Worldwide fiscal stimulus —
tax policy plays a major role
A guide to understanding opportunities and
challenges in 24 key jurisdictions

A guide to understanding opportunities
and challenges in 24 key jurisdictions

III

Introduction...................................................1
Commentary and analysis of major tax measures
Accelerated depreciation............................3
Loss carryforward and
carryback provisions...................................5

Contents

Corporate income tax rate reductions..........7
R&D credit enhancements...........................9
Indirect tax activity...................................11
Personal income tax measures..................13
Where do we go from here?...........................15
Country key tax measures.............................16
Argentina.................................................17
Australia..................................................19
Belgium...................................................21
Brazil...................................................... 23
Canada................................................... 25
China.......................................................27
The Czech Republic................................. 29
European Union........................................31
France.....................................................35
Germany..................................................37
Hong Kong...............................................39
Hungary..................................................41
India........................................................43
Ireland.....................................................47
Italy........................................................ 53
Japan......................................................55
Netherlands.............................................57
Russia......................................................59
Singapore................................................61
South Korea............................................ 63
Switzerland..............................................65
Taiwan.....................................................67
Turkey.....................................................69
United Kingdom........................................71
United States...........................................75

Introduction
Whatever it takes: combating
the crisis
In less than a year, the "credit crunch"
has deteriorated into the first global
recession we've experienced since
World War II. In fact, in its 31 March
2009 Economic Outlook report, the
Organisation for Economic Co-operation
and Development (OECD) called this
the "most severe and synchronized"
downturn in post-war history —
forecasting gross domestic product (GDP)
growth in OECD countries of negative
4.3% in 2009. As a result, many countries
are facing serious structural economic
issues, the effects of which can be seen
in the steep decline in world trade — a
contraction of 13.2% for 2009, according
to recent OECD projections.
Countries around the world continue to
focus intensely on efforts designed to
lessen the impact of the global economic
and financial crisis. Through monetary
policy, regulatory action, fiscal stimulus
and, most often, some combination of
all three, the majority of countries —
whether “developed” or “emerging”
— have been undertaking a variety of
activities designed to spur demand and
restart the flow of credit to businesses.

In fact ...

In fact ...

13.2%

2.3%

… is the amount by which
world trade is expected to
contract in 2009, according
to recent OECD projections.

… is the average amount of
fiscal stimulus measures (as
a percentage of 2008 GDP),
according to recent OECD
figures.

An average growth rate of
-4.3% is projected for 2009
in OECD countries

From a monetary policy perspective, this
has included traditional approaches like
lowering interest rates and increasing
the money supply and less traditional
methods like quantitative easing, which
involves the injection of new money into
the financial system by a central bank
through the purchase of both government
and corporate debt.
From a regulatory perspective, we
have seen numerous changes primarily
intended to reduce systemic risk, with
government guarantee programs
expanding rapidly in size and scope. In
many cases, governments are becoming
significant shareholders in, or are in fact
taking over, financial institutions that
have been deemed “too big to fail.”

1
OECD Economic Outlook — Interim Report, 31 March 2009

1

Worldwide fiscal stimulus —
tax policy plays a major role

In addition to these monetary and
regulatory efforts, most countries have
also pursued discretionary fiscal stimulus
through a combination of spending and
tax mechanisms. Though the approach
has varied from country to country, each
package has shared a common goal:
to boost demand and improve liquidity
and cash flow — both on an overall basis
and, often, in targeted segments of the
market.
Interestingly, while spending measures
have generally received more public focus
over the last few months, tax measures
actually comprise the larger share of
overall fiscal stimulus packages. In fact,
according to a recent OECD report1, tax
measures represent 56% of the net effect
of fiscal stimulus as an average among
OECD countries. In this guide, we focus on
the tax-related fiscal stimulus measures
in 24 jurisdictions where we are seeing
particularly robust stimulus activity and
identify themes that are emerging as

governments increasingly rely on their
tax systems to administer stimulus.
This tax-based approach to fiscal stimulus
has included a wide range of measures in
categories such as:
► Accelerated depreciation programs
► Carryforward and carryback provisions

for net operating losses

► Adjustments to corporate income tax

rates

► Enhancements to research and

development tax credits

► Indirect tax changes
► Tax measures affecting individuals

In fact ...

56%
… is the average portion of
total fiscal stimulus attributed
to tax measures, according to
recent OECD figures.
Recognizing opportunities,
overcoming challenges

for their impact. Beyond that, most
observers agree that these are not the
last stimulus efforts that we will see
before the global economy again finds
firm footing. As governments prepare
their next round of actions, many will
look to the experiences of their neighbors
and trade partners — both positive and
negative — in determining their approach.
This guide can help tax executives better
recognize developing trends.
It’s also important to note that, while
most government activities to date have
necessarily focused on addressing urgent
needs, history shows us that today’s
actions lead to tomorrow’s consequences.
In fact, many governments are already
contending with ballooning deficits
as they launch aggressive spending
programs in an environment of sharply
falling tax revenues. The impact of
this widening gap on future tax policy
and administrative decisions will be
significant. World-class tax functions are
already actively assessing and preparing
for the future; we take a look at some of
the things that tax directors are focusing
on to benefit from potential opportunities
while managing challenges in this volatile
environment.

In an increasingly global and
interconnected business arena, these
kinds of tax measures likely are being
adopted in many of the jurisdictions
in which a multinational corporation
operates; tax directors must understand
their implications in order to prepare

A guide to understanding opportunities
and challenges in 24 key jurisdictions

2

Accelerated depreciation
Commentary

In fact ...

30%

In all, 11 of the 24 countries in this guide have introduced some form of accelerated tax
depreciation measures. The primary goal of such programs is to improve cash flow for
businesses by allowing them to write off the cost of investments more rapidly. However,
it is also hoped that these accelerated depreciation measures will stimulate demand by
providing an incentive to make necessary investments during the period covered by the
program.

… is the maximum oneoff deduction allowed for
many assets in Russia’s new
accelerated depreciation
regime, an increase from 10%.

The accelerated depreciation provisions typically cover assets created and placed
into service through the end of 2009, although some countries have extended the
eligible period through 2010 or even 2011. In many cases, the new measures favor
certain types of investment, with manufacturing, technology, energy efficiency and
transportation among the most commonly targeted categories. Also, in some cases,
the accelerated depreciation measures provide more generous support for small- and
medium-sized enterprises (SMEs).

Countries introducing accelerated tax depreciation
measures
►
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3

Worldwide fiscal stimulus —
tax policy plays a major role

Canada
The Czech Republic (proposed)
France
Germany
India
Ireland
Netherlands
Russia
Singapore
United Kingdom
United States

Highlights
►

Several countries have targeted certain types of investment activity. For
example, Canada offers a 50% straight-line depreciation rate for manufacturing
and processing equipment acquired before 2012. Eligible computer equipment
acquired after 27 January 2009 and before February 2011 can be written off
within one full taxation year. India offers an increase in the depreciation rate for
new commercial vehicles. Ireland’s special depreciation allowances for energyefficient equipment allows the expenditure to be written off in full in the year of
acquisition.

