Taxable Income of Non Profits

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					Comparative Corporate Income Taxes
in Europe


Prof. Dr. Geerten M.M. Michielse
Technical Assistance Advisor IMF, Washington
Georgetown University Law Center
What will be discussed?

    Corporate Income Tax Systems

    Measurement of Business Income

    Thin Capitalization

    Inter-company Dividends (EU Parent-Subsidiary)

    Corporate Reorganizations (EU Merger)

    Liquidations


May 2003
Corporate Income Tax Systems

                                       Corporate
                                        Income
                                          Tax
                                       Systems


              No integration         Integration of             Full
             Classical System      Distributed Profits      Integration


             Corporate Level                              Shareholder Level


  Dividend     Split Rate       Advanced       Dividend        Final          Imputation
 Deduction      System          Profit Tax    Exemption     Withholding         System
  System                         System        System        System


May 2003
 Current EU Systems
Country:   System:              Rate (%):
AUT        Final Withholding    34
BEL        Final Withholding    33.99
DEU        Dividend Exemption   39.58
DNK        Classical            30
ESP        Imputation           35
FIN        Imputation           29
FRA        Imputation           34.33
GBR        Imputation           30
GRC        Dividend Exemption   35
IRL        Classical            12.5
ITA        Imputation           38.25
LUX        Dividend Exemption   30.38
NLD        Classical            34.5
PRT        Imputation           33
SWE        Classical            28
 Central & East European Systems

Country:    System:               Rate (%):
BGR         Final Withholding     23.5
CZE         Advanced Profit Tax   31
EST         )1
HUN         Final Withholding     18
LTU         Advanced Profit Tax   24
LVA         Dividend Exemption    25
POL         Final Withholding     27
ROM         Final Withholding     25
SVK         Final Withholding     25
SVN         Dividend Exemption    25

 May 2003
Preliminary Conclusions

    Only CZE has integration on corporate level (APTS);

    GRC has moved from corporate level (DDS) to
     shareholder‟s level (DES);

    DEU, IRL and LTU have moved away from
     integration of tax liability (APTS/IMPS);

    FRA is gradually moving out of IMPS (by reducing
     imputation-%);

    Most countries favor FWHT.
May 2003
               Dividend Deduction and
                 Split Rate Systems
                  (international aspects)

   Non-Resident Shareholders
    – exclusion from DDS/SRS  discrimination?
    – high withholding tax
            distribution quota
            tax treaty protection



   Permanent Establishment
    – moment of distribution parent company
    – allocation issues
May 2003
Lithuanian Profit Tax
(before 2003)

Pre-tax profits                                     1,000
Profit tax (24%)                                      240
Dividend distribution                                 760
Withholding tax (29% of 760)                          220

Profit tax                                           240
Less: WHT credit                                     220
MPT                                                   20

At shareholder‟s level: dividends taxable in full
May 2003
Czech Corporate Income Tax

Pre-tax profits                             1,000
Income tax (31%)                              310
Dividend distribution                         690
Withholding tax (15% of 690)                  104

Income tax                                   310
Less: 50% WHT credit                          52
MCIT                                         258

At shareholder‟s level: final withholding
May 2003
Advanced Profit Tax Systems
(European aspects)




    No withholding tax on dividends
     paid to qualifying EU parent company;

    No credit for withholding tax available;
    Higher tax rate on companies owned
     by qualifying EU parent companies;
    Non-discrimination issue.
May 2003
Solution: Advanced Profit Tax

Pre-tax profits                                     1,000
Profit tax (20%)                                      200
Dividend distribution                                 800
Advanced profit tax (25% of 800)             200

Profit tax                                           200
Less: Advanced profit tax                            200
Main profit tax                                        0

At shareholder‟s level: dividends taxable in full
May 2003
Finnish Imputation System

Pre-tax profits              1,000
Corporate income tax (29%)     290
Available for distribution     710
Imputation credit (CIT)        290
Grossed-up dividends         1,000

Personal income tax (38%)     380
Imputation credit             290
Net tax due                    90

May 2003
French Imputation System

Pre-tax profits                  1,000
Corporate income tax (34.33%)      343
Available for distribution         657
Imputation credit (10% of 657)      66
Grossed-up dividends               723

Personal income tax (49.58%)      358
Imputation credit                  66
Net tax due                       292

May 2003
Imputation Systems
(international aspects)

    Distribution of foreign source profit to
     domestic shareholders
              Equalization tax?


