Excerpt from Practical Asian Tax Strategies by Jon Eichelberger & Brendan Kelly (Baker & Mckenzie, China)
Since January 1, 2006, a pilot testing was launched in Suzhou Industrial Park (“SIP”), which granted tax incentives to technologically-advanced service enterprises (“TASEs”), including technologically-advanced service outsourcing enterprises. On January 1, 2009, to further support the growth of TASEs, the State Council issued the Reply on Issues Relating to Promoting the Development of the Service Outsourcing Industry on January 15 2009 (“Circular 9”), which expanded the pilot testing to 20 cities in China and expanded the scope of incentives to include subsidies.
The most notable incentives provided in Circular 9 for qualified TASEs are (a) reduced Enterprise Income Tax (“EIT”) rate of 15% for a five year period starting from 1 January 2009; (b) employee educational expenses of up to 8% of the total salary expenses of the TASE can be deducted from the taxable income for EIT purposes; and (c) business tax exemption for offshore service outsourcing provided by TASEs. According to our informal discussions with tax officials, “offshore service outsourcing” encompasses situations where domestic PRC companies provide services to foreign companies.
Other incentives, such as subsidies for professional training expenses and cost to purchase public service platform equipments, as well as interest subsidies for loans used in constructing service outsourcing infrastructure in state-level economic zones in central and western China, are also provided to qualified technologically-advanced service outsourcing enterprises in Circular 9.
Monday, June 15, 2009
New Incentives For Technologically-Advanced Service Enterprises in China
Tuesday, June 9, 2009
Amendments to the Netherlands–Mexico Double Taxation Convention
Excerpt from Practical Mexican Tax Strategies by Luis C. Carbajo, Florian Ruijten and Jaime González-Béndiksen (Baker & McKenzie)
The Netherlands and Mexico signed a new protocol to amend the existing double taxation convention. The Protocol will enter into force 30 days after the Netherlands and Mexico have completed their ratification procedures. It is expected that the amendments to the Convention will come into effect on January 1, 2010. The new protocol contains several new features that can be expected to have significant impact for investments, especially those related to capital gains and withholding tax. This is the first of Mexico’s treaties expressly including IETU among the taxes covered.
Read more on significant features of the Protocol (free)
Tuesday, June 2, 2009
Addressing Risks of Intermediaries Filing for Bankruptcy in Section 1031 Exchanges
Excerpt from Practical US/Domestic Tax Strategies by J. Gregg Miller, Timothy B. Anderson, Laura Warren and Michelle M. Parten (Pepper Hamilton LLP)
What happens when you engage in a tax-free section 1031 exchange and your qualified intermediary (QI) declares bankruptcy while holding the proceeds from the sale of your property? According to a Virginia bankruptcy court, unless the exchange agreement is drafted properly, the transaction proceeds held by the QI may become part of its bankruptcy estate, resulting in you becoming a general unsecured creditor.
This was the case for an exchanger with proceeds held in segregated bank accounts of LandAmerica 1031 Exchange Services, Inc. (LandAmerica), acting as its QI, at the time LandAmerica filed for bankruptcy. The court concluded that the language of the exchange agreement disclaimed any interest of the exchanger in the proceeds and held that the use of segregated bank accounts did not give rise to a trust. Thus, the proceeds were treated as part of LandAmerica’s bankruptcy estate.
Under Section 1031 of the Code, no gain or loss is recognized when property is exchanged solely for like-kind property. While this exchange of property may take place simultaneously, the Code allows taxpayers to defer the acquisition of the replacement property for 180 days from the transfer of the relinquished property, which is known as a forward exchange. In forward exchanges, taxpayers typically assign the contract for the sale of their relinquished property to an entity known as a QI, which receives the proceeds and uses them to purchase the replacement property on behalf of the exchanger.
Read More about Alternatives to Using a QI to Avoid Risks Related to Section 1031 (free)
