InTernATIonAl TAX news€¦ · WTS alliance c/o WTS aGr Steuerberatungsgesellschaft Thomas-Wimmer-ring 1-3years, ... report on this topic which states that the governments of the

TAX newsInTernATIonAl

August 2010

which Tax Consequences and opportunities arise from the Financial Crisis?even though the global economy is showing signs of recovery, the financial crisis has left a wake of tax planning opportunities and pitfalls that multina-tional companies should consider.

Despite the global impact of the financial crisis – the tax ramifications are coun-try specific. In this issue we present current deve-lopments from ten select jurisdictions.

“At the end of an economic crisis companies often need capital restructuring which should not affect the utilization of tax losses.”Dr. Christoph SesekeWTS Seseke France

Table of Contents

1. China:Chinaenhancessupporttosmallandmedium-sizedenterprises.............................32. Denmark:TaxconsequencesoftherestructuringofDanishcompanies.............................43. FranCe:LossutilizationandcapitalrestructuringinFrance................................................54. Germany:howdotaxesaffecttherefinancingandrecoveryofGermancompanies?.........65. inDia:StrengthenedGeneralanti-avoidancerulesinindiainordertoincreasetaxrevenues...... 86. iTaLy:italiantaxrulesgetworseinthelightofliquidityrestraintsanddecliningprofits......107. PorTuGaL:Portuguesegovernmentintroducesmeasurestoconsolidatethebudget........118. ruSSia:Waysoffinancingandrefinancinginrussia.........................................................129. ukraine:ukrainianeconomysuffersfromadditionaltaxburdens.....................................1310.uSa:Claimingalossforabandonedgoodwill....................................................................14

2 | InTernATIonAl TAX news

WTSalliancec/oWTSaGSteuerberatungsgesellschaftThomas-Wimmer-ring1-380539munich,Germanywww.wts.de·[email protected]

editorialTeam:WinfriedFignaTel.+49(89)28646-178Fax-49(89)28646-111SilkekoehlerTel.+49(89)28646-224Fax+49(89)28646-2323authors:markGao,niclasholstSonne,Dr.Chris-tophSeseke,WinfriedFigna,kunjanGandhi,Giovannirolle,marinaLombardo,alexandreandrade,VitalySinitsin,elenaBukuyeva,Stuarta.kwestel

artDirector:klausSeele,liquidstreamPrinting:DrSBusinessPrintServicesGmbh

WTSalliancehasmembersinargentiniaaustralia•austria•Brazil•ChinaelSalvador•Finland•France•GermanyGhana•india•indonesia•iran•italy•Liberiamalta•mexico•netherlands•nigeriaPoland•Singapore•Spain•SwedenSwitzerland•Taiwan•Turkey•ukraine•uSa

This issue of INTERNATIONAL TAX NEWS is

published by WTS Alliance. The information is

intended to provide general guidance with respect

to the subject matter. This general guidance should

not be relied on as a basis for undertaking any

transaction or business decision, but rather the

advice of a qualified tax consultant should be

obtained based on a taxpayer’s individual

circumstances. Although our articles are carefully

reviewed, we accept no responsibility in the event

of any inaccuracy or omission. For further

information please refer to the authors.

Imprint

Thefirstgoodnewsaftertheglobaleconomicandfinancialcrisisisanindicatorofaspreadingrecovery.however,itwilltakemonthsorevenyearstoovercometheimpactofthismassivemarketdownturn.ThisisreasonenoughforustodevotethisissueofinternationalTaxnews,whichisalsodistributedattheConferenceoftheinternationalFiscalassociation(iFa)inrome,tothespecificeffectsoftheeconomicandfinancialcrisisontax-relatedmattersinvariouscountries.Theauthorsofthisissueprimarilydealwiththequestionofhowthisaffectscompaniesintherespectivecountries.onethingiscertain,atleastineurope:Furthertaxcutscannotbeexpectedasgovernmentshaveinvestedconsiderableamountsinboostingtheeconomyandarenowshortofmoney.increasedpublicspendingtostimulateaneconomicrecoveryandconsolidationrequirementsfornationalbudgetshardlyallowforareductioninpublicrevenues.inthecourseofthepasttwoyears,therehasbeensomedevelopmentineuroperegardingcompanytaxationandproperty/wealthtaxesinparticular.TheeuropeanCommissionhasjustpublishedaeurostatreportonthistopicwhichstatesthatthegovernmentsoftheeucountrieshaveappliedfiscalmeasuressoastoalleviatetheimpactoftheeconomiccrisisandtopreventaninvestmentbacklog.recently39.3percentofthegrossdomesticproductwentdirectlytotreasury.Forthefirsttimeinfouryears,taxrevenueasshareofGDPdeclinedfromthepreviousyear’slevelin2008,thoughonlyby0.4percent.amongeuropeancountries,DenmarktopsthelistwithtaxrevenueasshareofGDPofover48percent.Thelowestshareisrecordedinromaniawithonly28percent.Theaveragetaxburdeninthe27eucountrieshasremainedhighcomparedtoothercountriesaroundtheworld.onereasonforthisisthecomprehensivesocialsystemsinplacethroughouteurope.TaxpayersintheeuarechargedaboutathirdmoreintaxesthantheircounterpartsintheuSorJapan.however,anupwardtendencycanbeobservedintheareaofexcisetaxes.onaverage,VaTintheeuhasrisenfrom19.2to20.2percentinthelasttenyears.atthesametime,incomefromexcisetaxeshasdeclined,in2008by0.7percent.Thisisthemostsignificantdeclineeverrecordedforanindividualyearandthusaclearindicatoroftheseverityofthecrisis.ThisissueofinternationalTaxnewstellsyouaboutcompanies’mostpressingconcernsduringthetransitionoutofthecrisisintermsofrefinancing,ensuringtaxlosses,benefittingfromtaxincentives,andothertaxmatters.inindividualcases,wealsoventurealookintothefutureandwhichdevelopmentspertainingtotaxpolicyitmighthaveinstoreforcompanies.Theseandothertopicscanbefoundonthefollowingpages.iwouldliketothanktheauthors–fromrussiaandScandinavia,Franceanditaly,indiaandChina,Portugal,ukraineandtheuSa–whohaveexaminedthetax-relatedaspectsofthecrisisforthisissue.enjoytheread!

yourssincerely,

WinfriedFignaBoardmember,WTSaGSteuerberatungsgesellschaft

Preface

August 2010

August 2010eDITorIAl

3 | InTernATIonAl TAX news August 2010

ChInA

In order to alleviate the impact of the economic crisis and get the capital market recovered as soon as possible, China expanded the financing channels for small and medium-sized enterprises by launch of Growth Enterprise Market and encouragement of consolidated bonds issuance. Simultaneously, the Chinese government also provides the fiscal support by stressing the tax incentives for institutions which provide credit guarantees on small and medium-sized enterprises (“the institutions”), and by further reducing the tax burden on small and low profit enterprises.