    Distribution of domestic source profit to
     foreign shareholders
              Tax credit?


    Distribution of foreign source profit to
     foreign shareholders
              Equalization tax exemption?

May 2003
Cash Flow Tax Systems

    Croatia (1994-2000):
      – Investment income is tax exempt;
      – „Protective Interest‟ deduction (normal rate of
        return on equity);
      – Economic rent taxable (35%).

    Estonia (2000-…?):
      – Retained earnings are tax exempt;
      – Distribution of profit establishes profit tax
        (26/74th);
      – Final withholding tax (26%).
May 2003
Croatian Corporate Tax System

Commercial profit                          1,000
PI deduction (5% of equity)         500
Taxable profit                      500

Corporate income tax (35%)                  175
Available for distribution                  825

At shareholder‟s level: dividends exempt
May 2003
Estonian Corporate Tax System

Commercial profit              1,000
Dividend distribution                       1,000
Corporate income tax (26/74th)                351
Available for distribution                    649
Withholding tax (26%)                         169
Net dividend received                         480

At shareholder‟s level: final withholding
May 2003
Cash Flow Tax Systems
(international/european issues)


    Croatian variant:
      – Characterization as income tax?
      – FTC countries wipe out PI deduction
      – Harmful tax competition?

    Estonian variant:
      – Characterization as withholding tax?
      – Harmful tax competition?
May 2003
Harmful Tax Competition

   Open only to non-residents or to transactions to non-
    residents;
   Ring-fenced from the domestic market;
     (i.e. they do not have an impact on the national tax base)

   Granted without any real economic activity and
    substantial economic presence;
   Profit determination departs from internationally
    accepted (OECD) standards (??);
   Lack of transparency.
May 2003
Epson case (C-375/98)

Portuguese Inheritance and Gift Tax

    Arguments by ECJ:
      – Chargeable event = payment of dividends
      – Taxable amount = income from the shares
      – Taxable person = holder of the shares

    Decision by ECJ:
      – WHT: any tax of whatever nature or however described,
        which takes the form of WHT on dividends.


May 2003
 Athinaika Case (C-294/99)

Greek dividend withholding tax under DDS

   Arguments by ECJ:
     –      Chargeable event = distribution of profit
     –      Tax directly related to size of distribution
     –      No absorption of loss carry forward
     –      DTA provision indicates withholding tax

   Decision by ECJ:
     – WHT if tax-exempt income re-incorporated in tax basis upon
       distribution, whereas otherwise exempt.

 May 2003
Profit / Corporation Tax

    Profit Tax
      – Distinction between Business Income and Other Income
      – Profit vs. Income Tax


    Corporate Income Tax
      – Distinction between Legal Entities and Individuals
      – Corporate Income vs. Personal Income Tax



May 2003
Common Law Systems
(Characteristics)

Fear for strong Administration resulted in:

    Extensive Legislative Texts
           (due to implementation of case law)
    Extensive Set of Definitions
           (textual interpretation)
    Separate Set of Tax Provisions
           (due to confiscatory character)
    Separate Capital Gains Tax
           (capital gains vs. ordinary income)
May 2003
What will be discussed?

    Corporate Income Tax Systems

    Measurement of Business Income

    Thin Capitalization

    Inter-company Dividends (EU Parent-Subsidiary)

    Corporate Reorganizations (EU Merger)

    Liquidations


May 2003
Measuring Business Income

    How are tax laws related to accounting
     practice?

