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European Commission continues state aid probes

From April 1 2002, all UK companies are eligible for enhanced relief for expenditure on R&D. Enhanced relief was previously confined to small and medium-sized companies (SMEs). The new tax credit is calculated according to volume of expenditure and is available to large companies based on their total qualifying expenditure where that exceeds £25,000 per year.

Under certain conditions, article 5(1) of EU Council Directive 90/435/EEC of July 23 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different member states, provides for the elimination of withholding taxes on dividends paid between companies settled in the EU. In a decision rendered on October 4 2001 (Case C-294/99 Athinaki Zytopoiia AE), the European Court of Justice (ECJ) ruled that the tax to which certain Greek companies are subject on some profit distributions was a withholding tax within the meaning of this provision. Such a decision may call into question the validity of the equalization tax (précompte) due on certain dividend payments by French companies.

In a recently published decision dated December 19 2001, the Cologne Tax Court interpreted language contained in article 23 (3) of the tax treaty between Germany and Canada as a subject-to-tax clause, and gave this clause precedence over provisions in the treaty by which items of income "shall be taxable only" in Canada. While the interpretation of treaty article 23 (3) as a subject-to-tax clause is not new, the relation of this clause to language in the treaty by which items of income are taxable "only" in a specified treaty state is highly controversial and of considerable practical significance.

HONG KONG SAR

Influenced significantly by methods based on the OECD transfer pricing guidelines, many countries are adopting and supplementing transfer pricing rules to compete and protect their tax base. This column highlights major transfer pricing developments around the world during the past few months. By Bill Dodge and Giovanni DiCenso, Deloitte & Touche, Washington, DC

In the wake of a recent Supreme Court ruling, the reasonable taxation standard is clarified, and activities within the scope of the Irish IFSC regime are found to be comparable to activities within the scope of the Dutch GFC regime. By Daan de Bruin and Judy Chan Deloitte & Touche, International Tax Group, Netherlands

The UK government is being urged to improve the business environment by setting up an independent tax-setting body

The US Financial Accounting Standards Board (FASB) has named a senior PricewaterhouseCoopers partner as its new chairman, at a critical time for the profession

In a departure from the trend for the big four professional services firms to poach lawyers for their tax groups, Baker & McKenzie has hired a tax partner from KPMG in Los Angeles