China enhances support to small and medium-sized enterprises

GrowTh enTerPrIse MArkeT

ChinalaunchedtheGrowthenterprisemarketin2009withtheaimtoacceleratethedevelopmentofautonomous-innovationenterprisesandgrowingenterprises.

inJune2009,ShenzhenStockexchangeannouncedrulesofofferingStocksontheGrowthenterprisemarketfollowedbytwenty-eightstocksbeinglistedonoctober30th,2009.

ThecomparisonoftherequirementsforstockissuanceinthemainBoardmarketandtheGrowthenterprisemarketislistedinthechartbelow.

ConsolIDATeD BonDs oF sMAll AnD MeDIuM-sIzeD enTerPrIses

onmarch28th,2009,theministryofindustryandinformationTech-nologyissuedtheCircularGongXinTingQiyehan[2009]no.170tofurtherencouragetheconsolidatedbondsofsmallandmedium-sizedenterprises.

Consolidatedbondsrefertothekindofbondwhoseissuerisconsti-tutedofseveralsmallandmedium-sizedenterprises.Theenterprisescandeterminetheirissuancescaleseparatelybuttaketheformofacombinedbondwithasamenametotheinvestors.

Fromthefinancialmanagementperspective,thecostofconsolidatedbondsislowerthanthatofstocks,sincethebondinterestscanbedeductedbeforeenterpriseincometax(“eiT”)whichhastheadvan-tageoftaxshield.

TAX InCenTIves For CreDIT GuArAnTee InsTITuTIons For sMAll AnD MeDIuM-sIzeD enTerPrIses

Exemption of Business TaxesCircularGongXinLianBuQiye[2009]no.114whichisjointlypublishedbytheministryofindustryandinformationTechnologyandtheStateadministrationofTaxationhasoncemoreemphasizedthebusinesstaxexemptionfortheinstitutionswhichhasbeencarriedoutsince2006.

Pre-Tax Deduction of ReservesaccordingtoCircularCaiShui[2009]no.62,theinstitutionsareallowedtodeductguaranteedindemnityreserveatnomorethan1%oftheyear-endguaranteeliabilitybalanceandunmaturedliabilityreserveatnomorethan50%oftheguaranteerevenueofthecurrentyearbeforeeiT.

TheabovepoliciesarerestatedandenhancedbytheCircularGuoFa[2009]no.36onSeveralopinionsofFurtheracceleratingDevel-opmentofSmallandmedium-SizedenterprisespublishedbytheStateCouncilonSeptember19th,2009.

Further Preferential Tax Rate for Small and Low Profit EnterpriseaccordingtoCaiShui[2009]no.133,fromJanuary1,2010,toDecember31,2010,asmallandlow-profitenterprisewithannualtaxableincomelessthanrmB30,000candeducthalfofitstaxa-bleincomeforeiTwhichleadstoaneffectivetaxrateof10%.Therefore,followingthe20%preferentialrateregulatedbytheneweiTLaweffectivein2008,theenterprisecanenjoythefurtherhalfofffromtheeiT.

ConTACT Person

Mark GaoWTS Consulting (Shanghai) Ltd.

unit602,Tower1,GermanCenterShanghai,no.88keyuanroad,PudongShanghai,201203PrCChina

homepage:www.wts.deemail:[email protected]:+86(0)2128986690

Growth Enterprise Market Main Board

CumulativenetProfit

Turnover

GrowthrateofTurnover

TotalCapital

rmB10millionforthelast2years

rmB50millionforthelast1year

over30%forthelast2years

rmB30millionafterissuance



norequirement

rmB30millionbeforeissuance

CAPITAl InCreAse AnD ConTrIBuTIonTheincreaseofaDanishcompany’ssharecapitaldoesnottriggeranytaxliability.

ifthecompanyreceivesacapitalcontributionwithoutincreasingitssharecapital,suchacontributionwillbetaxableunlesstheconditionsforthereceiptof„tax-freecontributions“aremet.Thiswillnormallybethecaseifthecompanymakingthecontributionisanaffiliatedcompanyorthe(directorindirect)parentcompanyofthereceivingcompany.

CAPITAl reDuCTIonThereductionofaDanishcompany‘ssharecapitalforthepurposeofcoveringoperatinglosseshasnotaxconsequences.

DeBT CAnCellATIon, CoMPosITIon wITh CreDITors AnD DeBT ConversIon Dependingonthespecificsituation,adebtcancellation/compositionwithcreditorswillhavethefollowingtaxconsequencesforaDanishdebtorcompany(the„debtor“):

• Triggering of income tax • Reduction of tax losses carried forward and basket losses • No tax consequences

InTrA-GrouP DeBTsnormally,thecancellationofintra-groupdebtswillhavenotaxconse-quencesforthedebtor.ifthecreditorisaforeigncompany,itisacondition,however,thatthecreditorisnotentitledtosetoffthelossonthedebtagainstitsforeignincome.

ifthedebtiswrittendowntoanamountbeinglowerthanthevalueforthedebtor,itmayhavetaxconsequences.ifthedebtormeetstheconditionsforreceiving„tax-feecontributions“fromthecreditor,thedebtorwillmostlikelyalsobeabletoavoidanytaxconsequencesinthissituation.

Thetaxexemptiondoesnotapplytoforeignexchangegains.incaseofpartialdebtcancellation,thedebtorwillthereforebeliabletopaytaxonanyforeignexchangegainsonthepartofthedebtbeingrepaid.inthatcase,taxationmaybeavoidedbycancellingtheentiredebtinstead.

eXTrA-GrouP DeBTsTaxationasaresultofdebtcancellationofextra-groupdebtsdependsonwhetherthearrangementwiththecreditorsis„individual“or„collec-tive“.Generally,thearrangementis„collective“ifcreditorsrepresentingmorethan50%oftheunsecureddebtsparticipate,andtheremainingdebtsconsistofminorclaimsonly.