    What are the main issues that need to
     be determined in measuring the
     income of a business in its accounts?

    In what areas do the principal
     problems arise in practice?
May 2003
Balance Sheet

    Commercial Balance Sheet
      – information instrument
        e.g. to shareholders / debtors
      – management tool
                                tendency to overvalue
    Fiscal Balance Sheet
      – state revenue instrument
                              tendency to undervalue

May 2003
Fiscal Accounts
(current EU Member States)


   „Autonomy of Fiscal Accounts‟ Concept
      Separate legal provisions
            FIN, GBR and IRL
      Jurisprudence („sound business practice‟)
            NLD


   „Unity of Law‟ Concept (i.e. business
    accounts)
            AUT, BEL, DEU, DNK, ESP, FRA, GRC, ITA, LUX, PRT and
             SWE

May 2003
‘Unity of Law’ Concept
(arguments pro)


    Sound Business Practice &
     General Accepted Accounting Principles

    No decisive reason to deviate

    Measurement of „distributable‟ profit

    Juridical process can be streamlined

    More in line with continental view
May 2003
‘Unity of Law’ Concept
(arguments contra)


    End of traditional freedom to choose a
     fiscal system and to revoke that choice

    Treasury becomes a direct interested
     party in the application of GAAP

    Linkage is not unquestioned

    Different objectives / purposes
May 2003
‘Sound Business Practice’
(Netherlands)


    Starting Point:
      – Principles of Business Economics


    Exceptions, when conflicting with:
      – any Regulation in Tax Law;
      – a General Intention; or
      – Principle of the Relevant Tax Law.
May 2003
Commercial Code
(Germany and Austria)


„Maßgelichkeit‟ Principle:

    Assets and Liabilities
      – Materielle Maßgeblichkeit (DEU)


    Commercial Valuation
      – Formelle Maßgeblichkeit (AUT)
May 2003
General Accounting Plan
(France)


    Accounting Boards („tableaux comptables‟)
     used in Tax Declaration must be established
     in accordance with accounting rules

                        and

    If no contrary tax law or regulation provides
     a different solution, accounting rules are
     applied

May 2003
Profit-and-Loss Account Method
(Latvia)


     Article 4(1):
     “The taxable income … shall be the amount
     of annual profit (loss) as stated in the profit
     and loss statement … calculated in
     accordance with [the provisions] of the law
     On Annual Reports of Enterprises, … .
     Taxable income shall be adjusted … in
     accordance with this Law.”

May 2003
Measuring Business Income


    Balance Sheet
      – measuring of income by comparison of
        two financial statements


    Profit-and-Loss Account
      – measuring of income for a period of time

May 2003
Profit-and-Loss Account

   General Rule: Financial Statements
   Tax Provisions:
           Increased by e.g.:
                 Non-deductible expenses
                 Provisions and reserves

           Decreased by e.g.:
                 Exempt dividends
                 Deferred capital gains
May 2003
Balance Sheet

Net Equity Balance Sheet Ending 2002
Net Equity Balance Sheet Beginning 2002 -/-
Net Equity Accretion during 2002
Profit Distributions / Private Expenses +
Taxable Business Income


May 2003
Measuring Business Income

    How are tax laws related to accounting
     practice?

    What are the main issues that need to
     be determined in measuring the
     income of a business in its accounts?