►

Some countries are offering enhanced “bonus” depreciation allowances, with
Russia increasing its maximum “one-off” deduction from 10% to 30% for certain
assets. The United States has extended its 50% bonus depreciation to include
property placed into service during 2009 (2010 for certain transportation and
longer-lived property). In the United Kingdom, first-year capital allowances were
increased for one year, from 20% to 40%.

►

In some cases, small- and medium-sized enterprises receive enhanced accelerated
depreciation benefits. For example, Germany extends special depreciation to the
acquisition or production of movable assets for smaller companies.

►

It is interesting to note that at least one country has included special “claw-back”
provisions with their accelerated depreciation allowances. In Russia, if fixed assets
are sold within five years of being brought into use, the amount of the deduction
will be returned.

►

Singapore has actually extended accelerated depreciation benefits to include
renovation and refurbishment of existing buildings used in trade or business.

►

Germany reinstated the declining-balance depreciation for assets acquired or
produced during 2009 and 2010.

A guide to understanding opportunities
and challenges in 24 key jurisdictions

4

Loss carryforward and carryback
provisions
Commentary

In fact ...

10

In this environment, many companies — including those that traditionally have been
very profitable — are posting much lower profits, or even losses. To provide cash flow
assistance to companies in a tax loss position, many countries have instituted, or
enhanced, provisions related to the treatment of net operating losses (NOLs). In all,
seven of the 24 countries we reviewed have taken some action related to carrying
forward or carrying back losses to offset income.

… is the number of years that
losses can be carried forward
under new provisions in South
Korea and Taiwan, an increase
from five years.

In some cases, countries have simply extended the eligible carryforward period. In
others, they have introduced new carryback provisions, or extended or raised the
cap on existing ones. Carrybacks are often important for increased accelerated
depreciation to have a stimulus effect. Unless accelerated deductions can be taken
currently, or carried back, the cash flow benefit of accelerated depreciation is lost.
This approach has been appealing to governments because it focuses benefits on
companies that have had a history of profitability. As with stimulus-driven accelerated
depreciation measures, small- and medium-sized enterprises (SMEs) often receive
enhanced benefits.

Countries introducing or enhancing NOL carryforward
and carryback provisions
►
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►

5

Worldwide fiscal stimulus —
tax policy plays a major role

France
Japan
Singapore
South Korea
Taiwan
United Kingdom
United States

Highlights
►

One common change related to NOLs has been to extend the period in which
losses can be carried forward to offset income. For example, in the Far East,
both South Korea and Taiwan extended the loss carryforward period from five
to ten years. This will result in the expiration of fewer NOLs from the past and
more latitude in using NOLs that companies may be accumulating in the current
environment.

►

In most instances where carryback provisions have been introduced or enhanced,
significant limitations came along with them. For instance, in the United Kingdom,
the carryback period was increased from one year to three years, but is subject
to a cap of £50,000 on the total amount that can be set off against profits of the
earlier two years. In the United States, the carryback period was only extended for
small- and medium-sized enterprises (SMEs). Similarly, Japan’s new carryback
program is only open to SMEs.

►

France chose to enhance the cash flow benefits of their NOL carryback provisions
by allowing for immediate reimbursement of the tax credit resulting from loss
carrybacks, although a penalty will be assessed if the reimbursed amount
significantly exceeds the amounts ultimately shown on the tax returns.

►

The recent experience of the United States illustrated very clearly the implications
of the price tag that comes with NOL carryback provisions. Both the House of
Representatives and the Senate had passed bills that included a core business
tax provision to expand the NOL carryback period from two years to five years.
However, as attention focused on the cost of the stimulus package grew, one of
the modifications was a severe scaling back of the NOL carryback proposal, so that
the five-year carryback provision as enacted applies only to companies with gross
receipts of US$15 million or less.

►

Companies should also consider the tax implications of certain non-tax fiscal
stimulus programs. Significant government investment in a company's debt or
equity, or participation in certain stimulus programs may preclude companies from
realizing certain tax benefits. For example, in the United States, proposals for a
broadly-applicable expanded NOL carryback have included an exclusion from this
benefit for recipients of Troubled Asset Relief Program (TARP) funds. While not yet
a trend, this type of restriction merits consideration.

A guide to understanding opportunities
and challenges in 24 key jurisdictions

6

Corporate income tax rate reductions
Commentary

In fact ...

18%

Even while most countries are experiencing intense pressure to maintain revenue
collections amid the economic downturn, we continue to see countries reducing their
corporate tax rates. In all, nine of the 24 countries we reviewed have instituted some
form of lower tax rate. This continuation of an ongoing worldwide trend toward lower
corporate tax rates (90 % of OECD countries reduced their rates between 2000 and
2009)likely indicates two things: (1) despite economic challenges, international
competition for jobs and investment remains an important goal for many countries
and (2) countries believe that lower tax rates support businesses, stimulate overall
demand and encourage investment.

… is the new corporate tax
rate applicable to small- and
medium-sized enterprises
(SMEs) in Japan, a reduction
from 22%.

It is important to note that reductions in corporate tax rates can reduce the value
of deferred tax assets, such as net operating loss carryforwards. At the same time,
though, lower tax rates will also reduce the value of deferred tax liabilities, such as
those created by accelerated depreciation or unrepatriated income that has not been
permanently reinvested. Tax directors should include these factors into any analysis
concerning tax rate reductions.

Countries adjusting corporate tax rates
►
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7

Worldwide fiscal stimulus —
tax policy plays a major role

Canada
The Czech Republic
Hungary
Italy
Japan
Netherlands
Russia
Singapore
South Korea
Taiwan

Highlights
►

Some countries are choosing to phase in their rate reductions, apparently in the
expectation that the government revenue impact of the reductions will be offset as
the economy improves. For example, South Korea’s rate is dropping from 25% to
22% in 2009 before dropping again to 20% in 2010. Similarly, the Czech Republic’s
two-percentage-point reduction will be phased in over two years.

►

Other countries, like Canada, have not announced any new federal corporate
rate reductions, but have chosen to move forward with previously approved rate
reductions(19% in 2009, 18% in 2010, 16.5% in 2011, 15% in 2012). In doing
so, Canada confirmed its commitment to becoming the lowest corporate taxing
jurisdiction among the major industrialized economies, with the goal of a 25%
combined federal-provincial statutory rate by 2012.

►

While most rate reductions have addressed the full spectrum of taxpayers, in some
cases the rate reductions are limited to small- and medium-sized enterprises.
In Japan, for example, the tax rate was lowered to 18% only for companies with
income up to 8 million¥ (€60,000). In the Netherlands, a 20% tax rate is proposed
for taxable income up to €200,000 for 2009-2010. However, a 25% rate will apply
for taxable income above €200,000. In 2008, the 20% rate was, in fact, applicable
for taxable income up to €275,000.

►

Japan recently enacted a 95% exemption of foreign-source dividends. This change
is intended to encourage Japanese multinational corporations to repatriate their
foreign earnings.

►

Facing extreme concerns with regard to budget and the value of its currency,
Hungary has proposed actually raising its corporate income tax rate from 16%
to 19% and is proposing to eliminate certain tax-base-decreasing items. (Its
4% solidarity surtax would cease in the meantime.) Despite similar budgetary
conditions, the Irish government reaffirmed its commitment to its 12.5% corporate
tax rate, while increasing some individual tax payments via a levy mechanism. As
budget difficulties become more severe, many countries — particularly those with
less diverse and robust economies — will need to determine whether corporate tax
rate increases or adjustments to the tax base will be necessary to address growing
deficits.

