Unlike other countries, China adopts both business tax (“BT”) and value added tax (“VAT”) in its turnover tax system. While the VAT system mainly applies to the sale of goods, BT is primarily levied on taxable services. The difference in tax systems causes some industries to be double-taxed, particularly those that are currently covered by the BT regime. For example, service fees paid to a service company are subject to BT. But unlike a general VAT taxpayer, the service company cannot deduct the tax cost of the purchase of materials and other third party services. This puts the service company in a disadvantageous tax position, as part of its expenses are double-taxed.

China is aware of these problems and has for a long time planned an overall VAT reform which will eventually allow VAT to take the place of BT. As an initial step in this significant and complicated reform, the State Council meeting on October 26, 2011 announced that, a Pilot Programme would be launched on January 1, 2012 for selected industries in Shanghai to gradually expand the scope of VAT gradually to cover industries that are currently subject to BT. Detailed implementation rules of the VAT Pilot Programme were published by the Ministry of Finance (“MOF”) and State Administration of Taxation (“SAT”) in mid-November in tax circular Caishui [2011] 111 (“Circular 111”)…

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In this article, the author critically outlines and describes the Public Ruling of the German Federal Ministry of Finance on rental income from real estate which is subject to non-resident taxation, according to section 49 para 1 no 2 lit (f) German Income Tax Act. The Decree was released in response to the 2009 amendment to sec 49 ITA. Since the fiscal year 2009, rental income from German real estate which is earned by a foreign corporation is deemed to be “business” income. This income qualification leads to several questions and uncertainties for both taxpayers and their tax advisors.

I. Decree Background

German legislators amended section 49 para 1 no 2 lit (f) of the German Income Tax Act, effective from January 1, 2009, with the German Annual Tax Act 2009. According to this amendment, income from leasing and rental activities from German immoveable real estate earned by foreign corporations qualifies as business income.(1) Thereby, it is insignificant if the foreign entity maintains a permanent establishment or appoints a permanent representative in Germany. Prior to this, such income was treated as income from rent and leasing.(2)

On the other hand, income from capital gains on German immoveable properties has always been classified as business income for tax purposes.(3)

In contrast, non-resident individuals who lease or rent immoveable properties, which are located in Germany could generate income from rent and leasing.(4) Thus, there is no income qualification for them. As a result, non-resident individuals are treated differently to foreign corporations in this area….

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(1) Sec 49 para 1 no 2 lit (f) ITA.
(2) Sec 49 para 1 no 6 ITA.
(3) Sec 49 para 1 no 2 lit (bb) ITA.
(4) Sec 49 para 1 no 6 ITA.

The following article looks at cross-border merger taxation in Japan, focusing on qualified triangular mergers which were introduced in Japan in 2007.

I. Introduction

As the world economy has become more integrated, global M&A has become an important strategic option for multinational corporations. Japan introduced qualified triangular mergers, qualified triangular stock exchanges and qualified triangular stock transfers (“qualified triangular mergers, etc.”) in 2007 with anticipation of more investments into Japan by foreign corporations. The most well-known case is the 2008 Nikko Cordial Corporation and Citibank triangular stock transfer, where a US bank acquired a Japanese securities brokerage house without paying cash.

After sub-prime issues and with excessive liquidity in China, Chinese companies acquired several Japanese companies using triangular mergers to make them wholly owned subsidiaries of Chinese-controlled companies. Today, with a strong yen exchange rate and weak domestic consumption, Japanese companies are considering cross-border M&A using qualified triangular mergers.

Under the Japanese Company Act, no direct merger is possible between Japanese corporations and non-Japanese corporations. Thus a merger exists where a Japanese operating corporation merges with a Japanese subsidiary of a foreign corporation in exchange for the shares in the foreign parent corporation, instead of shares in a Japanese subsidiary…

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In a statement, the Swiss Federal Department of Finance said the accord, signed in Dublin Jan. 26, is based on international information exchange provisions set out by the Organization for Economic Cooperation and Development.

Switzerland has now negotiated more than 40 new or revised double taxation agreements since it announced in March 2009 it would accept the OECD norms and incorporate the provisions in new tax treaties. The agreements require Switzerland to provide cross-border information and assistance, under certain defined conditions, in cases involving suspected tax evasion by foreign nationals with Swiss bank accounts…

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I. Introduction

China’s Ministry of Finance (MOF) and the State Administration of Taxation (SAT) jointly issued widely anticipated guidance on December 29, 2011 that clarifies the scope of taxable services eligible for the zero rate or exemption under the VAT reform pilot program in Shanghai (Notice on Application of Zero Rate and Exempt Treatment for Certain Taxable Services (Caishui [2011] No. 131 (“Circular 131”)). The Circular applies as from January 1, 2012, the same date the pilot program commenced in Shanghai.

