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The US is once again taking a hard line with tax avoidance. Not only are there two bills before Congress proposing the end of corporate inversions, but also, in Notice 2002-35, the Internal Revenue Service has informed taxpayers that it is aware of a transaction involving notional principal contracts used to generate tax losses. It has stated that the tax benefits of this will no longer be allowed for federal income tax purposes.

New Zealand firm Chapman Tripp has lured a KPMG tax partner to head its Auckland tax practice. Craig Elliffe joined the firm in early April after leaving KPMG at the end of March. Chapman Tripp approached Elliffe and he made the decision to join in February. According to Elliffe, the decision to move was prompted by the fall-out of the Enron scandal on the work of tax advisers in big four firms. He explained: ?I was very happy at KPMG so there was no sense of dissatisfaction. However, I was concerned about the effect of Andersen's fall-out on the accounting profession and the trend towards independent advice.

Cleary Gottlieb Steen & Hamilton is the latest US firm to boost its UK tax group by poaching from a magic circle firm with the hire of a senior partner from Linklaters. Nikhil Mehta, who specializes in structured finance and contentious tax work as well as M&A, will be joining the firm on July 1 this year. Cleary Gottlieb approached him several months ago and his recruitment was decided in a partners' meeting during the first week of May.

In 1999, Congress directed the Internal Revenue Service (IRS) to conduct a study of compliance with the documentation requirements of Internal Revenue Code (IRC) section 6662. The IRS recently released a report detailing its findings.

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held in a recent decision that payments made to non-residents should be taxed at the rate prescribed under the relevant Finance Act and not at the rate prescribed under the applicable tax treaty between India and the country of which the recipient is a resident. According to the ITAT, the rate prescribed in the tax treaty is applicable only for the purposes of assessment and not for deduction of tax at source. The decision of the ITAT concerned the assessment year 1991-92 and has been passed by a Single Member Bench. There was no representation by the assessee and the matter was decided ex-parte.

May 7 saw EU ministers pass the tax measure requiring e-commerce companies to pay VAT on EU-based sales of digitally downloadable products. The VAT and E-commerce Directive has been at the centre of much controversy and there are fears that it could trigger a trade dispute with the US, which believes that its vendors could be at a competitive disadvantage. However, the EU claims that the new rules will ensure that EU suppliers will no longer be obliged to levy VAT on sales of these products on markets outside the EU. It believes the previous rules put EU suppliers at a competitive disadvantage because they were obliged to pay VAT on all services originating in the EU, regardless of the place of consumption. (For more on the VAT and E-commerce Directive, see EU VAT on e-commerce: the practical implications.)

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