    In what areas do the principal
     problems arise in practice?
May 2003
Fiscal / Commercial Profit
(typical areas of deviation)


    Non-deductible Expenses
    Depreciation
    Provisions and Reserves
    Bad Debts
    Losses
    Inflation
    Capital Gains and Losses
    Tax Incentives

May 2003
Non-Deductible Expenses

   General rule excludes private expenses

   Technical (legislative)
              dividend distributions, recoverable VAT
   Private Elements
              representation, entertainment
   Avoidance
              thin capitalization
   Political unwanted
              bribes, penalties

May 2003
Provisions / Reserves
(EU Member States)

   Risks and Future Expenses
              AUT, BEL, DEU, ESP, FRA, GBR, IRL, LUX, NLD and PRT

   Bad Debts
              General: DNK (limited), ESP (only for SME‟s), GRC, ITA and
               NLD
              Specific: all other Member States, including those above

   Pensions
              AUT, BEL, DEU, GRC, ITA, LUX, NLD and SWE

   Repairs
              FIN, DEU (substantial maintenance), ESP (if plan approved),
               FRA, IRL, ITA, NLD and SWE

May 2003
Risks and Future Expenses
(AUT, BEL, DEU, ESP, FRA, GBR, IRL, LUX, NLD and PRT)



    Common conditionalities:
      –    Taxpayer‟s estimation (e.g. in AUT and ESP)
      –    Objective facts and circumstances (e.g. in AUT and ESP)
      –    Business experience (e.g. in AUT)
      –    Cause in current tax year (e.g. in BEL, DEU and GBR)
      –    Mandatory under commercial code (e.g. in DEU)
      –    Claim lodged or very possible (e.g. in BEL and DEU)


    Some countries (e.g. DNK and SWE) allow only a
     provision for guarantees

May 2003
Bad Debts
(all EU Member States)


    General Provision
     (allowed in DNK, ESP, GRC, ITA and NLD)
      – Typically limited, e.g. max. 5% of trade
        receivables (GRC and ITA) or only available for
        SME‟s (ESP)

    Specific Provision
     (allowed in AUT, BEL, DEU, DNK, ESP, FIN,
     FRA, GBR, IRL, LUX, NLD, PRT and SWE)
      – Based on loan-by-loan approach

May 2003
  Pensions
  (AUT, BEL, DEU, GRC, ITA, LUX, NLD and SWE)



 Main Characteristics:

     Obligation to pay future pensions
     Legally „qualified‟ pension scheme
     Actuarial computation
     Mandatory inclusion in commercial balance
      sheet (BEL)
     Discount rate (AUT: 20%, DEU: 6%)
May 2003
Repairs
(FIN, DEU, ESP, FRA, IRL, ITA, NLD and SWE)

    Replacement Reserve (FIN, NLD and SWE)
            max. 2 years (FIN)
            max. 3 years (SWE)
            max. 4 years (NLD)


    Substantial maintenance and repair (DEU)

    Approved Repair Plan (ESP)

    Limited to 5% of book value (ITA)
May 2003
Ordinary Losses
(EU Member States)


     Carry Forward
       – Unlimited:
               AUT, BEL, DEU, DNK, GBR, IRL, ITA (only for start-up
               losses), LUX, NLD and SWE
       – Limited:
              5 years: FRA, GRC and ITA
              6 years: PRT
              10 years: ESP and FIN

     Carry Back
               DEU (1 year + max), FRA (3 years), GBR (1 year), IRL
               (1 year) and NLD (3 years)

May 2003
What will be discussed?


      Corporate Income Tax Systems

      Measurement of Business Income

      Thin Capitalization

      Inter-company Dividends (EU Parent-Subsidiary)

      Corporate Reorganizations (EU Merger)

      Liquidations

May 2003
Treatment of Interest Expenses

     Limitation of Interest related to Exempt Income

     Obligation to Pay Subscribed Capital in Full

     Limitation of Interest Rate

     Debt-to-Equity Ratio

     Tax Haven Creditors

     General Anti-Avoidance Rules

May 2003
 Thin Capitalization Rules
 (EU Member States)
      Loans Affected             Ratio       Result
BEL   Directors and              1:1         Re-characterization
      Shareholders
DEU   Substantial shareholders   1.5:1       Re-characterization
      (>25%)
DNK   Controlling shareholders   4:1         Non-deductibility
      (>50%)
ESP   Non-resident related       3:1         Re-characterization
      companies
FRA   Controlling shareholders   1.5:1       Non-deductibility
      (>50%)
GBR   75% non-resident parent    1:1         Re-characterization
      companies
IRL   75% non-resident parent    n/a         Re-characterization
      companies
LUX   Shareholders               undisclosed Re-characterization
PRT   Related parties (>25%)     2:1         Non-deductibility
Thin Capitalization Rules
(Central & East European Countries)

