TAX NEWS - 2010

World Tax News

European Union Tax – The Swedish VAT authorities have requested a preliminary ruling from the European Court of Justice (ECJ) on whether the exemption for financial services in the EU VAT Directive includes underwriting services. Underwriting services are services that involve a credit institution providing, for consideration, a guarantee to a company that is about to issue shares, with the credit institution undertaking to acquire any shares that are not subscribed within the share subscription period. Implementation of the VAT exemption is inconsistent across the EU Member States, so an ECJ decision will have a significant effect, particularly on companies (such as private equity funds) whose main business is the buying and selling of shares.

Lithuania Tax – New rules on VAT prepayments became effective on 1 May 2010 that require VAT payers to make VAT prepayments only if the average VAT payable per calendar month (for three consecutive months) exceeds LTL 1 million (previously LTL 100,000 or LTL 200,000). VAT prepayments must be made starting from the month following the three months when the threshold is exceeded (e.g. if the average payable VAT for May, June and July exceeds the threshold of LTL 1 million, advance payments must be made for August).

Netherlands Tax – The Dutch Ministry of Finance has decided to allow traders to file quarterly VAT returns regardless of the size of taxable turnover for 2011. This arrangement was originally due to expire at the end of 2010.

OECD Tax – The OECD's Committee on Fiscal Affairs is completing its work on two transfer pricing projects, which the OECD Council will be asked to approve by the end of July. These will take the form of revisions to the Transfer Pricing Guidelines, its review of Comparability and Profit Methods and its report on the Transfer Pricing Aspects of Business Restructuring. In the course of these projects, transfer pricing issues on intangibles were identified as an area of concern to governments and taxpayers. The OECD is considering starting a new project on the Transfer Pricing Aspects of Intangibles, which could result in a revision of the relevant parts of the Guidelines. Comments are invited by 15 September 2010 on the most significant issues encountered in practice in relation to the transfer pricing aspects of intangibles and on a number of other aspects.

United Kingdom Tax – The Court of Appeal has issued its decision in the Smallwood case, which involves "around the world" schemes in which trustees resident in the U.K. resigned in favor of trustees in Mauritius and became resident there, sold some shares and then resigned in favor of U.K. trustees, all during the same year of assessment. The idea was to rely on the U.K.-Mauritius tax treaty to avoid a charge to tax in the U.K. because this appeared to give exclusive taxing rights to Mauritius, which would not levy tax on the sale of the shares. As the case turns on the interpretation of tax treaties, it is also of interest for corporation tax. The Court of Appeal decided that the trust had dual residence, agreeing with the Special Commissioners and disagreeing with the decision of the High Court. It also refused to disturb the finding of fact by the Special Commissioners that, under the tiebreaker article, the place of effective management of the trust had remained in the U.K. The Court accepted that what is relevant for effective management is the place of "top level management," rather than focusing on the place where day-to-day management is carried out.