A guide to understanding opportunities
and challenges in 24 key jurisdictions

8

Research and development tax credit
enhancements
Commentary

In fact ...

25%

As the economic downturn deepens, one of the most pressing concerns for many
countries is that businesses will significantly reduce their research and development
(R&D) expenditures to improve their bottom line. To provide added incentive for
companies to maintain their investment in innovation, and to attract new R&D activity,
many countries are enhancing their R&D tax credit provisions.

... is the new rate of tax
credit for incremental R&D
expenditures in Ireland, an
increase from 20%.

In all, 11 of the 24 countries we reviewed have taken some action with regard to the
R&D credit. The most common approach has been to increase the rate of the credit. We
have also seen the introduction of new or enhanced carryback provisions, enhanced
refundability options and allowance of reserves for R&D expenditures to be deducted. In
some cases, R&D benefits are being particularly enhanced for small- and medium-sized
enterprises (SMEs).

Countries enhancing research and development tax
credits
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9

Worldwide fiscal stimulus —
tax policy plays a major role

Australia (proposed)
Belgium
Canada
China
France
Ireland
Italy
Japan
Russia
Singapore
South Korea

Highlights
►

Because many smaller busineses have been experiencing greater cash flow
difficulties related to the economic downturn, some countries have been offering
enhanced R&D credit provisions for small- and medium-sized enterprises (SMEs).
For example, South Korea is increasing the R&D tax credit rate for SMEs only.
Similarly, Australia’s proposed new R&D provisions would provide a 10% higher
rate for SMEs.

►

In Ireland, the rate of tax credit for incremental expenditure undertaken by
a company on qualified R&D has been increased from 20% to 25%. With this
increase, the total tax relief available for qualified R&D expenditures in Ireland
can be as high as 37.5% (when the tax credit is combined with a tax deduction
available for R&D spending). An allowance for capital expenditure on intangible
assets is also planned.

►

Some countries have added carryback provisions and refund elements to their
R&D provisions. Ireland, for instance, is now allowing the carryback of excess
credits to the previous year, with a refund of excess credit over a three-year
period. France is offering a refund of R&D credits from 2005, 2006 and 2007
that have not been previously utilized. The R&D credit for 2008 is eligible for
immediate refund if the credit exceeds tax due. In Australia’s proposed rules, such
a refund mechanism would be available only to smaller companies, while larger
companies will be eligible for a tax credit in another year.

►

Under Italy’s stimulus Decree, the R&D tax credit that was introduced in 2007 will
be extended to Italian entities and branches engaging in R&D as contractors and
sub-contractors of foreign principals, so long as they reside in an eligible country.

►

In Japan, there is a proposal to increase the maximum creditable amount for
certain R&D activity from 30% to 40% of the total tax due, along with an increase
in the carryforward period from one year to three years.

►

Facing extreme concerns with regard to budget and the value of its currency,
Hungary has proposed actually raising its corporate income tax rate from 16%
to 19% and is proposing to eliminate certain tax-base-decreasing items. (Its
4% solidarity surtax would cease in the meantime.) Despite similar budgetary
conditions, the Irish government reaffirmed its commitment to its 12.5%
corporate tax rate, while increasing some individual tax payments via a levy
mechanism. As budget difficulties become more severe, many countries —
particularly those with less diverse and robust economies — will need to determine
whether corporate tax rate increases or adjustments to the tax base will be
necessary to address growing deficits.

A guide to understanding opportunities
and challenges in 24 key jurisdictions

10

Indirect tax activity
Commentary

In fact ...

2.5%

Many countries have sought to maintain demand by reducing the costs of goods and
services through temporarily lowering indirect taxes, such as value-added tax (VAT).
In all, 15 of the 24 countries we reviewed have taken some action related to indirect
taxes. One common action has been to reduce the VAT rate, either overall or for
certain products. Another prevalent approach has been to suspend or defer planned
VAT increases. Some countries are also looking to improve cash flow by accelerating
the refund of VAT credits. Customs duties and excise taxes are also receiving a lot
of focus. To date, most actions with respect to customs and duties have supported
more open trade between nations, a positive sign in an environment where increased
protectionism has been a concern.

… is the amount by which
the United Kingdom has
temporarily cut their VAT rate,
from 17.5% to 15%.

Countries taking actions related to indirect taxes
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11

Worldwide fiscal stimulus —
tax policy plays a major role

Australia (proposed)
Belgium
Brazil
Canada
China
The Czech Republic
France
Hong Kong
Hungary
India
Ireland
Netherlands
Russia
Switzerland
United Kingdom

Highlights
►

Reducing the VAT rate has been a prevalent approach, either generally — as with the
United Kingdom’s temporary cut from 17.5% to 15% — or through more targeted cuts.
For example, several countries, such as the Czech Republic, Brazil and China have
enacted special VAT reduction measures related to the purchase of automobiles.

►

Recognizing the dire circumstances that many companies find themselves in with
regard to cash flow and profitability, several countries that had previously scheduled
VAT increases chose to postpone their implementation. For example, the Netherlands
cancelled a scheduled VAT increase from 19% to 20%, and Switzerland postponed its
scheduled increase.

►

Further reductions in VAT rates are now a possibility for European Union (EU)
Member States, after the ECOFIN meeting of 10 March 2009, where Ministers agreed
to allow reduced VAT rates in certain sectors, such as labor-intensive local services,
like restaurant services. This may prompt governments to do more in this area. For
example, following from the 10 March ECOFIN meeting the French government has
decided to reduce the VAT rate from 19.6% to 5.5% for restaurant services, effective
1 July 2009.

►

Some countries have focused on improving cash flow through a more efficient refund
of VAT credit. For example, France is now allowing for VAT refund claims to be made
monthly (instead of quarterly). Russia has increased the time limit for presenting
supporting documents for VAT reimbursements. Belgium is accelerating the refund of
VAT credits. China has increased export VAT refund rates and will allow companies to
credit VAT on capital expenditures against output VAT.

►

Responding to severe budget difficulties and a need to protect their currency, Hungary
and Ireland are the only two among the 24 countries we reviewed to have actually
proposed or have enacted increases to their VAT rates. In their May parliament session,
Hungary proposed measures to increase VAT from 20% to 25%, effective 1 July 2009.
This exceeds earlier estimates that it would only rise to 23% and is the highest rate
allowed under EU legislation. Hungary is also assessing additional special VAT rate
(excise tax) increases for fuel, tobacco and alcohol. In response to the economic crisis,
both of these countries have adopted contractionary, not stimulus, policies.

►

Other indirect-tax-related actions have also targeted demand. For example, India cut
export duty on iron ore, as well as reduced its customs duties. One interesting approach
comes from Hong Kong, which in 2008 abolished the 40% duty rate on alcohol and
followed up with an increase of 50% in tobacco duties in its recent 2009-10 budget.