Thedebtorwillbeliabletopaytaxongainsondebtsifthearrangementisconsidered„individual“.Thetaxableincomeofthedebtorwillbe

increasedbytheamountofthedebtreduction.

oncontrary,thedebtorwillnotnormallybeliabletopaytaxongainsondebtsifthearrangementisconsidered“collective”.Carriedforwardtaxlossesandbasketlosseswill,however,bereducedbytheamountofthedebtreduction.ifdebtiswrittendowntoanamountbeinglowerthanthevalueforthedebtor,thedebtorwillalsobeliabletopaytaxontheexcessamount.Theconversionofdebtsintosharesorconvertiblebondsistreatedasdebtcancellation.moreover,anumberofprotec-tiveruleshavebeenintroducedtotheeffectthatthecancellationofdebtsfollowingacapitalcontributionistreatedasdebtcancellationundercertaincircumstances.

TrAnsFer oF loss-MAkInG CoMPAnIesinsteadoftheexistingownerscarryingoutarecapitalisation,itmaybeconsideredtotransfertheloss-makingcompanytoanewgroupofowners.

Thenewownerswillonlybeentitledtocarryforwardthetaxlossofthetransferredcompanyifthecompanyisagoingconcernatthedateoftransfer.ifthetransferredloss-makingcompanyisashellcompany,thebuyerwillnotbeentitledtosetoffthelossagainstfutureincome.ifaloss-makingcompanyistransferredasagoingconcern,itshouldalsobenotedthatthelossmayonlybesetoffagainstfutureincomeearnedfrombusinessactivities.

solvenT lIquIDATIon oF loss-MAkInG CoMPAnyiftheownersdecidetoliquidatealoss-makingcompany,thetaxassetintheformoftaxlossescarriedforwardandbasketlosseswillbelost.

itispossibletotransfercarriedforwardtaxlosses(butnotbasketlosses)toanotherDanishconsolidatedcompanythroughatax-freemergerwiththeloss-makingcompanyasthediscontinuingcompany.This,however,onlyappliestolossesgeneratedbytheloss-makingcompanywhilebeingjointlytaxedwiththereceivingcompany.


DenMArk

As a result of the financial crisis, an increasing number of Danish companies are in need of new capital or a debt reduction. This article focuses on the tax consequences of selected recapitalisation measures.

Tax consequences of the restructuring of Danish companies

ConTACT Person

Niclas Holst Sonne, Attorney-at-LawAccura Advokatpartnerselskab

TuborgBoulevard12900hellerup,CopenhagenDenmark

homepage:www.accura.dkemail:[email protected]:+4539452909


FrAnCe

loss utilization and capital restructuring in FranceAt the end of an economic crisis companies often need capital restructuring (window dressing) which should not affect the utilization of tax losses. We will show in this article the most current way used in France to restructure the capital of companies after outlining the applicable tax utilization rules.

Companiessubjecttocorporateincometax,whicharemainlystockcompanies(sociétiésanonymesandsociétésparactionssimplifies)andlimitedcompanies(sociétiésàresponsabilitélimi-tées)havethechoicebetweentwolossutilizationsystems:

• loss carry forward permitting to compensate the losses realized with benefits in following business years; • loss carry back applicable upon option permitting to carry back the losses realized to precedent business years.

CArry ForwArDCarryforwardoflossesisnotlimitedintime.Thelossrealizedinonebusinessyearisconsideredasanexpenseinthefollowingbusinessyear(s)anddeductedassuchfromthebenefitrealized.nevertheless,lossesmayonlybeutilizedintheenterprisewhichrealizedthelossestobecarriedforward.Therefore,lossesmaynotbecarriedforwardifacompanychangesitsactivity,itspur-poseand/oritstaxregime.incaseofmergerlossesofthemergedcompanymaybecarriedforwardbythereceivingcompanyuponrequestandagreementofthetaxadministration.

CArry BACk Thisregimepermitsthecompensationofthedeficitstatedattheendofabusinessyearwiththebenefitsrealizedinthethreeprecedentbusinessyears.Thecarryback isoperateduponrequestbythecompany.Carrybackisnotpermittedinbusinessyearswherethecompanyceasesitsactivity.Thebasisforthecarrybackisthebenefit,includingbenefitsofprioryearscarriedforward,beforetaxesreducedbydividendsdistributedandbene-fitsforwhichthecorporateincometaxhasalreadybeenpaidbytaxcredits(e.g.thetaxcreditforr&Dcosts).Thecarrybackgivesrisetoaclaimagainstthetreasuryamountingtothedeficitcarriedbackmultipliedwiththetaxrateapplicableinthecon-cernedprecedentbusinessyears.Fromanaccountingpointofview,thebookingofthetaxclaimcreatesa(nontaxable)benefitinthelossmakingbusinessyear.

Thistaxclaimmaybeusedfortaxpaymentinthefivefollowingbusinessyears.ifnotusedwithinthisdelayitisreimbursedbythetaxauthorities.

CoMPArIson oF The Two reGIMes Theprincipaladvantageofthecarryforwardisthereductionofthe„contributionsociale“(socialcontribution)whichisataxamountingto3.3%ofthecorporateincometaxduebycertaincompanies.asthiscontributioniscalculatedonthebasisofthecorporateincometax,thecarryforwardreducesnotonlythe

corporateincometaxbutalsothiscontribution.incaseofcarryback,the„contributionsociale“isnotreduced.Furthermore,acarryforwardreducestheprofitparticipationoftheemployeesofthecompanymandatoryincertaincompanieswhilstthecarrybackdoesnot.

Thecarrybackhastheadvantagethatthetaxsavingiscertain.Whilstthetaxsavingincaseofcarryforwarddependsonfuturebenefits,thecarrybackconfersaclaimagainstthetreasuryforsure.Furthermore,itincreasestheequityofthecompanyduetothebookingofthetaxclaiminthebalancesheetandthecorre-spondingbenefit.

