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Two important decisions on the judicial approach to the construction of taxing statutes were handed down on November 25 2004. The cases confirm the following points in connection with the construction of a taxing statute:

When dealing with the Netherlands, entities that are tax transparent in their home jurisdiction often find that they are regarded as taxable entities for Dutch tax purposes. The reason for this is that, in the Netherlands, a foreign entity's tax status is determined on the basis of the civil laws of its country of residence, its articles of association or the contractual arrangements governing its existence, as well as the Dutch tax rules. In December 2004, the Dutch tax authorities issued new guidelines to determine the tax status of most types of foreign entities that seek to earn income from business activities or passive investments. The guidelines distinguish between entities that are comparable to a Dutch limited partnership (commanditaire vennootschap or cv) and other types of entities. A limited partnership type of entity is only tax transparent if the admission and substitution of partners is subject to the consent of all partners. In respect of other types of entities, the guidelines provide for four tests:

On December 21 2004, the Luxembourg Parliament passed the Budget Law for 2005. Although there will be no changes to tax rates, the Budget Law provides for an extension of the law of July 30 2002, which was due to expire in 2004, until the end of 2007. This law grants, among other things, reduced tax rates on capital gains realized upon disposal of land, higher depreciation rates for residential buildings and reduced real-estate transfer taxes. Capital gains from the disposal of real estate are taxed at 25% of the normal income tax rates, depreciation of qualifying buildings is 6% for the first six years and a credit of up to €20,000 ($26,000) is available for transfer taxes.

In December 2004 the German tax authorities issued a directive addressing a judgment rendered by Germany's highest tax court in January 2003. In this decision, the Federal Tax Court held that a foreign corporation having its registered office in the US and its principal place of management in Germany could qualify as the parent entity (first-tier entity) in a group of companies consolidated for corporation tax purposes, even though applicable law for the year in dispute required the corporation to have both its registered office and its principal place of management in Germany (double nexus requirement).

PricewaterhouseCoopers' Chris Rolfe explains what the EU’s code of conduct will mean in practice for transfer pricing disputes

The UK Treasury's pre-Budget report pointed towards changes to the tax regime. However, a general election could get in the way of any new initiatives, according to Gary Richards of Berwin Leighton Paisner

Carlo Gnetti, a former Ernst & Young tax partner, has joined Baker & McKenzie, the international law firm. Gnetti will focus on international tax work in the firm's Milan office.

The US Treasury and the Internal Revenue Service (IRS) have released clarification on the one-time tax break on profit repatriation and the manufacturing deduction in the American Jobs Creation Act (AJCA).

In case of Hindustani Powerplus (141 Taxman 658), the Authority for Advance Rulings (AAR) examined the issue of tax implications of allowances and benefits given to expatriates deputed to India.

At the outcome of the cabinet meeting on December 23 2004, the Belgian government announced plans to introduce legislation in June 2005 that will allow companies to deduct a notional (deemed) interest deduction on equity and retained earnings (not stated in the accounts) in calculating the taxable base. This measure will alleviate the different tax treatment between debt and equity, that is, borrowing or equity financing. At present, companies have more to gain from debt than equity financing, because loan interest is tax-deductible and dividend distributions are included in calculating the company's taxable base. In addition, Belgian tax law knows no general thin-capitalization rules.