►

Some countries are proposing to reduce tariffs on targeted imported items, an
encouraging sign amidst concerns that economic challenges may lead to protectionist
behavior. For example, Australia has submitted a proposal to reduce tariffs on imported
cars, and Canada has eliminated tariffs on a range of machinery and equipment
imported to Canada on or after 28 January 2009.

A guide to understanding opportunities
and challenges in 24 key jurisdictions

12

Personal income tax measures
Commentary
In fact ...
In an environment where unemployment is higher, and overall consumer confidence is
lower, than they have been in decades, many countries are introducing tax measures
to support the individual taxpayer. In fact, as an OECD average, the monetary impact
of tax measures tied to individual taxes outweigh those tied to business taxes by more
than a three to one margin. The general goal of these measures is to increase after-tax
pay and, by extension, overall demand. There is some question regarding the overall
effectiveness of these efforts, though, in terms of stimulus. For instance, one recent
study in the United States1 showed that during periods of low confidence, larger
proportions of tax refunds go to savings and repaying debt rather than spending.

3:1
… is the margin by which the
monetary impact of fiscal
stimulus tied to individual
taxes exceeds that tied to
business taxes.

In all, 12 of the 24 countries we reviewed have taken some action related to personal
income taxes. In this area, we may be seeing the widest variety of actions, but the
most common approach has been to expand the range of deductible items. Reducing
tax rates for lower-income taxpayers has been another common measure. Other
approaches have included reducing individuals’ social security contributions and
enacting special credit/rebate programs.

Countries taking actions related to personal income
taxes
►
►
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►
►
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►
►
►
►
►

1
Did the 2008 Tax Rebates Stimulate Spending? — Matthew D. Shapiro and Joel Slemrod — University of Michigan and NBER

13

Worldwide fiscal stimulus —
tax policy plays a major role

Argentina
Australia
Brazil
The Czech Republic
Hungary
Ireland
Russia
South Korea
Switzerland
Taiwan
United Kingdom
United States

Highlights
►

The most common activity has been to expand the range of deductible items, with
Argentina, Russia, Switzerland and Taiwan among the countries that have sought
to reduce the income tax burden in this way. For example, in Russia, the maximum
deduction available for expenditures associated with the new construction or
acquisition of housing has been increased. In Switzerland, a higher tax deduction
for families has been instituted. For countries that are already struggling with
growing deficits, this approach may be easier to implement than refundable credit/
rebate programs.

►

Reducing rates has been another frequent approach, with South Korea and
Taiwan among those who have either lowered rates directly or adjusted their
rate brackets to allow more taxpayers to be subject to lower tax rates. Brazil has
adopted the introduction of intermediary rates as a relief for lower-and middleincome taxpayers. At the same time, it announced a significant increase in its VAT,
Hungary announced a series of personal income tax rate reductions, indicating
that it is moving toward the OECD-recommended focus on taxing consumption
more heavily.

►

One of the most prominent campaign and early agenda items for US President
Obama was a refundable tax credit for working individuals and families — dubbed
the Making Work Pay credit. Now passed, this credit is an important part of the
United States’ fiscal stimulus effort. One unique aspect of the credit is that it will
be delivered by employers through a reduction in withholding for federal income
tax, which means that individuals will begin to see the benefits of the new credit
sooner.

►

With its budget announcement in April, the United Kingdom presented a series
of significant income tax increases geared toward high earners, signalling an
increased focus on reducing their budget deficit. These included the withdrawal of
personal allowance reliefs for those earning more than £100,000, a new 50% top
rate of income tax for those earning £150,000 and up and the gradual restriction
of tax relief for pension contributions for high earners.

►

In Ireland, marginal income tax rates have increased by up to 8.5% as compared to
2008, as a result of a combination of increases in both the income levy and health
levy. Pension contributions are also restricted for 2009.

A guide to understanding opportunities
and challenges in 24 key jurisdictions

14

Where do we go from here?
Focus areas for successfully navigating the current environment

These tax measures included in stimulus
packages are clearly only part of an
ongoing effort to contain and minimize
the extent of a global recession. Tax
policy developments definitely will not
end with the actions detailed in this guide,
and these future decisions will have a
major impact on the ultimate return
companies can expect from investments.
While not directly related to stimulus
efforts, the national budgets that are
being announced around the world
provide many clues as to the direction of
tax developments to come. For example,
the restriction of tax relief and new,
higher, tax rate for top earners outlined
in the United Kingdom's April budget
announcement could signal a movement
there toward fiscal tightening. The May
budget announcements in Australia
and the United States will also have
significant implications for tax. This guide
will be updated periodically to account
for major announcements and made
available via a dedicated web page at
http://www.ey.com/stimulus.
Companies must recognize that
governments will soon have to find a
way to pay for the tax relief they are
providing now in response to the current
economic environment. Governments
are keenly interested in maintaining
consistent, predictable revenue flows
even in the face of economic challenges
and fiscal stimulus efforts. In this kind
of environment, it is not unreasonable
to forecast an acceleration of ongoing
efforts to tighten up enforcement and
compliance efforts. For that reason, it
will be important for companies to have
established processes for managing tax
policy and controversy issues.

15

Worldwide fiscal stimulus —
tax policy plays a major role

From the perspective of those making
significant business decisions within this
turbulent time, or indeed considering
where to invest now to improve their
position when the economy regains its
stability, the changing landscape offers
both opportunities and challenges.

Look for incentive programs that
support their business goals — Even
in this environment, many incentive
programs are still available to businesses,
and some, as outlined in this guide, have
been enhanced to support fiscal stimulus
efforts.

The opportunities arise not only from
tax rate reductions, but also from some
of the very appealing tax incentives that
currently are being liberally offered in
many countries around the world.

Focus on improving communications and
developing stronger relationships with
their taxing authorities — Governments
and businesses are encountering similar
challenges related to financial market
uncertainty and weak economies. Many
companies are using regular discussions
to gain a better understanding of their
taxing authorities’ goals and focus
areas. At the same time, companies
are educating the tax authorities about
their business strategies and goals.
These discussions can be a great way
to increase certainty and avoid future
controversies.

“The optimal fiscal package should
be timely, large, lasting, diversified,
contingent, collective and sustainable.”
Fiscal Policy for the Crisis – International Monetary
Fund, 29 December 2008

However, these benefits also are the
source for some of the main challenges
governments will face in the future. Faced
with this, there are several things that tax
directors can focus on to improve their
ability to benefit from opportunities, while
minimizing the difficulties associated with
the challenges to come.

Corporate tax directors should:
Focus on effective cash tax management
— Find ways to save existing cash,
generate new cash and strengthen
balance sheets in support of overall
enterprise objectives. This might include
reviewing methods for recognizing
income or expenses, looking for ways to
accelerate the refund of prior-year taxes
as a result of carrying back a 2008 net
operating loss and developing effective
strategies around inventory, green
incentives, indirect and state and local
taxes, and many others.

Actively monitor tax policy
developments — Staying current on
tax legislative and administrative
developments can help businesses better
understand, analyze and prepare for the
impact of changes. Plus, the only way to
affect the tax policy process in a way that
supports business goals is to be involved
and provide input early and often.
In closing, many fiscal developments
continue to unfold as governments,
organizations and taxpayers alike
navigate their way through this
unprecedented time. We won’t know for
weeks, months or even years what their
outcome will be. Successful tax leaders
will look ahead rather than just file
returns for the past, since potential tax
controversy or tax changes need to be
factored into today’s tax planning.

