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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.

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.

Germany’s ambitious and comprehensive programme of tax changes has not been realized, but Felix Klinger of Schitag Ernst & Young, Frankfurt alerts readers to the real reforms that have been effected in the shadow of this programme

Fee income figures for the big six firms show that the corporate appetite for international tax advice is voracious. Four of the firms plan mergers to help service this demand but, as Phillippa Cannon reports, alternative strategies exist

The problem of surplus advance corporation tax has long been the bane of the UK multinational’s life. Now the ACT system is set for abolition. Murray Clayson of Freshfields, London considers the consequences, and the likely form of a successor shadow system

Fred Meyer, the US grocery chain, has reached agreement to purchase two rival chains; Quality Food Centers and Ralphs Grocery. Fred Meyer turned to law firm Simpson, Thacher & Bartlett in New York. Tax partner Steven Todrys is working on the transactions.

Arthur Andersen in Zurich provided tax advice on the merger of Zurich Insurance and the financial services division of BAT Industries (for prior coverage see ITR Dec/Jan 1998, p6). Tax partners Peter Athanas and Maja Bauer-Balmelli worked on the Zurich Insurance side of the deal.

Virgin has sold Virgin Radio to Ginger Media Holdings for £81 million ($130 million). Mark Joscelyne from law firm Olswang advised Ginger Media Holdings on tax. UK City firm Macfarlanes advised Virgin. Partner Ashley Greenbank was responsible for tax advice.

In our previous article (see International Tax Review, Dec/Jan 1998, p55), we highlighted potential tax law changes proposed by Japan's ruling Liberal Democratic Party (LDP). The LDP's tax reform proposals have now been adopted by prime minister Hashimoto's Cabinet.