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By Marc M Levey, Baker & McKenzie in New York

Margie Rollinson, Michael Mundaca, David Benson and Howard Berger of Ernst & Young reveal how Washington plans to replace the Extra Territorial Income Act

The government of Turkey has released its draft of the Frame Law on State Assistance in Investments, which provides for income and corporate tax exemptions for up to 10 years. The Bill targets foreign investment particularly in the textile and iron and steel sectors.

The UK government warned the Cayman Islands, a British dependent territory and one of the world's largest offshore centres, that it could face regulatory changes to comply with EU savings tax rules. The proposed changes relate to exchanging information between tax authorities as a way of increasing revenue and tackling avoidance and fraud.

In March 2003, the previous financial secretary, Antony Leung, proposed in his Budget speech an increase in the assessable profits deemed rate on royalties received by a non-resident under section 21A of the Inland Revenue Ordinance (IRO) from 10% to 30%. The proposed amendment to the IRO was enacted in mid-July. At the same time the Commissioner of Inland Revenue (CIR) issued a revised Inland Revenue Departmental Interpretation and Practice Note 22 (DIPN 22) explaining the effects of the amendment.

The Indian government has decided to establish a national tax tribunal to hear tax dispute cases. But professional bodies have criticized the tribunal, which will replace the system where tax disputes are heard in the High Court and the Court of Appeal.

The US Treasury and the Internal Revenue Service issued final regulations on the tax treatment of stock-based compensation under the related-party transfer pricing rules governing qualified cost-sharing arrangements on August 25 2003.

The government unveiled its 2004 Budget on September 25 2003, which includes a 3% income tax cut. The measure ignores warnings from the European Union and the OECD that the country will breach the European Union's Stability and Growth Pact.

The consolidated taxation system became effective in August 2002. The original consolidated tax rules were partly amended under the Tax Reform Act, which includes amendments to make up for the incompleteness of the original rules.

As a measure of further liberalization, the government has now decided that all companies that have entered into foreign technology collaboration agreements may be permitted, on the automatic approval route, to make royalty payments up to 8% on exports and up to 5% on domestic sales. They may do this without any restriction on the duration of the royalty payments and this is irrespective of the extent of foreign equity in the company's share capital. Previously, royalty payments to foreign companies by companies other then their wholly owned subsidiaries were allowed only for a specific period. This measure establishes the principle that payment for technology should not be governed by the relationship between the payer and payee and puts to rest the discrimination between royalty payments made by wholly owned subsidiaries and others.