Country key tax measures
About this guide
The majority of stimulus packages that have been
announced around the world focus on both tax
and spending measures. This guide of 24 key
jurisdictions focuses on the measures that make
up the tax component of each country’s stimulus
package. The data was collected through April
2009. The economic environment continues to
change daily; while every effort has been made
to include the latest government responses to the
financial crisis, the newest tax measures may not
yet be reflected in this guide.
This guide will be updated periodically to account
for major announcements and made available via
a dedicated web page at
http://www.ey.com/stimulus.

A guide to understanding opportunities
and challenges in 24 key jurisdictions

16

Argentina
Key changes reported
• Company tax measures
(other)
• Other measures
• Tax measures affecting
individuals

No reported activity
• Accelerated depreciation
• Grants and incentives
• Industry-specific measures
• Interest deductibility
• Profit repatriation
regulations
• Rebates and refunds
• Tax credits — new or
amended
• Tax policy reform
• Tax rate changes
• Corporate income tax
• Customs and duty
• VAT
• Tax treatment of debt
• Treatment of losses
(carrybacks, etc.)

Overview of measures to
reinvigorate the economy
As a result of the global financial crisis,
in September 2008, Argentina began
experiencing high currency depreciation
(17%), and commodity prices plummeted,
impacting exports. On 24 December
2008, the Argentine congress passed
a bill establishing a regime for the
“regularization” of tax liabilities, the
repatriation of funds and the registration of
employees. Law 26,476 approved the plan
announced by the Argentine president that,
in the midst of the international financial
crisis, aims to increase fiscal revenues
for 2009 and repatriate assets and
investments into Argentina. Unreported
capital is estimated at US$170 billion,
of which US$123.7 billion is currently
deposited outside the country, according
to private calculations based on the central
bank’s accounting reports.

Company tax measures (other)
Tax regularization regime: the regime for
regularizing tax liabilities comprises debts
for taxes, social security contributions
and penalties as of 31 December 2007,
and includes a broad amnesty for fines.
Compensatory and punitive interest will
also be reduced so as not to exceed 30%
of the amount owed if the taxpayer joins
the regularization plan in the first two
months, 40% if the regularization is made
in the third or fourth month, and 50% if
performed in the fifth or sixth month.
In addition, related criminal actions will
be suspended to the extent the criminal
proceedings have not reached final
judgment.
Employers who decide to regularize the
situation of employees (e.g., amending the
starting date, salary amounts or reporting
of unregistered employees) will not be
subject to penalties. In addition, for the first
10 workers included in the regularization,
no social security liabilities will arise.
Reporting undeclared funds and assets:
taxpayers (individuals and entities) will be
able to report the ownership of undeclared
funds or assets in Argentina or abroad and
benefit from a special tax regime. Such
reporting may be effectively performed by
informing the authorities of the existence
of deposits in foreign banking institutions,
by remitting them to accounts opened in
Argentine banks or, in the case of other
assets, by filing an affidavit individually
identifying them. The funds and assets
reported under Law 26,476 will be subject
to the following special tax:
• Assets and funds located abroad but not
transferred to Argentina: 8%.

17

Worldwide fiscal stimulus —
tax policy plays a major role

• Funds located in Argentina and abroad to
be used for the purchase of bonds issued by
the federal government: 3%. If the bonds are
transferred within a 24-month period, an
additional 5% will have to
be paid.
• Funds located in Argentina and abroad
belonging to individuals and destined for the
purchase of real estate used for dwelling: 1%.
The real estate must not be transferred within
a 2-year period.
• Funds located in Argentina and abroad to be
used for the development of buildings and
certain enumerated investments: 1%. The
real property and investments must not be
transferred within a 2-year period.
• Other assets and funds: 6%.
The funds subject to this tax will be exempt
from other federal taxes (e.g., income tax, VAT,
tax on debits and credits, minimum presumed
income tax, tax on personal assets, etc.).

Tax measures affecting individuals
Reporting undeclared funds and assets:
please see above under company tax measures
(other).
In order to stimulate consumption in certain
parts of the society, on 24 December 2008,
the Argentine congress passed a bill abrogating
article 23.1 of the income tax law, which used
to restrict the computation of certain personal
deductions in the personal income tax return
(i.e., minimum nontaxable amounts, spouse,
children and other relatives, special deduction
for employees and self-employed individuals)
by a certain percentage depending on the
individual’s taxable income. Such a clause,
which had been present in the income tax law
since 2000, was fully eliminated for 2009
and onwards, thus implying an effective and
progressive reduction in the income tax burden
for certain individuals with annual taxable
income exceeding ARS91,000.

Reductions in social security contributions
for new employees: subject to compliance with
certain requirements, employers contracting
new employees will benefit from a 50%
reduction in social security contributions during
the first year and a 75% reduction during the
second year.

Other measures
Exports of services: revenues deriving from
exports of services, which were subject to a
reduced 1.5% turnover tax (provincial tax) rate
in the city of Buenos Aires (federal district)
until year 2008, have become tax exempt as of
2009, as long as certain requirements are met.
Through this measure, the city of Buenos Aires’
local congress grants exporters of services the
same tax treatment that was being granted to
exporters of goods.

Ernst & Young
Tax contacts
• Jorge Gebhardt
Country Tax Leader
jorge.gebhardt@ar.ey.com
Tel: +54 11 4510 2203
• Carlos Casanovas
International Tax Services
carlos.casanovas@ar.ey.com
Tel: +54 11 4510 2270

A guide to understanding opportunities
and challenges in 24 key jurisdictions

18

Australia
Key changes reported
• Company tax measures
(other)
• Grants and incentives
• Industry-specific measures
• Other measures
• Tax measures affecting
individuals
• Tax policy reform
• Tax rate changes
• Customs and duty

No reported activity
• Accelerated depreciation
• Interest deductibility
• Profit repatriation
regulations
• Tax credits — new or
amended
• Tax rate changes
• Corporate income tax
• VAT
• Rebates and refunds
• Tax treatment of debt
• Treatment of losses
(carrybacks, etc.)

Overview of measures to
reinvigorate the economy
The global recession has impacted
Australian growth, employment and the
federal budget, withdrawing A$75 billion
in revenue since November 2008 and
causing Australia to follow other advanced
economies into a temporary deficit.
Australia has fewer and more tightly
regulated banks than many other countries.
Government guarantee of deposits
with Australian banks has maintained
confidence. Banks have not failed, but
various fund managers have failed or are
encountering financial difficulties.
The A$10.2 billion dollar stimulus package
was announced in October 2008. This
principally comprised targeted cash
payments to lower-income families and
pensioners in December 2008.
The A$42 billion Nation Building and Jobs
Plan (NBJP) announced in February 2009
is promoted by the government to support
and maintain up to 90,000 jobs and lift GDP
growth by around 0.5% in 2008-09 and
0.75 to 1% in 2009-10. Spending targets
include:
• A$28.8 billion to schools, housing,
energy efficiency, community
infrastructure and roads and support to
small businesses.
• A$12.7 billion to deliver an immediate
stimulus to the economy to support
growth and jobs. These measures include
A$8.2 billion Tax Bonus for Working
Australians, A$1.4 billion Single — income
Family Bonus, A$20.4 million Farmer's
Hardship Bonus, A$2.6 billion Back to
School Bonus and A$511 million Training
and Learning Bonus. These will be paid
from early March 2009.

