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International Tax News

International tax news2011

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International tax news happened in 2011.

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Page 1: International tax news2011

International Tax News

Page 2: International tax news2011

AGENDA 1

Tax News, Jan, 26, 2012

Court of Appeal Amsterdam decides Antillean group subsidiary cannot be classified as holding company under Tax Regulation for the Kingdom

Page 3: International tax news2011

EVENT

Tax News, Jan, 26, 2012

On 15 December 2011, the Court of Appeal Amsterdam gave its decision in Case No. 10/00559 (recently published) on the taxation of a group subsidiary under the Tax Regulation for the Kingdom (TRK). Details of the case are summarized below.

Page 4: International tax news2011

FACTS

Court of Appeal Amsterdam gave its decision in Case No. 10/00559

Page 5: International tax news2011

Legal background

Under the Dutch group regime, it is possible to establish a group with an Antillean company.

Art. 25 of the TK provides that the profits of a holding company established in accordance with the law of one of the countries (i.e. the Netherlands in the case at hand) and deemed to be a resident of one of the other countries (i.e. the Netherlands Antilles in the case at hand), may, notwithstanding the right of the Netherlands Antilles to levy tax as if this article did not apply, be taxed in the Netherlands at a rate not exceeding 4%.

Page 6: International tax news2011

Decision

Consequently, the interest payments were held to be taxable at the normal corporate income tax rate instead of the 4% rate applicable to holding companies under the TRK.

The Court of Appeal Amsterdam decided that the Antillean Subsidiary 1 cannot be regarded as a holding company under the TRK. The Court held decisive that under the Dutch group taxation regime, a parent company and its subsidiary are considered as one entity for corporate income tax purposes; accordingly, a subsidiary of a group cannot be regarded as a separate entity. The Court judged that this treatment as one entity also applies for the application of the TRK, which means that the subsidiary also cannot be regarded as a separate entity under the TRK.Finally, the Court held that the Taxpayer could not invoke the EU treaty freedoms because the Netherlands Antilles cannot be regarded as a third state.

Page 7: International tax news2011

AGENDA 2

Tax News, Jan, 23, 2012

Finnish Central Tax Board: Hong Kong subsidiary CFC for Finnish tax purposes

Page 8: International tax news2011

EVENT

Tax News, Jan, 23, 2012

The Finnish Central Tax Board (Keskusverolautakunta, KVL) gave its ruling on 21 December 2011 (recently published) in the case of KVL:077/2011. Details of the ruling are summarized below.

Page 9: International tax news2011

FACTS

The taxpayer, a company resident in Finland (FI Co.), was planning to set up a subsidiary in Hong Kong (HK Sub.), which would produce goods in mainland China. FI Co. applied for an advance ruling from the Central Tax Board (the Board) on whether HK Sub. would be regarded as a controlled foreign company (CFC) of FI Co., and consequently Finland would tax FI Co. for the income accrued by HK Sub.

Page 10: International tax news2011

Legal background

see Finland - Corporate Taxation – Country Analyses section 10.4.).

Under the Finnish CFC Law, a resident of Finland who is a shareholder of a non-resident corporate entity which is controlled by Finnish residents is taxed on the income of the non-resident entity regardless of whether or not the income is distributed to the shareholder if, inter alia, the effective tax rate in the entity's state of residence is significantly lower than the Finnish corporate income tax rate. The legislation provides for some exceptions (i.e. the entity is not regarded as CFC) for entities resident in treaty countries, as well as companies whose income is mainly derived from industrial or comparable production activities

Page 11: International tax news2011

ISSUE

The issue was whether HK Sub. producing goods in China would be regarded as a CFC under the Finnish CFC rules.

Page 12: International tax news2011

Decision

The Board regarded HK Sub. as resident in Hong Kong and not mainland China. The Board pointed out that the place of residence under the CFC legislation refers, inter alia, to areas which have a right to impose taxes and where an entity can have its residence for tax purposes under the laws of that area even though the area is not recognized as a separate state as such. Hong Kong is a Special Administrative Region (SAR) of China and has its independent right to impose taxes. Furthermore, the tax legislation of China does not apply in Hong Kong. Hong Kong is not covered by the tax treaty between Finland and China and as such it cannot qualify for the exception applicable to Finnish treaty partners.

Further, the Board emphasized that although HK Sub. was engaged in production activities, it could not qualify for the exception because the production was to take place in mainland China and not in Hong Kong, where it is resident.

Page 13: International tax news2011

International Tax News

Page 14: International tax news2011

International Tax News