CAPITAl resTruCTurInGasimplewaytocompensatelossesandincreasetheequityinparticularwithingroupsisthewrite-offofdebts.ingeneralthewrite-offwillgenerateabenefitinthefavoredcompanywhichistaxable.existingtaxlosseswillsobeusedor–evenworse–taxgenerated.

apaymentintothecapitalreserveswhichispossibleundercertainjurisdictions(e.g.inGermany)islegallynotpermittedinFrance.

ThemostcommonmethodofcapitalrestructuringusedinFranceisthesocalled„coupd‘accordéon“whichmeansacapitalincre-ase–eventuallyrealizedbyincorporationofdebts–followedbyacapitalreductionwhichisoffsetwiththelosses.evenifaccountingwisethelossesdisappear,theyremainfortaxpurposes.So,thismethodpermitstheincreaseoftheequityratiowithoutloosingthetaxlosses.

ConTACT Person

Dr. Christoph SesekeWTS Seseke France SELARL

98boulevardmalesherbes75017ParisFrancehomepage:www.wtsf.fremail:[email protected]:+33(1)53199398


how do taxes affect the refinancing and recovery of German companies?Due to Germany´s export oriented industries Germany´s economy suffered a lot during the financial crisis in 2009. Huge banking insti-tutions required direct protection and financial support from the German government to avoid a collapse during the financial crisis. Even if Germany´s industry is softly turning upwards due to increased exports in the car industry, taking additional advantages from the increased value of the US Dollar, access to liquidity is still on the agenda of most of Germany´s companies. The way to bank financing has become harder. Banks have modified their scoring models and risk evaluation methods.

MeAsures To reDuCe neGATIve TAX ConsequenCes oF CerTAIn TAX rulesSomeofGermany´staxrulesimplementedattheendof2008hadturnedoutasverynegativewithregardtotheeconomicrecoveryandbusinessrestructuring.Forthatreasontheintereststrippingruleacc.to4hGermanincomeTaxCode(eStG)andlimitationinlosscarryforwardsincaseofsharetransferacc.tosec.8cGermanCorporateincomeTaxCode(kStG)havebeenmodifiedattheendof2009inthesocalled"Wachstumsbeschleu-nigungsgesetz(Growthaccelerationact)".Themostmaterialchangestotheintereststrippingrulewereanincreaseintheinterestcapfromeur1milliontoeur3millionforyearsfrom2009onwardsandanincreasedceilingfrom1%to2%fortheequityratiotestforgroupcompaniescomparedtothegroupequityratio.inadditionacarryoverforunutilizedeBiTDathresholdsfromyears2007onwardshasbeennewlyintroduced.Furtherthelosscarryforwardrulehasbeenmodifiedbyaprivilegeforsharetransfersinthecourseofrecapitalization.Theprerequisitestobenefitfromtherulesareratherstrict,inparticularthepropertimingofbuyingthesharesismostrelevant.Thelosscarryfor-wardrulesinsec.8ckStGhavegenerallybeenmodifiedbytakingintoaccountthehiddenreservesatthepointofbuyingtheshares.Therulestipulatesthatuptotheportionofunderlyinghiddenreserves-whicharesubjecttotaxinGermany-thelosscarryforwardwillnotforfeit.Theassumedhiddenreservesaredeter-minedasdifferencebetweenfairmarketvalueofsharesandtaxbookequity.Thefairmarketvaluecanberegularlyassumedbytheactualpurchaseprice.

DIFFerenT wAys oF reCAPITAlIzATIonTherearedifferentwaystorecapitalizeastressedcompany.onemethodiswaivingloansfromtheshareholdersand/orothercreditors.Thewaiverofshareholderloansistreatedastaxneutralcontribution,howeveronlyuptothefairmarketvalueofthereceivableatthedateofwaiver.Thisportionoftheloanwithavalueofzeroistreatedastaxableincome.Thewaiverofthirdpartyloansisalwaysataxableevent.underformerrulestherewasaprivilegeavailableforincomegeneratedfromrecapitalizingwhichwastreatedastaxexemptundercertaincircumstances.Germantaxauthoritiesallowasimilarexem-ptionaccordingly.Firstly,ifcertainrequirementsaremetanygainarisingfromtherecapitalizationcanbeoffsetagainstlosscarryforwardswithouttakingintoaccountthelimitationindeductinglosses.Generally,lossescanbesetoffagainstprofitsuptoeur1millionwithoutlimitations.Fromtheprofitexceedingtheeur1millionthresholdonly60%canbesetoffagainsttheremaininglosses.Thus,

aportionof40%wouldbetaxable.iftherequirementsaremet,thedecreesuspendsthisrule.inadditiontaxauthoritiesgrantarelieffromtaxesdueongainsfromrecapitalization.Fortradetaxpurposesthelocaltaxofficehastoagreeonthatautonomously.inpractice,duetothestrictrequirements,itisrecommendabletoagreeinadvancewiththetaxofficeontheapplicationofthisspecificreliefforrecapitalizationgains.

MoDIFIeD InsTruMenTs oF FInAnCInGitisaratherinterestingvariationtocombinethewaiverwiththeinstrumentofadebtorwarrant,i.e.anagreementthattheloanrevivesifthecompanyrecoversandisabletorepaytheloan.Totheextentthatthewaiverhasbeendeemedtaxabletherevivaloftheloanwillbetreatedastaxdeductibleexpense.Thiseffectmightbeveryinterestingfromataxplanningperspective,sinceitallowsadeductionwithoutthelosslimitationrules.

atthemoment,themarketvalueofloannotesandbondsissuedbycompaniesisoftenbelowtheprincipalamount.ifthecompanyisabletorepurchasethenotesfromthemarketthecompanydisposesofffromthecorrespondingliability.inthiscase,however,thecompanywouldtriggeragainarisingfromthedifferencebetweenfairmarketvalueofthenoteandtheloanamountprincipal(confusion).Thereisacertainpossibilitythatthisgainalsobenefitsfromthespecificrecapitalizationrelief.anotheroptionmightbetouseadifferentgroupcompanytorepurchasethenotes.inthatcasetheloannotewillsurvive.underthisscenarioanycapitalgaincanbepostponedtothelaterrepayment.