19

Worldwide fiscal stimulus —
tax policy plays a major role

Company tax measures (other)
Investment allowance: A short-term
stimulus measure includes a new 30%
investment allowance tax deduction (at
a 30% tax rate, this translates into a 9%
cash tax break) for eligible assets ordered
between 13 December 2008 and 30
June 2009 and installed ready for use by
30 June 2010. Further, a 10% allowance
has been introduced for eligible assets
ordered between 13 December 2008 and
31 December 2009 and installed ready for
use by 31 December 2010.
Small business deferrals: To provide cash
flow relief to small businesses, deferrals
on periodic tax instalments (20% cuts for
tax instalments calculated under the GDP
adjusted formula) have been provided.

Grants and incentives
A$28.8 billion has been identified to
support schools, housing, energy efficiency,
community infrastructure, roads and small
businesses.
A Green Car Innovation Fund will commence
from 1 July 2009. The A$1.3 billion fund
will provide assistance over ten years
to design, develop and manufacture
low-emission, fuel-efficient cars and
components in Australia.
A $90 million green building fund has been
introduced.

Industry-specific measures
A New Car Plan for a Greener Future
includes the extension of the Automotive
Transformation Scheme (ATS) from
2011 to 2020, providing A$3.4 billion
to the automotive industry; funding for
a smooth transition to the ATS from the
current Automotive Component Investment
Scheme; the Green Car Innovation Fund
mentioned above; and A$116.3 million
to promote structural adjustments
through mergers and consolidation in the
components sector and to facilitate labor
market adjustments.

Interest deductibility
Australia has a thin capitalization system
for funding of certain international
investments. There is some private sector
concern that the global financial crisis will
necessitate the temporary relaxation of
Australia’s thin capitalization rules.
The Australian Taxation Office has released
draft technical interpretations which, if
adopted, could result in denial of interest
deductions in some situations. No interest
deductibility measures have been taken,
but readers should continue to monitor
developments closely.

Other measures
The Australian Federal budget will be
handed down on 12 May 2009. Pre-budget
submissions called for measures such as
the introduction of tax loss carrybacks,
temporary relaxation of Australia’s thin
capitalization rules to cushion the effects
of asset impairment from the global
financial crisis and improvement of interest
withholding tax and other rules. Readers
should continue to monitor developments
closely.

Profit repatriation regulations
No immediate news. Australia allows
most foreign source dividends received
by companies to be non-taxable (nonassessable non-exempt).
Australia has a dividend imputation system
benefiting domestic shareholders receiving
dividends from income that has been taxed
in Australia. Business has been seeking
partial imputation credits for dividends
from foreign source income (currently,
these are taxable with no credit for the
underlying foreign tax paid).
A review of Australia’s tax rules for
outbound investment (i.e., controlled
foreign companies, controlled foreign trusts
and foreign investment funds) by the Board
of Taxation has concluded, but the report
has not been released. Business hopes that
the government response will bring longterm structural reform, compliance savings
and improved competitiveness.

Tax credits — new or amended
(or tax offsets)

The Cutler Review of Innovation proposed
40% tax credit for large companies’ R&D,
with smaller companies to get a cash refund
of 50% for their R&D, with the proposed
offset also available for foreign-owned R&D.
The government’s response to the review is
awaited in the May 2009 Federal Budget.

Tax measures affecting
individuals
Personal tax cuts: significant personal
tax cuts for the 2008-11 years of income,
promised as part of the 2007 federal
election campaign, have already been
enacted. This should support consumer
confidence. Further contemplated tax cuts
have been postponed to a future time.

Tax policy reform
A comprehensive review of Australia’s
tax and welfare transfer system, under
the leadership of the Treasury Secretary
Ken Henry, is being conducted in
consultation with businesses and the public.
Recommendations are to be delivered by
the end of 2009, covering capital taxation,
state taxation, personal taxation, business
taxation and more.

Tax rate changes
Corporate income tax (CIT)
Changes to the 30% CIT rate have been
mentioned by government but no action
likely until the Henry review reports.
Customs and duty
There is a proposal to phase down tariffs
on imported cars from 10% to 5% by 1% a
year between 2010 and 2014, instead of
the currently scheduled cut straight to 5%
in 2010.

Ernst & Young
Tax contacts
• Trevor Hughes
Business Tax Services
trevor.hughes@au.ey.com
Tel: +61 3 8650 7363
• Alf Capito
Tax Policy Services
alf.capito@au.ey.com
Tel: +61 2 8295 6473
• Howard Adams
Tax Controversy
howard.adams@au.ey.com
Tel: +61 2 9248 5601

A guide to understanding opportunities
and challenges in 24 key jurisdictions

20

Belgium
Key changes reported
• Company tax measures
(other)
• Industry-specific measures
• Rebates and refunds
• Tax measures affecting
individuals
• Tax policy reform
• Tax rate changes
• VAT

No reported activity
• Accelerated depreciation
• Grants and incentives
• Interest deductibility
• Other measures
• Profit repatriation
regulations
• Tax credits — new or
amended
• Tax rate changes
• Corporate income tax
• Customs and duty
• Tax treatment of debt
• Treatment of losses
(carrybacks, etc.)

Overview of measures to
reinvigorate the economy
The Belgian government has developed
a recovery plan to tackle the economic
downturn by supporting the cash position
of companies, increasing consumption and
reducing labor costs for companies.
The cash position of companies is improved
by accelerating the refund of VAT credits
(on a monthly basis) and by postponing
the due date for the payment of salary
withholding tax.
Consumption is boosted by lowering the
VAT rate (e.g., investments in private
immovable property) and by granting a tax
credit on energy saving investments
in private property.
Labor cost is reduced by allowing
companies to benefit from a retention of
the salary withholding tax levied (1% on all
salaries, 15.6% for night and shift work and
75% of the salary paid to researchers).
The VAT measures have been published and
are effective as of 1 January 2009. The
other measures will mainly be implemented
through the Economical Revival Act, which
was adopted on 5 March 2009 by the
1st Chamber of the parliament. Some of
these measures will enter into force with
retroactive effect from 1 January 2009.
Moreover, in the framework of the
interprofessional agreement concluded for
2009-10, a number of measures have been
taken to stimulate competitiveness (e.g.,
partial tax deduction of meal voucher costs
for the employer).

21

Worldwide fiscal stimulus —
tax policy plays a major role

Company tax measures (other)
VAT credit refund claim: the possibility
exists for Belgian VAT registered companies
to apply for a VAT credit refund claim on a
monthly basis instead of a quarterly basis
(for activities that are typically in a VAT
credit position). Companies may ask for
permission to process a monthly refund on
a quarterly basis (instead of at year-end).
Salary withholding tax: the proportion of
salary withholding tax that the employer
does not have to transfer to the Treasury
increased.
The following additional measures were
announced:
• Researchers: retention on the salary
withholding tax increased from 65% to
75% as of 1 January 2009
• General tax retention: increased from
0.25 % to 0.75% as of 1 June 2009 and
to 1% as of 1 January 2010
• Tax retention for night and shift work:
increased from 10.7% to 15.6% as of
1 June 2009
• Tax retention for overtime payment:
100 hours as of 1 January 2009 and
130 hours as of 1 January 2010
• Transfer of the salary withholding tax:
transfer of the salary withholding tax in
the second and third quarter of 2009 can
now be deferred for an additional three
months.