           Loans Affected Ratio    Result
 BGR       All               1:1   Non-deductibility
 CZE       Non-resident      4:1   Non-deductibility
           related parties
 HUN       Related parties 3:1     Non-deductibility
 LVA       All               2:1   Non-deductibility
 POL       Substantial       3:1   Non-deductibility
           shareholders
 ROM       All               1:1   Limited deductibility (50% of
                                   profits)
 SVK       Related parties 4:1     Non-deductibility
 SVN       Substantial       3:1   Non-deductibility
           shareholders
May 2003
Thin Capitalization
(technical issues)


    Equity definition
      – Revaluation reserve
      – Negative equity position

    Back-to-back loans / Guaranteed loans

    Non-deductibility vs. Re-characterization

    Non-discrimination
May 2003
Equity Definition
(Germany)

     Para. 8a, Abs. 2 Kist:
     “Anteiliges Eigenkapital des Anteilseigners ist der Teil des Eigenkapitals der
     Kapitalgesellschaft zum Schluß des vorangegangenen Wirtschaftsjahrs, der dem
     Anteil des Anteilseigners am gezeichneten Kapital entspricht. Eigenkapital ist das
     gezeichnete Kapital abzüglich der ausstehenden Einlagen, zuzüglich der
     Kapitalrücklage, der Gewinnrücklagen, eines Gewinnvortrags und eines
     Jahresüberschusses sowie abzüglich eines Verlustvortrags und eines
     Jahresfehlbetrags (§ 266 Abs. 3 Abschnitt A, § 272 des Handelsgesetzbuches) in der
     Handelsbilanz zum Schluß des vorangegangenen Wirtschaftsjahrs; Sonderposten mit
     Rücklageanteil (§ 273 des Handelsgesetzbuches) sind zur Hälfte hinzuzurechnen. Eine
     vorübergehende Minderung des Eigenkapitals durch einen Jahresfehlbetrag ist
     unbeachtlich, wenn bis zum Ablauf des dritten auf das Wirtschaftsjahr des Verlustes
     folgenden Wirtschaftsjahrs das ursprüngliche Eigenkapital durch Gewinnrücklagen
     oder Einlagen wieder hergestellt wird.”



May 2003
Back-to-Back Loans
            Parent                                    Commercial
           Company           bank deposit               Bank
                             or guarantee


                                             loan
           Subsidiary
           Company

Example provision:
“If a loan is received from a third party and an associated person of the recipient
gives a guarantee on this loan, para. … shall be applicable as if the associated
person made the loan directly.”

May 2003
 Re-characterization vs. Non-deductibility



    Re-characterization
            interest re-characterized as dividend
            debt re-characterized as equity

                         profit allocation

    Non-deductibility
                  profit determination

May 2003
International Withholding Tax


    Re-characterization
              Art. 10(3) OECD refers to domestic definition of source state
              Art. 23 OECD requires relief for dividend w/h
                                no double taxation

    Non-deductibility
              Art. 11(2) OECD
              Art. 23 OECD requires relief for interest w/h
                                no double taxation
May 2003
  International Economic Double
  Taxation

    Recharacterization
              OECD-Commentary: Art. 9 applicable
              IFA-Resolution: arm‟s length approach preferred
              Michielse: nonsense, Art. 9 cannot apply
              Art. 9(2) OECD: no obligation for corresponding
               adjustment
                         danger of double taxation

    Non-deductibility
              profit determination is not profit allocation
                         double taxation
May 2003
Non-discrimination

    Article 24(4) OECD
           interest payments to non-residents shall be
           treated under the same conditions for tax
           purposes as interest payments to residents
           (except for Art. 9(1) and Art. 11(6) OECD)

    Article 24(5) OECD
           resident companies shall be treated under the
           same conditions for tax purposes irrespective
           whether its shareholders are residents or non-
           residents

May 2003
What will be discussed?

