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Reed Elsevier is to dispose of its consumer magazine group IPC in a deal worth £860 million ($1.38 billion). The purchasing MBO group is financed by Cinven, with debt underwritten by Goldman Sachs. Freshfields acted for Reed Elsevier, with tax advice from partner Colin Hargreaves and manager Isabel de May.

US bank First American has made a successful $2.7 billion stock bid to acquire Deposit Guaranty. Wachtell, Lipton, Rosen & Katz in New York is acting for First American. Tax partner Adam Chinn is dealing with tax issues raised by the bid.

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.

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.

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.

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.

In June 1997, the Chinese government announced its intention to collect a withholding tax of 10% on interest derived by foreign banks on offshore inter-bank loans on-lent to their branches in China.

Italy has introduced a dual income tax system, in the hope of overturning existing levels of capitalization. Paul Smith and Piergiorgio Valente of Ernst & Young, Milan, assess the benefits of the new system, and question the likelihood of a serious challenge to debt/equity policies

In an attempt to halt tax evasion, Germany's tax authorities are to consider offering rewards for information on evaders. Deputy finance minister Jurgen Stark announced on January 7 1998 that guidelines have already been agreed. To avoid being swamped by vindictive informants, the scheme is likely to apply only to large amounts of unpaid tax.

Spain's 1998 budgetary measures have introduced some amendments to the methods for mitigating economic double taxation of dividends distributed by non-resident subsidiaries. These methods are described briefly below.