Industry-specific measures
Real estate: in order to boost the Belgian
real estate sector, a number of measures
have been adopted. From 1 January until
31 December 2009, a reduction of the VAT
rate from 21% to 6% is available for costs

related to the construction of new private
dwellings, to a maximum of EUR$50,000.
Moreover, the 6% VAT rate for
reconstruction, which is already applicable
in certain town areas, will be extended to
the entire country until 31 December 2009.

Rebates and refunds
An employer entering into a loan in order
to pay the wage withholding tax to the
Treasury may apply for an interest subsidy
for a period of six months.

Tax measures affecting
individuals
• A reduced 6% VAT rate may apply for new
private homes and for reconstruction
(see above).
• Support energy saving investments
(such as solar panels and insulation) in
private real estate are boosted through
so-called “green loans” (loans with rental
subsidies and increased deduction in
individual taxation) and tax credits.
• Stock options — increased delay for
exercise.
• Tax credit for acquisition of computers/
computer plans.

Tax policy reform
Research and development: together with
the payroll relief for researchers (up to
75%), the patent income deduction, which
allows 80% exemption of gross patent
income, will increase the attractiveness
of Belgium as a primary location for R&D
developments. Additionally, companies
may obtain a favorable advance tax ruling
on R&D projects (focusing on the special
tax deduction for investments in R&D, also

including the transfer pricing aspects)
and/or benefit from the notional interest
deduction (NID). The tax policy of the
Belgian ruling commission is clearly positive
towards new R&D projects, especially if
they result in an increase in employment in
Belgium.
Foreign investment: very recently, the
Belgian Minister of Finance emphasized
the effectiveness of the NID as a measure
to attract foreign investment into Belgium.
Steps will be undertaken to investigate
whether the scope of the NID could be
broadened to include investments outside
Belgium in order to comply with the
initiatives of the European Commission.

Tax rate changes
VAT
• Real estate: for a number of real estate
investments, the general rate of 21% is
decreased to 6%. The lower rate is only
applicable for investments in private
immovable property (housing) but is
considered an important incentive for the
real estate sector (see above).
• Assisted living: the 6% rate applicable
to dwellings older than five years is
extended to psychiatric nursing homes
and protected living initiatives (initiatives
for handicapped people, allowing them to
live independently but with an adapted
level of help).

Ernst & Young
Tax contacts
• Herwig Joosten
International Tax Services
herwig.joosten@be.ey.com
Tel: +32 02 774 9349
• Reginald Beyaert
Business Tax Services
reginald.beyaert@be.ey.com
Tel: +32 02 774 9363
• Koen Marsoul
Tax Policy Services
koen.marsoul@be.ey.com
Tel: +32 02 774 9954

A guide to understanding opportunities
and challenges in 24 key jurisdictions

22

Brazil
Key changes reported
• Industry-specific measures
• Tax measures affecting
individuals

No reported activity
• Accelerated depreciation
• Company tax measures
(other)
• Grants and incentives
• Interest deductibility
• Other measures
• Profit repatriation
regulations
• Rebates and refunds
• Tax credits — new or
amended
• Tax policy reform
• Tax rate changes
• Corporate income tax
• Customs and duty
• VAT
• Tax treatment of debt
• Treatment of losses
(carrybacks, etc.)

23

Worldwide fiscal stimulus —
tax policy plays a major role

Overview of measures to
reinvigorate the economy
With the global financial crisis creating
great turmoil in September 2008, Brazil’s
currency depreciation hit an astounding
46%. Responding to the international crisis,
the Brazilian government enacted a set of
economic recovery measures. To stimulate
foreign finance transactions, Brazil reduced
the financial tax (IOF) focused on foreign
currency exchange transactions and
leasing transactions. Brazil also temporarily
reduced the federal VAT (IPI) and also
reduced the income tax rates for individual
taxpayers.

Industry-specific measures
Brazil reduced the Industrialized Products
Tax (IPI) for specific automobiles, as
detailed in the following table:
Engine
volumetric
capacity

Standard
automobiles
(gasoline
engines)

Flex
automobiles
(gasoline/
alcohol
engines)

up to 1,000

Decreases
from 7% to
0%

Decreases
from 7% to
0%

from 1,000
to 2,000

Decreases
from 13% to
6.5%

Decreases
from 13% to
5.5%

as from
2,000

Remains in
25%

Remains in
18%

The above incentives are valid for a
determined period of time and are currently
scheduled to expire on 30 June 2009.
Motorcycle industry: the IOF has been
reduced to zero on the purchase of
motorcycles.
Software industry: costs and expenses
associated with the training/education
of technical people rendering services
to develop software, in addition to the
deductibility of such expenses, may be
excluded from taxable income.

Tax measures affecting
individuals
The income tax rates for individual
taxpayers are reduced as follows:
Taxable
income
(BRL)

Previous
tax rate

Updated tax
rate

from zero
to 1,434

0%

0%

from 1,434
to 2,150

15%

7.5%

from 2,150
to 2,866

15%

15%

from 2,866
to 3,582

27.5%

22.5%

as from
3,582

27.5%

27.5%

Ernst & Young
Tax contacts
• Carlos S. Romero
International Tax Services
carlos.s.romero@br.ey.com
Tel: +55 11 2112 5268
• Romero Tavares
Tax Policy Services
romero.tavares@br.ey.com
Tel: +55 11 2112 5444

A guide to understanding opportunities
and challenges in 24 key jurisdictions

24

Canada
Key changes reported
• Accelerated depreciation
• Company tax measures
(other)
• Industry-specific measures
• Interest deductibility
• Tax credits — new or
amended
• Tax measures affecting
individuals
• Tax rate changes
• Corporate income tax
• Customs and duty

No reported activity
• Grants and incentives

Through a variety of expenditure and
tax measures, the budget addresses
broader economic concerns such as job
creation, productivity initiatives and wage
preservation, restoring confidence in the
financial markets, enhancing Canada’s
competitiveness in attracting and
maintaining human and nonhuman capital,
and growth in the GDP.
To this end, the government has decided
to part from a string of successive
surpluses towards a projected annual
deficit of approximately C$1 billion,
C$34 billion and C$30 billion for the
2009, 2010 and 2011 fiscal years,
respectively.

• Other measures

Accelerated depreciation

• Profit repatriation
regulations

Accelerated capital cost allowance
(CCA) for manufacturing and processing
equipment: the temporary increase in
the CCA rate for manufacturing and
processing equipment to a 50% straightline rate has been extended for eligible
assets acquired in 2010 and 2011. The
half-year rule will apply, such that a full
write-off may be claimed over three
taxation years.

