Tuesday, December 18, 2007

IRS Won't Challenge Credits against US Income Tax for Payments of Mexico's New Flat Tax

by Scott Studebaker (WorldTrade Executive, Inc.)

Mexico’s new flat tax, the IETU, will go into effect on January 1, 2008. The new tax has caused anxiety among U.S. investors over the tax implications. Investors and tax professionals have worried that the new tax might not qualify as an income tax under Article 24 of the U.S.-Mexico tax treaty. This, in turn, would mean that U.S. investors would not be able to receive a credit against their U.S. income taxes for the IETU paid in Mexico—a classic case of double taxation.

But the IRS has stepped in with a welcome, if provisional, clarification. On December 10, the IRS issued Notice 2008-3, in which it said that it, too, had not determined whether the IETU qualified as an income tax under Article 24(1) of the Treaty, and that the agency was going to study the new tax in order to make a determination.


Tuesday, December 11, 2007

Setting Up an Entity in India

Excerpt from Practical Asian Tax Strategies
article by Jon Eichelberger, Brendan Kelly, Eugene Lim & Beng Ti Tan (Baker & McKenzie, Beijing)

While the U.S. is the oldest, India is the biggest democracy in the world. India has a large pool of educated human resources and a well-developed legal and banking system, and English is the business language, making the country a favored destination for foreign investment.

An offshore entity interested in establishing a presence in India should first determine short- and long-term objectives. This includes the mission of the entity in India, the type of operations to be conducted and the timelines for site selection, hiring personnel, etc. Based on the initial analysis, the next important step is to determine the type of entity that should be set up. The new entity can be a Liaison office (LO), Project office (PO), Branch office (BO), or an incorporated company, public or private (Company). If the objective is short-term, a foreign entity can also post a representative in India to carry out its activities.


Thursday, December 6, 2007

Managing Transfer Pricing Risk in Brazil

Brazil, the ninth largest economy in the world, has developed a unique set of transfer pricing rules that differ from the Organization for Economic Cooperation and Development (OECD) based approach adopted by most countries around the world. As result of this uniqueness, multinational corporations (MNCs) face a number of transfer pricing difficulties which may range from an increased burden on compliance activities to double taxation. Further, Brazilhas signed several Tax Information Exchange Agreements with foreign tax authorities (including one recently with the U.S.) that increase the exposure of MNCs to transfer pricing issues.