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The Treasury Department and IRS have released temporary regulations (TD 9240) – and by cross-reference, proposed regulations (REG-106418-05) – modifying the rules for determining whether a controlled foreign corporation's (CFC's) distributive share of partnership income is excluded from foreign personal holding income (subpart F Income) under the active insurance business exception contained in Internal Revenue Code section 954(i). These temporary regulations modify a rule included in the so-called "Brown Group" regulations (as finalized in 2002) regarding the application of section 954(i), and specifically will affect CFCs that are qualified insurance companies that have an interest in a partnership, as well as the US shareholders of the CFCs.

The Tax Court in Cape Town handed down a rather astounding judgment towards the end of last year. The consequences of this decision, unless it is overturned on appeal, will be extremely serious for many franchisees and others who rely to a great extent on licensed intellectual property.

First City Tower, 1001 Fannin Street, Suite 2300, Houston, Texas 77002-6760 US

Baker & McKenzie have hired three senior-level economists for its global transfer pricing practice and economics group in the US. Brian Cromwell, formerly of Ballentine Barbera, will become principal economist in the Palo Alto office. He has a particular focus on transfer pricing matters involving advance pricing agreements, audit defence, intangible property valuations, and global transfer pricing strategies. Phil Carmichael, formerly a managing director of KPMG's economics and valuation services practice in New York, joins Baker & McKenzie's economics group in the same city as a director, as does Michelle Martinez in Chicago. Martinez was KPMG in Chicago's managing director for major transfer pricing projects involving large US, European and Asian multinational clients.

New CFC (controlled foreign company) rules entered into force in Sweden on January 1 2004. The rules apply to fiscal years beginning after December 31 2003. This means that for companies (or individuals) with a fiscal year of 1 January to 31 December, 2004 was the first year when the new rules were applicable and hence the companies had to disclose their holdings in CFC in their tax return 2005. For companies with other fiscal years they must normally disclose their holdings in CFCs for the first time in their 2006 tax return.