Is the New Mexican Flat Rate Tax Creditable in the US and Canada?

On Monday, October 1st, 2007, an array of amendments to the several Mexican tax laws, the abrogation of the Asset Tax Law and the enactment of a new tax (Impuesto Empresarial de Tasa Única - IETU) were published in the Mexican Official Gazette.

One of the most significant aspects of the new legislation was the introduction of a new tax that will work as a truly minimum corporate tax. This tax will be compared with the annual income tax liability and will be paid only if the income tax liability is lower.

Upon the entrance into effect of this new tax, the Asset Tax will be eliminated. This new tax is truly a minimum corporate tax because it will admit very limited credits against the income tax. The single rate minimum tax will admit loss carry forward alternatives. This minimum tax will affect 40% of the companies that as of this year did not pay income tax. The taxable basis of this new tax is broader than the one of the income tax because of the existence of less deductible items.

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Tax Reform in Japan 2007

An interview with Al Zencak (Zeirishi-Hojin PricewaterhouseCoopers, Tokyo)


As reported in the previous issues of Practical Asian Tax Strategies, 2007 has brought significant tax reform for Japan. To get a better understanding of what this means for your multinational operations, we went to the experts at PricewaterhouseCoopers to discuss the major changes that were made and what opportunities and challenges these changes mean, along with some actions that your company should be taking to position itself to benefit from these recent changes.


View Excerpt from this Interview

Financing U.S. Subsidiaries of European Multinationals

European multinationals often attempt to minimize the U.S. corporate income tax burden on profitable U.S. subsidiaries by introducing related-party debt into their capital structure. While the tax planning objective is clear, the optimal financing structure often is not because of a labyrinth of complex U.S. tax issues. For example, a related party loan made by a group finance subsidiary located in a low-tax jurisdiction raises complicated factual and legal issues under the U.S. “anti-conduit” provisions. In very broad terms, these provisions empower the Internal Revenue Service (IRS) to disregard an intermediate entity in a back-to-back financing arrangement that is part of a plan to reduce U.S. withholding taxes.


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New Transfer Pricing Developments in China

Despite the continuing delays in the release of the China Transfer Pricing Contemporaneous Documentation Ruling, there have been further key developments in China’s transfer pricing environment. Some of these developments were included in the tax reform measures passed by the National Peoples Congress in March. However, more immediate issues have arisen from new circulars issued by the State Administration of Taxation (“SAT”) and actions being taken by some major tax jurisdictions in China. These developments indicate that transfer pricing continues to be a key focus area for the SAT.

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International Operations to Receive Close Scrutiny in IRS Examinations

The IRS is placing high priority on some types of cross-border transactions in future examinations. Targeted transactions include transfers of intangibles offshore to related foreign affiliates, use of international hybrid instruments, and claims of foreign tax credits. While the new priority system will probably result in more exams, it offers companies an opportunity to anticipate and plan for an IRS examination.



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Korean Transfer Pricing Regulations and Income Tax Changes for Non-Residents

Codification of the “Substance over Form” Rule


Recently, the Ministry of Government Legislation announced significant amendments to the regulations of the Law for the Coordination of International Tax Affairs (LCITA) which regulate international transactions. The primary reasons for revising the LCITA are to prevent tax evasion through the codification of the “substance over form” rule, improve consistency with globally accepted taxation guidelines and promote the overseas investments of Korea based companies.



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Determining Uncertain Tax Positions under FIN 48 for Operations in Mexico and China

Companies are evaluating the impact of FIN 48, a US Financial Accounting Standards Board Interpretation, for their reporting of operations in emerging international markets such as Mexico and China.


FIN 48 prescribes a comprehensive model for the manner in which a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return.



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When Tax Planning Rocks: How the Rolling Stones Went Dutch to Cut Taxes

Even before Mick Jagger figured out how to make money as an internationally-acclaimed rock star, he figured out how to keep it.

It is well-known that the pre-famous Jagger attended the London School of Economics—but this is usually regarded as little more than an ornamental bit of evidence about Jagger’s natural intelligence. What few people realize is that Jagger spent his time at the LSE majoring in accounting—and that this early training has returned spectacular dividends to Jagger and two of the other founding members of the Rolling Stones. (Ron Wood manages his wealth separately.)

Jagger was instrumental (no pun intended) in structuring one of the earliest and most sophisticated international song-licensing arrangements in the history of the music industry. Credible reports indicate that the Rolling Stones have earned $450 million in song licensing royalties over the past twenty years—and that the effective tax rate paid by band members on these earnings is a startlingly miniscule 1.5 percent.

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Accounting for Industry-Specific Risks in a Transfer Pricing Setting

Strategically placing a firm's functions, assets and risks within specific tax jurisdictions can result in the multinational organization maximizing its overall after-tax profits by being taxed in lower tax jurisdictions. Such a strategy often requires that a transfer pricing analyst adequately determine the appropriate intercompany price between related parties based on a set of comparable companies. When searching for comparables, however, transfer pricing analysts often fail to place enough emphasis on finding companies that operate within the same or similar industry as the tested party.
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Transfer Pricing in Singapore: What Can be Learned from the Recent China/US APA?

China’s revenue authority, the State Administration of Taxation (SAT) and the US Internal Revenue Service (IRS) have signed their first bilateral APA1. The APA involves US multinational retail giant Wal-Mart. The signing of this APA reflects a number of economic, as well as regulatory trends.
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