    Corporate Income Tax Systems

    Measurement of Business Income

    Thin Capitalization

    Inter-company Dividends (EU Parent-Subsidiary)

    Corporate Reorganizations (EU Merger)

    Liquidations


May 2003
Intercompany Dividends
(parent company)


    Domestic subsidiary

    Qualifying EU subsidiary
      – At least 25% shareholding
      – Minimum holding period of (maximum) 2 years


    Other subsidiary
May 2003
Intercompany Dividends Received
(EU Member States)

    Exemption Method
      – Full exemption
           AUT, DEU(r), DNK, FIN(nr), GBR(r), GRC(r), IRL(r),
           LUX, NLD and SWE

      – 95% exemption
           BEL, DEU(nr), FRA, ITA(nr) and PRT


    Credit Method
           ESP, FIN(r), GBR(nr), GRC(nr), IRL(nr) and ITA(r)


May 2003
Intercompany Dividends Received
(Central & East European Countries)

    Domestic subsidiaries
      – Exemption method
           BGR, HUN, LTU, LVA and SVN
      – „Separate tax base‟ method
           CZE, PLN, ROM(fwh) and SVK(fwh)


    Foreign subsidiaries
      – Exemption method
           HUN, LTU and LVA
      – „Separate tax base‟ method
           CZE

May 2003
Intercompany Dividends Paid
(EU Member States)

   Domestic Parent Company
           Exemption (except ESP: 25%)

   Qualifying EU Parent Company
           Exemption, if:
            -   At least 25% shareholding; and
            -   Minimum holding period (BEL, DEU, DNK, ESP, ITA and NLD: 1
                year – AUT,FRA and PRT: 2 years)


   Other Foreign Parent Company
      Exemption (DNK and SWE)
      25% (IRL 24%, ITA 27%, FIN 29%)
May 2003
Intercompany Dividends Paid
(Central & East European Countries)


   Domestic Parent Company
     – Exemption (BGR, EST, HUN, LVA and SVN)
     – General WHT (CZE, POL, ROM and SVK)


   Foreign Parent Company
     – WHT rates (10-20%) apply

May 2003
What will be discussed?


    Corporate Income Tax Systems

    Measurement of Business Income

    Thin Capitalization

    Intercompany Dividends (EU Parent-Subsidiary)

    Corporate Reorganizations (EU Merger)

    Liquidations


May 2003
Capital Gains on Shares

    Common Law
      – Separate Capital Gains Tax (basis and
        rate)

    Civil Law
      – Shares are business assets
      – Substantial shareholding
      – Speculative transactions
May 2003
Common Law Regime
(assets / liabilities)

    Distinction between income and capital
     gains
    Capital allowances for depreciation
    Only capital gains on assets (!)

At disposal of assets:
 Recapture of capital allowances in Income
  Tax
 Capital Gains Tax on difference between
  market value and acquisition price
May 2003
Civil Law Regime
(assets / liabilities)

    Capital gains are treated as ordinary income
    Depreciation (business expense)
    Capital gains on both assets and liabilities

At disposal of assets:
 Capital gain / loss taxable at normal rate on
  difference between market value and book
     value
May 2003
Mergers & Reorganizations


    Capital Gains / Losses
      – Depreciation Basis
      – Transfer of Provisions / Reserves


    Transfer of Loss Carry Forward

    Liquidation Proceeds
May 2003
Reorganizations
(covered by EU Merger Directive)

    Transfers of Assets

    Exchanges of Shares

    Mergers

    Division

May 2003
                Transfer of Assets
     Sh T          Sh R              Sh T    Sh R