II. Highlights of Circular 131

Based on the general principles applicable to services provided to overseas recipients under Circular 110 and VAT taxable services under Circular 111, Circular 131 lists the scope of services that are eligible for the zero rate or exemption when provided by a pilot taxpayer in Shanghai.

A. Zero-rated services

•  International transportation services relating to the transport of cargo and passengers:
•  from China to overseas;
•  from overseas to China;
•  outside China….

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PARIS — France and Luxembourg implemented measures Jan. 1 that slash valued-added tax rates applying to electronic book sales, becoming the first European Union member countries to challenge EU policy that allows traditional printed books and audio books, but not e-books, to benefit from so-called preferential VAT rates.

On the first of this year, France implemented a change in its tax code stipulated by article 25 of its 2011 budget act, dramatically slashing the VAT it assesses for sales and rentals of e-books from 19.6 percent to 7 percent.

In a defensive move responding to France’s cut, the Administration of Registration and Domains of Luxembourg—the EU home of Amazon, the world’s largest publisher of e-books—published a Dec. 12 circular that effectively slashed its VAT rate on e-books from 15 percent to 3 percent, starting Jan. 1….

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On November 2, 2011 the Australian Taxation Office released Draft GST Ruling GSTR 2011/D4: Grants of Financial Assistance (the “Draft Ruling”). The draft ruling represents a substantial rewrite of an earlier ruling on the same topic, GSTR 2000/11 (the “Old Ruling”), and follows numerous court decisions which have both challenged and developed the ATO’s interpretation of the GST law.

Both providers and recipients of grants should review their GST treatment in light of the Draft Ruling, as some aspects of the ATO’s interpretation of the law have changed, particularly in the areas of peripheral supplies and tripartite arrangements.

l. Arrangements covered by the Draft Ruling

The Draft Ruling has similar scope to the Old Ruling, and covers grants of financial assistance by organisations such as governments, government bodies, not-for-profit bodies, charities and other entities. It classifies grants into payments for:

• providing advice or information;

• a right or the entry into an obligation to do, or not to do something;

• sponsorships;

• gifts; or

• tripartite arrangements (i.e. providing goods or services to third parties)….

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The authors would like to thank Mr. Cheng Chi (Partner-in-Charge of Global Transfer Pricing Services in China & Hong Kong SAR) for his support in preparing this article.

In China, the State Administration of Taxation (“SAT”) issued new transfer pricing regulations on January 8, 2009, thereby providing greater detail about the implementation of Advanced Pricing Arrangements (“APA”) in China, while back on October 5, 2006, Germany’s Federal Ministry of Finance released a circular on bilateral and multilateral APAs providing extensive guidance on how taxpayers may apply for, negotiate, and obtain an advance accord in Germany.

With the issuance of the China Advanced Pricing Arrangement Annual Report (2009)1 (“China APA Report”) on December 30, 2010 and the information obtained from the German Federal Tax Office (“FTO”) it can be presumed that the initiation and conclusion of APAs was highly increased during recent years and it is widely expected that the international significance of APA programmes will grow continually and steadily, in particular between upcoming countries such as China and European countries like Germany.

The present article gives an overview of the aim and trend of APAs highlighting the differences between the APA programmes in China and Germany.

l. Introduction

In recent years, in particular, after the global economic crisis, China and Germany both implemented effective economy stimulus packages and gradually recovered….

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The Malaysian Government recently announced the 2012 proposals in a Budget themed around national transformation focusing on several areas including accelerating investment, generating human capital excellence and easing inflation.

 One of the 2012 Budget proposals that is noteworthy is the concept of a Treasury Management Centre (TMC). In an effort to attract MNCs to locate their treasury management activities in Malaysia, tax incentives have been proposed for TMCs. It has been proposed to allow a 70 percent tax exemption for 5 years on income arising from qualifying treasury services rendered to related companies. Qualifying services relate to cash management, current account management, financing and debt management, investment, financial risk management and corporate and financial advisory services.

The following discusses the key benefits of the TMC incentives to multinationals considering locating their treasury management centres in Malaysia….

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President Dmitry Medvedev signed Federal Law No. 321-FZ, dated Nov. 16, to amend the Russian Tax Code and pass the country’s new CGT legislation, according to an announcement of the Russian presidential press service released Nov. 18. The law creates a legislative framework for consolidating taxpayers that form a holding company for Russia’s profit tax purposes, it said.

Russian organizations can voluntarily create CGTs if one of the group’s members controls at least 90 percent of other CGT members, the announcement said. In order to qualify for CGT status, the group’s members must report no less than 100 billion rubles ($3.25 billion) per year in combined sales and pay no less than 10 billion rubles ($325 million) per year in applicable taxes, while the group’s assets must total no less than 300 billion rubles ($9.73 billion), it said….

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