Currently,stocklistedcompaniesareissuingconvertibles.Dependingonthefeaturesofthishybridinstrument,thecomponentinherentforthefutureswapistreatedasequitycontributionforaccountingandtaxpurposesaswell.anotheradvantageisthatthereisnochangeinshareholderownershipaslongastheconversionhasnotbeenexercised.

MeThoDs oF wInDow DressInGForbalancesheetplanningpurposestherearevariousoptionsintheGermanreorganizationTaxactandspecialcontributionrulesforpartnershipswhichallowataxneutraltransferofassetsontheonehandandastepupforaccountingpurposesinthesinglefinancialstatementontheother.

ouTlook on FuTure TAX leGIslATIonGermany'sgovernmentannouncedaseverecut-backinpublic

GerMAny / PAGe 1


GerMAny / PAGe 2

spendingoverthenextyears.Bynow,thereisnoannouncementofincreasingtaxes.Wesee,however,thatmoreoftentaxreformsareincreasingthetaxbasisanddisallowingtaxstructuringoppor-tunities.ThereareearlysignalsforfurtherchangestoVaTCodeincludingVaTrates.

insummary,therearedifferentoptionsofrestructuringcompaniesandcompanies'balancesheets.inanycasethemethodshavetobeaccompaniedbydetailedtaxplanning.

ConTACT Person

Winfried Figna - Head of M&A WTS AG Steuerberatungsgesellschaft

Thomas-Wimmer-ring1-380539munichGermany

homepage:www.wts.dee-mail:[email protected]:+49(89)28646-178


InDIA / PAGe 1

animpermissibleavoidancearrangementisdefinedtomeanastepin,orapartorwholeof,anarrangementwhosemainpurposeistoobtainataxbenefitandit:

As every country struggles to increase their tax revenues in times of financial crisis, India introduced General Anti-Avoidance Rules (GAAR) as a tool to prevent tax leakage and increase the efficiency of the Tax Department to augment tax collections. Provisions of Indian GAAR have been codified in section 112 to section 114 and section 161 of the Code. Section 161 of the Code provides that the Commissioner of Income Tax can invoke GAAR, if the tax payer has entered into any arrangement which is an impermissible avoidance arrangement.

strengthened General Anti-Avoidance rules in India in order to increase tax revenues

G A A r

CreaTeSriGhTSoroBLiGaTionSBeTWeenPerSonSDeaLinGaTarm’SLenGTh

reSuLTSinThemiSuSeoraBuSeoFTheProViSionSoFTheDireCTTaXCoDe

enTereDinToorCarrieDouTinamannernoTnormaLLyemPLoyeDForBonaFiDePurPoSeS

LaCkSCommerCiaLSuBSTanCe,inWhoLeorinParT

anarrangement,forthepurposeoftheabovedefinition,wouldlackcommercialsubstanceifitresultsinsignificanttaxbenefitbutdoesnothaveasignificanteffectuponthebusinessrisks,ornetcashflowsorthelegalsubstanceoreffectoftheavoidancearrangementasawholeisinconsistentwithordifferssignificantlyfromthelegalformofitsindividualstepsoritincludesroundtripfinancing,etc.

Theconsequencesofdeclaringanarrangementasanimpermis-sibleavoidancearrangementmaybedeterminedby:

• Disregarding, combining or re-characterizing any step in, or a part or whole of, the impermissible avoidance arrangement • Treating the impermissible avoidance arrangement as if it had not been entered into or carried out • Treating or deeming parties or persons who are connected persons in relation to each other as one and the same • Disregarding any accommodating party or treating any accommodating party and any other party as one and the same • Re-allocating or re-characterizing any accrual or receipt of a capital or revenue nature or any expenditure, deduction, relief or rebate • Re-characterizing any equity into debt or vice versa

Theterms‘taxbenefit’,‘bonafidepurpose’,‘roundtripfinancing’and‘accommodatingparty’havebeendefinedintheCodebroadly.

itiswellsettledthatitisunconstitutionalfortheassessingofficer(ao)toattempttaxcollectionwithoutauthorityoflaworlegalbasis,andataxpayerlikewisecannotescapetaxpaymentsindisregardofthelaw,forherendershimselfliableforprosecutionasataxevader.

TheDirectTaxCodehasdevisedandintroducedaGeneralanti-avoidancerulewhichempowersaCommissionerofincomeTaxtodeclaretransactionsasanimpermissibleavoidancearrange-mentifitresultsintaxbenefitsorcreatesrightsorobligationsbetweenpersonsorresultsinabuseofDTCprovisionstofacilitatetaxevasion.ThepathaheadindicatesthattheGaarintheDTCindicatethatthejudiciallyaccepteddistinctionbetweenpermis-sibletaxplanningandtaxevasionisboundtobeobliteratedduetowidercoverageandstatutoryincorporation,thegoaloftheTaxofficerwithregardtorevenueleakage.

ThoughtherevisedDiscussionPaperonDTChasprovidedforasafeguard of a threshold limit for application ofGaar, andrecoursetoDisputeresolutionPanel,theapprehensionofitbeingappliedarbitrarilyandinaroutinefashionstillexistsandone


ConTACT Person

Mr. Kunjan GandhiWorld Tax Service India Pvt Ltd

mafatlalhouseBackbayreclamationChurchgateimumbai400020india

homepage:www.worldtaxservice.inemail:[email protected]:+91(226)1455600

InDIA / PAGe 2

hopesthatitisappliedandmaturelytoensurethatthebusinesscommunityisnotsubjecttoanyuncertainty.

DrP ProCeDure

ConveysACCePTAnCe

FIles oBJeCTIon

FIles oBJeCTIon wITh DrP

DrP PAsses DIreCTIon

Ao PAsses FInAl orDer

APPeAl BeFore The ITAT For The

TAX PAyer

30 DAys

30 DAys

TAX PAyer

DrAFT orDer By Ao


Italian tax rules get worse in the light of liquidity restraints and declining profits

The InTeresT BArrIer ruleinterestexpensesarefullydeductibleuptotheamountofinterestincome.excessinterestexpensesaredeductibleuptoanamountequalto30%oftheeBiTDaofthecompany.Sincenoescapeclauseisprovided,thislimitationmayprovecriticalintimeswhenoperatinglossesarefarfromuncommon.

however,theinterestbarrierruleisappeasedinitsimpactbysome“carry-over”measures:

• non deductible excess interest expenses can be deducted in the following fiscal years to the extent that excess interest accrued in those same years is lower than 30% EBITDA;

• starting from fiscal year 2010, it is also allowed to carry over, without temporal limitations the amount of EBITDA which has not already been matched by interest expenses.

