September 26, 2011
Noteworthy International Tax Developments
- In late June, 2011, the UK and China signed a new tax treaty that includes reduced withholding taxes on dividends and royalties, limitations on double taxation of capital gains, a services PE provision, changes to the taxation of technical fees, and certain anti-avoidance and anti-treaty shopping provisions. Once ratified, this new treaty (in combination with recently enacted and expected UK tax law changes) could enhance the viability of the UK as a holding company for investments into China.
- In July, 2011, Russia enacted legislation that made significant changes to its transfer pricing rules, effective January 1, 2012.Among other key provisions, the new rules expand the definition of related parties, identify permissible transfer pricing methods, require annual transfer pricing documentation, and introduce penalties for non-compliance.
- In August, 2011, the IRS issued a published ruling that the UK remittance basis tax of €30,000 paid by long-term non-domiciliaries of the UK qualifies as an income tax for purposes of the US foreign tax credit.
- The Bombay High Court recently held that capital gains realized by a Mauritius corporate shareholder on its sale of shares in an Indian subsidiary was not exempt from tax under the India-Mauritius treaty, notwithstanding that such shareholder held a valid tax residency certificate in Mauritius. Based on the specific facts presented, the court found that the US parent company of the Mauritius shareholder was, in substance, the beneficial owner of the Indian subsidiary and therefore the capital gains were taxable in India.
- On September 15, 2011, the Dutch Government published its 2012 Budget Plan.With a proposed effective date of January 1, 2012, the plan contains several significant changes to Dutch tax law, including limitations on interest deductions related to the acquisition of a Dutch company that subsequently joins in a fiscal unity and subjecting certain Dutch cooperatives to dividend withholding tax.
