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The Supreme Court of India has held that business income and capital gains earned by an Indian resident from immovable property in Malaysia cannot be taxed in India under the India-Malaysia tax treaty.

Gary Richards of Berwin Leighton Paisner explores the ramifications of the UK's new transfer pricing regime, particularly for foreign groups

The Finance Bill passing through Parliament now proposes some significant changes to the offshore funds regime (Income Tax Act 1988 part XVII chapter V), which should enable more offshore funds to be certified as having distributor status. The regime was originally enacted in 1984 to counter roll-up of income in a non-UK-based, open-ended offshore fund. By investing in such a fund a UK investor would be taxed on what was effectively an income return on the more favourable capital gains tax basis. The regime as it emerged was, however, quite broad in its application; under it, an investor's gain, insofar as it represents capital gains of an offshore open-ended fund can be taxed as income.

As of January 1 2003, the Mexican tax authorities incorporated into the Mexican Income Tax Law tax incentives for Mexican real-estate trusts (MRET) where the primary activity is the construction or acquisition of real estate for sale or lease. However, some issues remain unclear in the application of the incentives' provisions. In this regard, on May 31 2004, the Mexican tax authorities published some rules in the Administrative Miscellaneous Resolution that clarify some of the issues related to income tax, asset tax (AT) and value-added tax (VAT).

Type of deal Valuer Acquirer Target Adviser to acquirer (tax) Adviser to target (tax) M&A Undisclosed Petrochemical Industries Company of Kuwait Dow Chemical Company KPMG, London, Andrew Gavan, James Madams; Toronto, Steven Hurowitz; Ashurst, London, Richard Palmer, Klaus Herkenroth; Ogilvy Renault, Toronto, Adrienne Oliver In-house; Charles Hahn, Jean-Pierre Lallement M&A Undisclosed Rayovac Corporation Varta agreed to sell its majority stake in Microlite Linklaters, São Paulo, Gustavo Haddad, Bruno Carramaschi Sutherland Asbill & Brennan M&A £270 million ($491 million) Land Securities Group and Delancey announced the creation of the Metro Shopping Fund The joint venture between Land Securities Group and Delancey is a limited partnership structure to set up shopping centres and shops Land Securities Group was advised by Slaughter and May, London, Graham Earles, Gareth Miles Delancey was advised by Olswang, London, Matt Ford M&A ?2 billion ($2.41 billion) Volkswagen Group Lease Plan Corporation Haarmann Hemmelrath, Amsterdam, Roderik Bouwman Allen & Overy, Amsterdam, Olaf van der Donk M&A Undisclosed Texas Pacific Group and Credit Suisse First Boston Private Equity BC Partners agreed to sell Grohe Aktiengesellschaft Weil, Gotshal & Manges, Munich, Tobias Geerling; New York, Marc Silberberg CMS Hasche Sigle M&A $2.03 billion National Grid Transco Crown Castle International agreed to sell its UK subsidiary Linklaters, London, Jonathan Richards Cravath, Swaine & Moore, New York, Lewis Steinberg, Aliza Levine; Norton Rose, London, Dominic Stuttaford, John Challoner, Andrew Roycroft M&A £863 million ($1.57 billion) ING Lease (UK) Abbey National Clifford Chance, London, John Gower, Douglas French, Nina Buchan Slaughter and May, London, Clare Richardson M&A $3.24 billion The May Department Stores Company Target Corporation agreed to sell the Marshall Field business unit and nine Mervyn's store locations to The May Department Stores Company Skadden, Arps, Slate, Meagher & Flom, New York, Sally Thurston Faegre & Benson, Minneapolis, Thomas Mayerle M&A DKK2.33 billion ($380 million) Englefield Capital and Electra Partners Europe agreed to acquire Global Solutions from Group 4 Falck Group 4 Falck agreed to sell Global Solutions Ashurst, London, Patricia Allen advised the management of Global Solutions Group 4 Falck was advised by Norton Rose, London, Louise Higgenbottom, Dominic Stuffaford M&A $1.65 billion The Carlyle Group Verizon Communications agreed to sell its Hawaiian operations to The Carlyle Group Latham & Watkins, New York, David Raab In-house M&A Undisclosed Reliance Group Deutsche Bank agreed to sell Trevira Linklaters, Cologne, Sebastian Benz, Markus Sellmann Deutsche Bank was advised by Hengeler Mueller, Frankfurt, Martin Klein; Trevira was advised by Ernst & Young, Berlin, Peter Jegzentis M&A $550 million Bain Capital Rhodia agreed to sell its North American phosphates business Kirkland & Ellis, Chicago, Jeffrey Sheffield; New York, Steven Clemens Shearman & Sterling, New York, Don Lonczak M&A ?660 million ($798 million) Wendel Investissement Lagardère agreed to sell the Editis publishing business Bredin Prat Slaughter and May, Paris, Pierre-Pascal Bruneau, Yves-Charles Zimmerman, Eric Bérengier Type of deal Value Issuer Lead managers Adviser to Issuer Adviser to lead managers Financing and bond issue ?6.5 billion ($8 billion) Autostrade Goldman Sachs International and Mediobanca Studio Vitali, Piccardi, Romagnoli e Associati Gianni, Origoni, Grippo and Partners, Rome, Massimo Agostini, Claudia Gregori IPO ?515 million ($626 million) Schlumberger reorganized its chip business with the IPO of Axalto ABN AMRO Rothschild, BNP Paribas, Citigroup and HSBC Linklaters, Paris, Annick Laine-Audouard, Laurent Dabernat; New York, Stephen Land, Friedemann Thomma Cleary Gottlieb Steen & Hamilton, London, David Saltzman, Jonathan Hay; Paris, Alexis Marion IPO $2.5 billion Genworth Financial Goldman Sachs Weil, Gotshal & Manges, New York, Kenneth Heitner, Mark Hoenig Davis Polk & Wardwell, New York, Harry Ballan, Po Sit

New legislation aims to encourage private equity and venture capital investment via Luxembourg. Dean Rolfe of PricewaterhouseCoopers discusses the role tax plays in the new vehicle

The government of Poland joined France and Germany on July 12 2004 in calling for the harmonization of EU member states' corporate tax regimes. Andrzej Raczko, the Polish finance minister met with his French and German counterparts in Warsaw to discuss the harmonization issue and described the Franco-German initiative as essential for conducting business effectively throughout the EU.

The European Court of Justice has annulled the EU finance ministers' November 2003 decision not to enforce the Stability and Growth Pact's excessive deficit rules against France and Germany, finding in favor of the European Commission. The case involved the European Commission versus the Council of the European Union and was concluded on July 13 2004.

Though the Minister of Finance's Budget presented in February was described as bland, there was a shock which will affect banks and corporates. That is the announcement of the intention to re-categorize certain financing instruments in accordance with their "economic substance". As has been done in other countries, rules will be written into the Income Tax Act to re-categorize these instruments for tax purposes. Typical examples that might include re-categorizing:

Two months after announcing plans to address certain "inappropriate foreign tax credit transactions," (see International Tax Review, US Outbound Update, April 2004, p97), the US Treasury Department and the Internal Revenue Service (IRS) issued long-anticipated temporary and proposed regulations governing partnership allocations of creditable foreign taxes under Internal Revenue Code section 704(b). Under these regulations, an allocation of creditable foreign taxes cannot have substantial economic effect and as such the taxes must be allocated in accordance with the partners' interests in the partnership.