                              Transferring
Transferring                     entity
                 Receiving
   entity         entity

                             Receiving
                              entity


     May 2003       Before   After
            Exchange of Shares
 Sh AD           Sh AG          Sh AD      Sh AG




                                    Acquiring
                                     entity
Acquired       Acquiring
 entity         entity

                                     Acquired
                                      entity

 May 2003          Before   After
Mergers



    into an existing company

    into a newly established company

    into the parent company

May 2003
                  Merger
    Sh T         Sh R               Sh T      Sh R




Transferring   Receiving               Receiving
   entity       entity                  entity




    May 2003
                   Before   After
                        Division
   Sh T                                Sh T




Transferring               Receiving          Receiving
   entity                   entity             entity




   May 2003   Before   After
EU Merger Directive

    Introduction of cross-border mergers
     within EU Member States

    Loss carry-over facility extended – if
     available – to cross-border mergers

    Roll-over-relief for capital gains
     realized
May 2003
EU Merger Directive
(problem areas)

    Issuance of new shares /
                   Transfer of existing shares

    Omission of certain valuation rules
      – Shares received as consideration (both States)
      – Shares / Assets received in State of residence

    Interpretation issues
      – 10% cash payment
      – Anti-avoidance rule
May 2003
               Transfer of Assets
               (valuation issues)

           Transferring
            company

              D
                                    C

                            Receiving
                            company

              A                     B

               PE

May 2003
                    Exchange of Shares
                     (valuation issues)
            Sh AD
            E                          F

                                 Acquiring
                                 Company

            H                          G

           Acquired
           Company

May 2003
                     Merger
                (valuation issues)
           Sh T                      Sh R
                  E


      Transferring
       company                       F
                                            E

                                 Receiving
                                 company

           A                                B

           PE
May 2003
Omission of Valuation Rules

    Shares received in consideration [company
     T or shareholder AD]
     (a) in State of residence [D]
     (b) in State of source [C] or [F][H]
      – Nonresidents (corporate entities) exempt
      – Tax treaty protection

    Shares / assets received in State of
     residence [company R or AG] [B] or [G]
      – (Participation) exemption

May 2003
France

    Prior approval of MoE&F in several cases

    Reporting requirements

    Revaluation gain [company R]

    Business purpose test / 5 years holding
     period
May 2003
Germany



      “Buchwertverknüpfung”
           i.e. double tax claim on both assets
           transferred and shares received
      PE merger questionable
           Condition for merger = German unlimited
           tax liability

May 2003
The Netherlands


    Motivated by valid commercial reasons
      – Restructuring
      – Rationalization of business activities


    Same tax regime requirement

    3-years holding period
May 2003
United Kingdom

    No implementation of Merger / Division
    Special EU provisions:
     (a) Transfers of Assets
      – „ownership‟ test (Sec. 343 ICTA)
      – „bona fide commercial transaction‟ requirement
     (b) Exchanges of Shares
      – Limited to Secs. 126-138 TCGA
      – „business purpose‟ test (Sec. 139-5 TCGA)

May 2003
What will be discussed?


    Corporate Income Tax Systems

    Measurement of Business Income

    Thin Capitalization

    Intercompany Dividends (EU Parent-Subsidiary)

    Corporate Reorganizations (EU Merger)

    Liquidations


May 2003
Corporate Liquidations


   Last opportunity to tax shareholders on
    undistributed profits
                          Dividend distribution

   Occasion to tax shareholder on appreciation in
    value of his investment
                         Capital Gain on shares

May 2003
Corporate Liquidations
(dividend distribution)


      Liquidation payments
      Less: nominal value of shares
               (or – if higher)
            acquisition price of shares
      Dividend distribution

     Difference between acquisition price and nominal
     value of shares might be treated as Capital Loss
May 2003

				
DOCUMENT INFO
Description: Taxable Income of Non Profits document sample