Finally,whereasagroupofcompaniesoptstobetreatedasanationalfiscalunit,non-deductibleexcessinterestexpensesarisingatasinglecompany,maybeoffsetagainsttheexcesseBiTDaofothergroupcompanies(includingnon-residentones–auniquefeatureamongsimilarprovisionsadoptedbyothereuropeanCountries).

BAD DeBT wrITe DownsThedeductionofbaddebtwritedownsisordinarilysubjecttorathertightconditionswhich,inessence,requirethedemonstrationthatthewritedowniseconomicallysounderthanfilingorcarryingonaclaimagainstthedebtor.Suchaconditionisinanycasedeemedtobemetwhenthedebtorissubjecttobankruptcyoranalogousinsolvencyprocedures.

loss CArry ForwArDLossescanbecarriedforwardforfiveyears,includingtheyearinwhichthelosshasbeenincurred.undersomeconditions,aspecialregimeappliestostart-upi.e.lossesincurredinthefirstthreeyearsfollowingthestartofthebusiness;assuchlossescanbecarriedforwardwithouttemporallimitations.

ontheotherhand,unlikeothertaxlegislations,italiantaxlawdoesnotallowthecarry-backoflosses.

Withinthecontextofafiscalunit,lossesemergedfollowingthesetupofthefiscalunitcanbeoffsetagainstthefiscalunitincome.

re-CAPITAlIzATIon ThrouGh DeBT surrenDerWhile,generallyspeaking,adebtsurrendergeneratesataxablecapitalgainonthepartofthedebtor,itisworthnotingthataspecialregimeapplieswhenthesurrenderismadebyashareholderofthedebtor.

inthiscase,theamountofthesurrenderwillincreasethetaxbasisofthesharesfortheshareholder(thusreducingfuture,possiblecapitalgains)butistaxneutralforthedebtorcompany.

ConTACT Person

Giovanni RolleR&A Studio Tributario Associato

CorsoFrancia,3210143Torinoitaly

homepage:www.taxworks.ite-mail:[email protected]:+39(011)4338351

Marina LombardoR&A Studio Tributario Associato

PiazzaSant’angelo,120121milanoitaly

homepage:www.taxworks.itemail:[email protected]:+39(02)40047079

ITAly

Despite a so-called “Anti-Crisis Decree” (Law Decree No.185/2008) having reached the legislative floor back in early 2009 and a more recent Contingency Finance Act in Summer 2010 (Law Decree No. 78/2010), no specific corporate tax measure has been undertaken so far in view of the financial crisis. The sole exception is represented by the revision of the so called “Industry Analyses” which are used as a basis for the determination of presumptive turnover and income of SMEs. There are, however, some corporate income tax rules that may gain the spotlight in a time of generalised liquidity restraints paired with declining profits.


PorTuGAl

Portuguese government introduces measures to consolidate the budget

An article recently published in the OECD Review concluded on Budgeting1 in Portugal: Portugal has made substantial progress in addressing fiscal imbalance through a combination of fiscal restraint and an ambitious structural reform agenda. The Portuguese experience highlights that improving fiscal discipline does not just depend on having institutional mechanisms and rules in place; it also requires sustained political commitment, especially when cutting public expenditure.

Theglobalcrisisbecamesevereinthelateyearof2008.

ACCorDInG The “oeCD PorTuGAl - eConoMIC ouTlook 2010”Thegovernmenthasrecentlymadesomewelcomemovestobringforwardfiscalconsolidationin2010andsetamoreambitioustargetforthebudgetdeficitalsoin2011.Thisisessentialtofosteringinvestorconfidenceinfiscalsustainabilityandensuringaccesstoexternalfinancing.

Thenewtargetsforthepublicdeficitare7.3%ofGDPin2010(previously8.3%),4.6%in2011(previously6.6%),3.0%for2012and2.0%for2013.Thismeansthatthe3%targetwillbereachedayearearlierthaninitiallyforecast2.

ThePortuguesegovernmenthasdecidedintheProgrammeforStabilityandGrowth2010-20133(summarilyknownasPeC),onthefollowingmeasurestodealwiththefinancialcrisis:

a)ontheexpenditureside:(i)toanticipatethephasingoutofalltheanti-crisisstimulusmeasures;(ii)toreducethetransferstothestate-ownedenterprisesector;(iii)toreinforcethereductionincentralgovernmentexpenditure;(iv)toreduce5%inthesalariesofholdersofpoliticalandpublicmanagementoffices;(v)there-ductionofcapitalexpenditure;and(vi)thereductionintransferstotheregionalandlocalgovernments.

b)ontherevenueside:(i)toincreaseallVaTratesby1%;(ii)anadditionaltaxationonpersonalincomebyadoptinganincreaseofbetween1%and1.5%inthegeneralratesofPersonalincomeTax(irS),andanincreaseof1.5%inirSwithholdingrates;and(iii)theadditionaltaxationoncorporateincomebyadoptinganincreaseof2.5%ofCorporateincomeTax(irC)totaxableprofitsexceeding€2million.

Beyondtheadditionalabove-mentionedadditionalmeasures,,thereisasetofmeasuresinitiallyplannedbythePortuguesegovernmentfor2011inthecontextoftheProgrammeforStabilityandGrowth,thathavebeenanticipatedfor2010,namely(i)changesintheunemploymentbenefitscheme;(ii)thetaxationofcapitalgains;and(iv)thecreationofaspecialirSbrackettaxedatarateof45%4.

1year:2009;2officialinformation;3officialinformation;4officialinformationoftheministryofFinanceandPublicadministration.

