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Peter Vansteenkiste of Coopers & Lybrand, Antwerp and Eugene Weultjes of Coopers & Lybrand, Rotterdam assess the attractions of two traditionally expatriate-friendly regimes – Belgium and the Netherlands

The IRS has announced that it will not appeal against the US Tax Court's decision in the SDI Netherlands BV v Commissioner case. The court found that royalty payments made by the taxpayer for the use of software in the US, to a related company in Bermuda did not qualify as US source income. The finding was based on the fact that the royalty payments from SDI USA passed through SDI Netherlands before they reached the Bermuda company.

A decision of the European Court of Justice shows that most EU member states have not correctly implemented the parent-subsidiary directive 90/435 of July 23 1990 (October 17 1996; Denkavit). A law of December 23 1997 is Luxembourg's response to this case law. Concerning the exemption of dividends received by a Luxembourg company, a participation of 10% of the subsidiary's share capital (or having an acquisition value of Lfr50 million) must be held for 12 months. This holding period may be satisfied before or after the relevant dividend distribution. Before 1998, a holding period of 12 months at the end of the year of distribution was required. No exemption was therefore available for dividends received by a Luxembourg parent from a subsidiary, the shares of which had been held for a long period of time, but were alienated before the end of the financial year. Despite the compliance with the holding period requirement of the parent-subsidiary directive, these dividends were taxable in Luxembourg.

UK brewer Bass has disposed of Coral Bookmakers to fellow bookmakers Ladbrokes. The deal is worth approximately £375.5 million ($604 million). Bass was advised by tax partner Charles Hellier at Linklaters in London.

US chemical group Hercules has made a hostile bid for US chemicals company Allied Colloids, a UK producer of water-treatment chemicals. The deal is valued at $1.8 billion.

Japan's government has proposed extensive tax cuts to boost economic growth, against a background of bankrupt banks and securities houses. The package, announced in December 1997, includes cuts of ¥2 trillion ($15 billion) in income tax, and ¥840 billion in corporation tax (for related coverage, see this issue, page 48). Announcing the cuts, prime minister Hashimoto said Japan would not be responsible for pushing the global economy into recession. The package is expected to be adopted in the Japanese parliament, yet has been criticized for being inadequate and misdirected.

The US Internal Revenue Service (IRS) announced on January 16 1998 that it will clamp down on the use of hybrid branches that simultaneously reduce foreign tax and defer US tax. A number of US power companies engaged in overseas power projects use these entities. Offshore holding companies are formed for foreign investment, and the payment of US tax is deferred until earnings have been repatriated to the US. Since January 1997, US companies could check the box to ensure that foreign entities, with a single owner, were treated as transparent for US tax purposes.

The first budget statement delivered on December 3 1997 by the new minister for finance, Charlie McCreevy, was also the first budget to be delivered before the start of the financial year. The minister used the opportunity presented by very high economic growth rates, and the resulting tax buoyancy, to make a number of significant tax changes. The minister has confirmed that with effect from January 1 2006, the standard corporation tax rate applicable to the trading profits of non-manufacturing companies (including financial services companies operating in the Dublin docks area whose 10% tax rate expires on that date) will be 12.5%. A higher rate of 25% will apply to the non-trading income of those companies. Manufacturing companies will continue to benefit from the lower 10% manufacturing tax rate until it expires at the end of 2010.

MascoTech is set to merge with TriMas Corporation, a manufacturer of industrial products. The transaction is valued at approximately $900 million. MascoTech already owns 37% of TriMas. The merged organization will have a combined sales volume of $1.6 billion.

From: Jefferson VanderWolk