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Following the publication of the revised Catalogue of Foreign Investment in Industries, effective April 1 2002, the State Administration of Customs issued a circular clarifying the import value-added tax and customs tax exemption for equipment imported by a foreign invested enterprise for its own use within the enterprise's total investment amount. The circular states that "encouraged" projects approved after April 1 2002, and "encouraged" projects that were once categorized as "restricted B" projects in the old guidance catalogue, which involve technology transfers, are now both entitled to the tax exemptions.

Multinational groups that operate in a large number of taxing jurisdictions face challenges in demonstrating compliance with the arm's-length standard. Among the growing number of countries that demand contemporaneous documentation, there is very little commonality in requirements. This makes it difficult to achieve economies of scale in the preparation of documentation.

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Under draft legislation published recently, the UK intends to restrict the interest deduction that can be claimed by a UK branch through the imposition of an arm's-length debt-to-equity ratio on the branch. At present there is often little restriction in practice on the deduction that UK branches of overseas companies, particularly banks, can claim in the UK in respect of borrowing costs. In comparison, the interest deductions of a UK subsidiary of a foreign parent are effectively limited by the existence of its equity capital (restricting its level of debt). This has resulted in a disparity between the tax treatment of UK branches and UK subsidiaries, which favours (in this respect) branches. The government has decided to take action, because the current position is out of line with other major industrialized countries (in particular, France, Germany and the US).

The European Commission has formally closed its investigation into Spain's Vizcaya coordination centre regime after the Spanish government abolished the regime on April 30 2002. The Commission initiated a state aid investigation into the Spanish regime (as well as a number of other regimes in EU member states) in July 2001, and concluded that the regime constituted unlawful aid in August 2002. Under EU rules, incompatible aid may be subject to recovery from the aid recipient if the Commission was not notified of the aid.

To the surprise of many Canadian practitioners and taxpayers, the Supreme Court of Canada declined to hear OSFC Holdings' appeal of the Federal Court of Appeal decision (OSFC Holdings Ltd v The Queen, 2001 DTC 5471) upholding the application of Canada's general anti-avoidance rule (GAAR) to deny tax losses otherwise available under the specific provisions of the Income Tax Act (Canada). As is the customary practice, the Supreme Court did not give reasons for its rejection of OSFC's leave application, so practitioners and taxpayers were left to speculate on the reasons behind the decision, and the question of when the Supreme Court will wade into the growing number of appeals involving GAAR.

Ernst & Young can officially begin the difficult task of integrating some of its largest offices, after the European Commission cleared the proposed merger between Ernst & Young and Andersen in France and in Germany.

Royal & SunAlliance has transferred a portfolio of non-life insurance contracts. Its portfolio of Italian direct insurance policies has been transferred to Direct Line Insurance in Italy.

Allen & Overy has hired a team of Ernst & Young tax lawyers for its Amsterdam office. Partner Olaf van der Donk, who was previously the head of Ernst & Young's M&A tax group in the Netherlands, started on September 9 and will lead the team, which includes three associates from Ernst & Young and a fourth new associate. Two associates started in early September and the others will start in November. The associates joining Van der Donk are Roelof Goudswaard, who has 12 years' experience as a tax lawyer, Olaf Kroon, Jochem Kin and Maarten Blomme.

Royal Philips Electronics unit Philips Medical Systems and the Rabobank Group unit De Lage Landen are setting up a joint venture in the US. The new venture will be called Philips Medical Capital and will provide financing for the purchase of the full diagnostic imaging equipment that Philips Medical Systems produces throughout the US. The new venture will be based in Pennsylvania and will be 60% owned by De Lage Landen. De Lage Landen will treat it as a consolidated subsidiary. Schulte Roth & Zabel represented DeLage Landen, with Daniel Blickman leading the tax side. Sullivan & Cromwell advised Philips, with Andrew Solomon in New York leading the tax group.