ConTACT Person

Alexandre Andrade, Head of Tax Department and Projects and Public Works Department CCA – Carlos Cruz & Associados, Sociedade de Advogados, RL

ruaVictorCordon,n.º10-a,4thand5thFloorLisbonPortugal

homepage:www.cca-advogados.comemail:[email protected]:+351(21)3223590


russIA

ways of financing and refinancing in russia

InCreAse oF AuThorIzeD CAPITAlTheshareholderscandecideontheincreaseoftheauthorizedcapitaloftheircompany.Thetransferoffundsinvestedintotheauthorizedcapitalisanon-taxabletransaction,althoughinsomecasesVaTimplicationsshouldbeminded.Forexample,iftheparentcompanyinvestsafixedassetinsteadofmoneythenthelattershouldpartiallyrestorepreviouslyrecoveredinputVaTproportionallytothefixedasset’sremainingbookvalue.however,thesubsidiarycanrecoverthesameVaTamount.

sTrICT rules For MInIMuM neT AsseT vAlueThematterofmuchmoreseriousconcerninthiscaseshouldbethestateofnetassetvalue.Therussiancorporatelawprovidesthatthecompany’snetassetvalueshouldnotbelessthanitsauthorizedcapital;otherwisethecompanyshallbewoundup.Thus,theincreaseoftheauthorizedcapitalwillsetthebarofminimumacceptablevolumeofnetassetsatthesamehighlevel.Thefurtherdecreaseoftheauthorizedcapitalisnotalwaysawayout,sinceitcanresultinataxableincome.

CAPITAl InJeCTIons BeyonD AuThorIzeD CAPITAl InCreAseTherearewaysofmakinginvestmentsintoarussiancompanywithouttheauthorizedcapitalincrease.Butfirstofallitshouldbenotedthattherussiancivillawasageneralruleprohibitsgifting(grantingassetsforfree)betweencompanies,evenbetweenaparentandasubsidiary.Thisrestriction,shoulditbeviolated,impliescertaincivil law risks.however, thereare someexceptions from thisprohibition.

Forexample,theLawonLimitedLiabilitySocieties(atypeofrussianbusinessentityknownasooowhichismoreorlesssimilartoLtd./LLC)makesprovisionforso-calledassetsinvestment,aninjectionofassetsmadebyoooshareholderswithouttheincreaseofitsauthorizedcapital.

anotherexampleisfinancesupportrenderedtoacompanyincaseofitsinsolvencyortopreventinsolvency.

requIreMenTs For TAX neuTrAl FunDInGanyway,regardlessofcivillawimplications,thetaxlawprovidesthatgratuitoustransferoffundsorpropertywillbeexemptfromcorporateprofittaxonlyifthegrantingpartyisashareholderoftheacceptingcompanywiththesizeofshareinitscapitalexceeding50percent,orviceversa.itisnotdesirabletograntVaTableitemstotheacceptingpartybecauseofVaTrisks.

Waivingliabilities,ingeneral,isnotthetaxneutralsolution,sincetherussianTaxCodestipulatesthataccountspayablebecomeataxableincomeatthemomentofwrite-offforanyreason.however,therussianministryofFinancebelievesthatifthecreditorwaivesthedebtfortheloanwhichhehimselfearlierissuedtothedebtorthensuchasituationshouldberegardednotaswaivingdebtbutasjustgrantingfundswhichcanbetaxneutral,but,again,onlyonconditionsthatonepartyownsmorethan50percentasashareholderofanotherparty.

apartfromthosestandardwaysoffinancing/refinancingtherecouldbesomespecificwayssuitableforcertainsituations.Forexample,ifaforeignmanufacturerestablishesadistributioncompanyinrussia,oneofthemethodsoffinancingthelattercouldbetradecredit(delayofpayment).however,itshouldbenotedthatrussiantaxlawregardstradecreditasakindofdebtforthincapitalizationrulespurposes.

When a Russian company finds itself in a difficult financial situation and/or needs financing/refinancing then the following measures to increase its assets can be taken:

ConTACT Person

Vitaly Sinitsin, Leading Lawyer, Tax & Legal PracticeENERGY CONSULTING/ Audit ZAO

7Pavlovskayaulitsa115093moscowrussia

homepage:www.ec-group.ruemail:[email protected]:+7(495)9809081ext.4151


ukrAIne

ukrainian economy suffers from additional tax burdens

MAnDATory PAyMenT oF DIvIDenDs In 2010TheLawofukraine“onStateBudgetofukrainefor2010”,whichwasadoptedonapril27,2010,andbecameeffectiveonapril30,2010(“Law on Budget”),materiallychangedtheorderofpaymentofdividendsbycommercialcompanies.inparticular,pursuanttotheamendmentstoarticle30oftheLawofukraine“onJoint-StockCompanies”,introducedbytheLawonBudget,in2010joint-stockcompaniesareobligedtopaydividendsinanamountnotlessthan30%oftheirnetprofitinthereportingyearand/ortheirundistributedprofit.Theabove-mentionedamountofdividendsmaybeincreased(butnotreduced)bytheresolutionofshareholders’meetingofajoint-stockcompany.Thus,in2010paymentofdividendsattheamountofatleast30% ofthejoint-stockcompany’sprofitismandatory.

itshouldbenotedthat,exceptforcertainspecificcases,paymentofdividendsissubjecttoadvancecorporateprofittaxpaymentinanamountof25%ofthegrossamountofdividendsontopofsuchdividends.Withthisinviewitisquiteclearthatestablishingthementionedrequirementtomandatorilypaydividendsthelegislatorensuresadditionalinflowoffundsintothestatebudget.

ForthesakeofcompletenessitshouldbenotedthattheCentralTaxofficeofukraineinitsLetterasofmay18,2010no.9637/7/15-0217,outlinedtheapproachthattherequirementtomandatorilypaydividendsshallbeappliedtoalltypesofbusinessentities(i.e.notonlytojoint-stockcompaniesbutalso,forexample,tolimitedliabilitycompanies).Thisapproachisnotinlinewiththelaw,whichexplicitlyprovidesforthediscussedrequirementonlyinrespectofjoint-stockcompanies.

new rules For usInG CreDITeD AMounT oF InPuT vATTheLawofukraine“onamendingCertainLegalactsofukraine”no.2275-Viasofmay20,2010,introducednewrulesforusingcreditedamountofinputVaT.

BasedonthementionedLaw(para.3of“Finalprovisions”)negativeVaTbalanceaccumulatedbythetaxpayermayreduceongoingVaTliabilitiesofthetaxpayeronlyintheamountofVaTactuallypaidbysuchtaxpayertothesuppliersofgoods(works,services).Theunpaidpartoftheaccu-mulatednegativeVaTbalanceis“blocked”intermsofitsuseasVaTcreditforoffsettingongoingVaTliabilities.

