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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 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.

In December 2004, the EU Council of Ministers agreed on proposals to amend the EC Mergers Directive to improve the relief available to companies operating in Europe. The most important changes to the directive are as follows:

The "butterfly reorganization" is the name in Canada for the type of reorganization by which a Canadian corporation, call it the distributor, can distribute property to one or more of its corporate shareholders on a tax-deferred basis. These reorganizations can be done by private corporations or public corporations, and can take the form of a "split-up", whereby one or more shareholders receive their share of the distributor's assets and cease to be shareholders of the distributor, or a "spin-off", whereby the distributor makes a distribution to a new corporation owned by the same shareholders as the distributor and in the same proportion. In 2001, rules were introduced to facilitate spin-offs by public companies. The Department of Finance has now recommended further amendments to the Federal Income Tax Act to provide additional relief for public company spin-offs.

PricewaterhouseCoopers

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.

The new Belgian collateral and securities lending tax legislation is an attempt to create consistent rules for this type of transaction, explain Kurt De Haen and Jessica Win of PricewaterhouseCoopers

The new year has just begun and already the European Commission has published two pieces of research on company tax. And despite the low number of participants in each survey, the Commission believes they reflect enough support for increased corporate tax cooperation.

Deloitte & Touche/Hana have concluded their merger negotiations with Anjin Deloitte. Since April 2002 the two firms had been operating as one firm as far as the law allowed with a memorandum of understanding arrangement. The merger was completed on January 30 2005.