The Financial Secretary of Hong Kong delivered the 2012/13. Budget (the final one for the current Administration) on February 1,

Transcription

1 Hong Kong The 2012/13 Hong Kong Budget The Financial Secretary of Hong Kong delivered the 2012/13 Budget (the final one for the current Administration) on February 1, The budget did not propose any change to the Hong Kong profits tax rates for corporations and incorporated businesses, which remain at 16.5% and 15% respectively. However, a waiver of 75% of Hong Kong profits tax for year of assessment 2011/12, subject to a ceiling of HK$12,000, was proposed in the budget. In addition, it was proposed that the capital duty on Hong Kong incorporated companies (currently levied at 0.1% of the nominal share capital and capped at HK$30,000 per case) be abolished. The implementation of the above budgetary proposals is subject to the enactment of the relevant legislative amendments. Fergus WT Wong, Hong Kong 1

2 United Kingdom CFC Reform Update Following the publication of draft legislation detailing the reform of the UK controlled foreign companies (CFC) rules on December 6, 2011, an update was published on January 31, The draft released on December 6, 2011 outlined beneficial provisions for offshore subsidiaries providing group financing (FinCos). FinCos lending to other foreign subsidiaries will be subject to a low tax rate of just 25% of the main UK corporation tax rate - giving an effective tax rate of just 5.75% when the UK corporation tax rate falls to 23% in Updates to the draft legislation released on January 31, 2012 indicate further improvements so that UK groups with low net debt can achieve even lower rates of financing - as low as 0% in some cases. 0% is also available for groups that can trace the source of the funds to rights issues. It was also announced in the update that the new CFC rules will now apply for accounting periods beginning on or after January 1, 2013 (rather than July 2012 as originally expected). However, it is still possible for some groups to establish FinCo structures now with benefits available this year. The latest update to the draft legislation also states that the new 2

3 temporary period exemption (TPE) from the CFC rules will now only apply for 12 months from the date companies become CFCs, effectively reducing the time groups have to become compliant with the UK CFC regime. Taxpayers can continue to benefit from the existing 3 year TPE regime for the rest of this calendar year, and will continue to have the full 3 year benefit. Last year the UK introduced a regime whereby the profits of foreign permanent establishments (PEs) are tax exempt under certain circumstances (the "branch exemption"). The recent update proposed amendments to the branch exemption such that an exempt foreign PE will be unable to benefit from lower rates of tax on its financing income in the same way as a FinCo structure. It is also proposed that there will be no separate CFC regime for exempt foreign PEs, rather the "main" CFC rules will be applied to foreign PEs but with appropriate modifications. Stella Amiss, London 3

4 Lithuania Lithuania Introduces New Business-Favourable Tax and Legislative Amendments At the end of 2011 Lithuania adopted several tax and legislative amendments, which should contribute to the improvement of the Lithuanian business climate in On November 21, 2011 the Tax Authorities presented a more flexible commentary on Art. 17 of the Law on Corporate Income Tax ("CIT") and provided a possibility to treat interest paid for a loan taken to acquire shares of another company as allowable deductions after the merger of acquiring and acquired companies, as well as to treat interest paid for a loan taken to pay dividends or funds after reduction of statutory capital as allowable deductions, provided that in both cases the company proves economic benefit, which in practice might be difficult to do. Due to this amendment an acquisition through a Lithuanian SPV becomes very tax efficient since after the merger of the SPV and the company acquired both goodwill depreciation and interest on acquisition loan are considered tax deductible. As of January 1, 2012 the Tax Authorities introduced a possibility to apply for a binding ruling or Advance Pricing Agreement ("APA") with respect of the future transactions. Introduction of binding 4

5 rulings and APA would result in clarity and assurance in terms of taxation and pricing at a planning stage of a transaction to be performed by the company. Kristina Krisciunaite, Vilnius 5