Tocompare,beforethediscussedamendmentstotheLawofukraine“onVaT”wereintroduced,theunpaidpartoftheaccumulatednegativeVaTbalancecouldnotbeclaimedforrefundbutstillcouldbeusedforoffsettingtheongoingVaTliabilities,i.e.asVaTcreditofthenextreportingperiod.

ThenewrulesshallbeapplieduntilJanuary1,2011.StartingfromJanuary1,2011,“blocked”negativeVaTbalancemaybeaccountedasVaTcreditandoffsetagainstVaTliabilitiesundertherulesexistingbeforethediscussedLawbecameeffective.

new rules For DeDuCTInG TAX losses oF PrevIous TAX PerIoDsTheLawofukraine“onamendingCertainLegalactsofukraine”no.2275-Viasofmay20,2010limitedtheamountoftaxlossesofprevioustaxperiods,whichisallowedtobedeductedin2010.namely,theamountallowedfordeductionwasreducedto20%ofthetaxlossesaccumulatedbythetaxpayerbyJanuary1,2010.Theremainder(i.e.80%ofsuchtaxlosses)shallbeaccountedasdeductibleexpensesonlystartingfrom2011.

apartfromtheabovechangesitshouldbenotedthatinthenearestfutureinukrainetheadoptionofthetaxcodeisplanned,thedraftofwhichhasalreadypassedthefirstreadinginVerkhovnaradaofukraine.

Generally,thedrafttaxcode,iffinallyadopted,maybeassessedasconsiderablyraisingthetaxburden.Thedrafttaxcodelimitsthelistofexpenseswhichareallowedfordeduction.ifcomparedwiththeeffectivetaxlegislation,whichensurescomparativelybalancedregulationoftherelationsbetweentaxauthoritiesandtaxpayers,thedrafttaxcodecon-siderablywidenspowersandauthoritiesoftaxauthoritiesandprovidesforadditionalobligationsofthetaxpayers.ifadoptedthetaxcodewillbringalongalotofconfusionwithinevitablynegativeimpactontheeconomy.

In the following we give a short overview with respect to certain changes in the tax environment in Ukraine which resulted from the efforts of the Ukrainian government to mitigate the impact of the financial crisis. In general, such efforts were aimed mainly at mitigating the impact of the financial crisis on the state budget, rather than on relieving the economy from extraordinary tax burdens. Among such changes are the following:

ConTACT Person

Elena Bukuyeva, Senior AdviserKM Partners

5PankivskaVul.,FifthFloor01033kyivukraine

homepage:www.km-partners.comemail:[email protected]:+380(44)4907197


usA

Claiming a loss for abandoned goodwill

reCovery oF TAX BAsIs By DIsPosAl oF non PerForMInG BusInessFormanygrowthorientedcompanies,anacquisitionmayinvolvetheadditionofanewproductorservicelinetothepurchaser’sexistinglinesofbusiness.insomecases,theacquisitionmaybeofnewtechnologythatisstillinthedevelopmentstage.ifthenewlyacquiredproductlineortechnologydoesnotperformasanticipated,thepurchasermaydecidetodiscontinuethelineortoterminatefurtherdevelopmentoftheacquiredtechnology.insituationswherethepurchasedassetscanbesoldtoanunrelatedpartyasagoingconcern,thetaxpayerwillgenerallybeabletorecoveritsremainingtaxbasisinthepurchasedassetsatthetimeofthesale.

reCovery oF TAX BAsIs ouTsIDe A TrAnsACTIonhowever,inmanyinstances,thetaxpayermaybeunabletosellunderperformingassets(e.g.,wheretheproductorserviceisnolongercommerciallyviable).nevertheless,undertherightcir-cumstancesthetaxpayermaystillbeabletorecoveritsremainingtaxbasisintheacquiredgoodwillintheyearitdiscontinuestheacquiredbusiness.

DIsConTInuATIon oF A BusInessinorderforabandonedgoodwilltobedeductible,thetaxregula-tionsrequirethattherebeaclosedandcompletedtransaction,fixedbyidentifiableevents.Thecompletediscontinuationofabusinesscanqualifyasanidentifiableeventthatwillentitleataxpayertoclaimalossonpurchasedgoodwillattributabletothatbusiness.akeyfactorisestablishingthatthepurchasedbusinesshasbeenterminatedandthatnoneoftheassetsofthatbusinessarebeingusedinthetaxpayer’sremainingbusiness.asafurtherrequirementtoclaimalossontheabandonedgoodwill,theregulationsprovidethatthetaxpayermaynotretainanyofitsother“Section197intangibles”acquiredinconnectionwiththeacquisitionofthetradeorbusiness.

wTs oBservATIonsTaxpayersthathaveacquiredanon-performingbusinessshouldcarefullyreviewthecurrentstatusofthebusinessandutilizationofthebusinessassets,includingintangibles.inappropriatecir-cumstances,taxpayersmaybeentitledtoclaimaloss.insomecircumstances,proactivestepsmaybetakentostrengthenataxpayer’spositionforclaimingaloss.

ConTACT Person

Stuart A. Kwestel, J.D., LL.M., Managing DirectorWorld Tax Service US LLC

2120headquartersPlazamorristown,nJ07960uSa

email:[email protected]:+1(973)4011118

When a US taxpayer acquires a business through an asset acquisition or a share purchase treated as an asset acquisition (e.g., LLC acquisition or qualified stock purchase with a “Section 338” election), the purchaser will receive a fair market value (FMV) tax basis in the acquired assets. Under existing US tax regulations, the assets are categorized into seven classes and the purchase price is allocated in ascending order of class based on the FMV of the assets in each class. If the purchase price exceeds the FMV of the assets identified in classes I – VI, the excess is allocated to class VII, which represents the goodwill or going concern value of the business acquired. Under Internal Revenue Code Section 197, the goodwill is amortized over a 15 year period for income tax purposes.

Documents

InTernATIonAl TAX news€¦ · WTS alliance c/o WTS aGr Steuerberatungsgesellschaft Thomas-Wimmer-ring 1-3years, ... report on this topic which states that the governments of the