG or a GmbH are completely or partially relieved from any withholding tax on dividends received on the basis of the applicable double tax treaties or the parent-subsidiary-directive. However, under the current anti-abuse provision of the German Income Tax Act (ITA), such foreign entities can only benefit from these exemptions if certain requirements are met. These include; existence of economic or other relevant reasons to interpose the foreign company as shareholder of the German entity in relation to the payments received; the foreign company has with respect to its own business purpose, adequate business substance to engage in general commerce; and more than 10% of the foreign company's gross income is derived from own business activities. Taxand Germany discusses these requirements and analyses the implications of this tax relief.
INDIA - Controversy around Treatment of consideration for software license
India's participation in international business has increased and accordingly, India has also witnessed a surge in "technology" agreements. Contracts involving sales of software products, provision of license to use the software etc have also increased. An important question about the taxability of cross border payments for purchase of software products has been subject matter of litigation in India for close to a decade. Generally, the Revenue Authorities ("RA") contest that these payments are to be regarded as payment for royalty and consequently, taxes should have been withheld by the Indian companies under the Indian Income Tax Act, 1961 ("the Act") read with the Double Taxation Avoidance Agreement (DTAA) entered into by India with the relevant country. While the taxpayers have been successful before certain Tribunals and the Authority for Advance Ruling ("AAR") in defending the position that the payment for a mere right to use the software should not be treated as royalty, the recent ruling of the AAR in In Re Millennium Software Ltd. has again stirred up the controversy. Taxand India discusses the controversy around software licensing in India, sighting rulings from recent court cases.
SUPPLY CHAIN - Tax Efficient Supply Chain Planning Trends in Asia
Supply Chain Planning is known in the market in various guises that include: Tax Efficient Supply Chain Management (TESCM) and Value Chain Planning. No matter what it is called, it exhibits the same key features: centralisation of functions, assets and risks. As multinationals seek to become more global or regional, adopting a business model that involves centralising key functions, assets and risks drive costs out of the business, while simultaneously creating operating efficiencies (refer diagram below). The result is the realisation of significant above-the-line savings. Taxand UK and Taxand Netherlands discuss potential savings in the Asia region for multinationals if supply chain planning is done in a robust manner.
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 of its firms 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 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 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 organisation of tax advisory firms. Each firm in each country is a separate and independent legal entity responsible for delivering client services.
(C) Taxand Economic Interest Grouping 2011