• Rebates and refunds
• Tax policy reform
• Tax treatment of debt
• Tax rate changes
• VAT
• Treatment of losses
(carrybacks, etc.)

Overview of measures to
reinvigorate the economy
The minority Conservative government
delivered its 2009 budget on 27 January.
Unlike past budgets, and following the
lead of many other countries, this year’s
budget is primarily aimed at addressing
Canada’s slumping economy through a
series of fiscal initiatives.
In line with the International Monetary
Fund’s recommendation that governments
introduce stimulative packages of
approximately 2% of GDP, Canada’s fiscal
2010 measures amount to 1.9% of GDP
(C$30 billion). This is lower than the
proposed US package, which is estimated
25

to be approximately 3%, but higher than
many other developed countries.

Worldwide fiscal stimulus —
tax policy plays a major role

Accelerated CCA for computer
equipment: a temporary increase in
the CCA rate for computer equipment
(including systems software) to 100%
with no half-year rule such that a full
write-off may be claimed in one full
taxation year. This change applies to
eligible computer equipment acquired
after 27 January 2009 and before
February 2011.

Company tax measures (other)
Small business deduction: the minister
announced an increase from C$400,000
to C$500,000 in the annual business
income limit of a Canadian-controlled
private corporation (CCPC) eligible
for the reduced small business tax
rate. This increase is effective
1 January 2009 and is prorated for

corporations with taxation years straddling
this date. Consequential to this change,
the C$3 million expenditure limit for the
enhanced investment tax credit rate for
scientific research and experimental
development (SR&ED) expenditures
incurred by a CCPC will be reduced
when taxable income in the previous
year exceeds C$500,000 (currently
C$400,000), and will be fully eliminated
when taxable income exceeds C$800,000
(currently, C$700,000). This change
is effective for previous taxation years
ending after 2008.

Industry-specific measures
See mineral exploration credit in “Tax
credits” section below.
See “Accelerated depreciation” section
(above) for accelerated CCA measures
targeted at manufacturing and processing
sector.
See home renovation tax credit under “Tax
credits” in the “Tax measures affecting
individuals” section below. This temporary
measure is intended to stimulate the home
renovation and construction industry.

Interest deductibility
Arguably, the budget’s most significant
measure is to repeal section 18.2 of the
Income Tax Act, which was introduced as
part of the 2007 Anti-Tax Haven Initiative
and scheduled to come into force in 2012.
Had it not been repealed, the provision
would have restricted the deductibility
of interest in certain situations when a
Canadian corporation borrows funds to
finance a foreign affiliate and a second
deduction is available in a foreign
jurisdiction (a so-called “double dip”).

Tax credits — new or amended
Tax credits: mineral exploration credit
— the mineral exploration tax credit,
equal to 15% of specified mineral
exploration expenses incurred in Canada
and renounced to flow through share
investors, will be extended to flow through
share agreements entered into on or

before 31 March 2010. This program,
initially introduced in 2000, was previously
extended and scheduled to expire on 31
March 2009.
See also “Tax credits” under the “Tax
measures affecting individuals” section
below.

Tax measures affecting
individuals
Personal tax: income thresholds
• Personal amounts — the budget
proposes to increase the basic personal
amount and the amount for a spouse,
common law partner or wholly
dependent relative from C$9,600 in
2008 to C$10,320 in 2009.
• Higher-income thresholds — the budget
aims to deliver on the government’s tax
back guarantee to provide broad-based
personal tax relief:
• The upper limit of the first personal
income tax bracket (15%) will
increase to C$40,726 in 2009 from
C$37,855 in 2008.
• The upper limit of the second personal
income tax bracket (22%) will
increase to C$81,452 in 2009 from
C$75,769 in 2008.
As a result of these changes, a single
Canadian earning C$80,000 will pay
C$259 less tax for 2009, for example.
Tax credits: the budget includes proposals
for a number of new and enhanced
tax credits, computed using the lowest
personal tax rate (15%):
• Home renovation tax credit — for 2009,
a new, nonrefundable temporary tax
credit will be available to homeowners
for home improvements to a principal
residence. The credit will apply to
expenditures in excess of C$1,000
and up to C$10,000, made for work
performed or goods acquired after
27 January 2009 and before
February 2010, in relation to an
agreement entered into after
27 January 2009. Eligible
expenditures must be for renovations or
alterations of an enduring nature.

• Routine repairs, appliances, furniture
and financing costs are ineligible for
the credit. Family members (spouses/
partners and minor children) will share
the expenditure limit. This will generate
a tax saving of up to C$1,350.
• First-time home buyers’ tax credit —
effective 2009, a new, nonrefundable
tax credit based on an amount of
C$5,000 will be available for first-time
homebuyers who acquire a qualifying
home after 27 January 2009. This will
generate a one-time C$750 tax saving.
• Age credit — effective 2009, the amount
that is the basis for the age credit is
increased by C$1,000, to C$6,408.
This income-tested credit begins to
be phased out at C$32,312 of net
income and will be completely eroded at
C$75,032 of net income.

Tax rate changes
Corporate income tax
Corporate tax reductions — while there
were no new corporate rate reductions
announced, the minister confirmed
Canada’s direction to become the lowest
corporate taxing jurisdiction among the
major industrialized economies. He also
restated the government’s intention
to collaborate with the provinces and
territories to reach a 25% combined
corporate tax rate.

Ernst & Young
Tax contact

The enacted Canadian federal general
corporate income tax rates are as follows:
Year

2008

2009

2010

2011

2012

General
corporate
tax rate

19.5%

19.0%

18%

16.5%

15%

Small
business
rate

11%

11%

11%

11%

11%

Customs and duty
Tariff relief on machinery and equipment
— the budget proposes to permanently
eliminate tariffs on a range of machinery
and equipment imported into Canada and
used by Canadian industry, and to simplify
the existing customs tariff structure.

• Greg Boehmer
Tax Policy Services
greg.c.boehmer@ca.ey.com
Tel: +1 416 943 3463
• Jim Morrisey
Tax Policy Services
james.a.morrisey@ca.ey.com
Tel: +1 613 598 4306
• Bob Neale
Tax Policy Services
robert.n.neale@ca.ey.com
Tel: +1416 943 2571

A guide to understanding opportunities
and challenges in 24 key jurisdictions

26

China
Key changes reported
• Accelerated depreciation
• Company tax measures
(other)
• Grants and incentives
• Industry-specific measures
• Other measures
• Rebates and refunds
• Tax measures affecting
individuals
• Tax policy reform
• Tax treatment of debt

No reported activity
• Interest deductibility
• Profit repatriation
regulations
• Tax credits — new or
amended
• Tax rate changes
• Corporate income tax
• Customs and duty
• VAT
• Treatment of losses
(carrybacks, etc.)

Overview of measures to
reinvigorate the economy
On 9 November 2008, the Chinese
government unveiled its four trillion yuan
(US$586 billion) stimulus package for the
next two years to boost domestic demand in
light of a slumping export market.
It will be spent on upgrading infrastructure,
raising rural incomes via land reform and
supporting social welfare projects such
as affordable housing and environmental
protection. The package also redirects
VAT from a production-based regime to a
consumption-based system, which will draw
US$18 billion of the total package.
Additionally in this past year, the Chinese
government raised the level of tax rebates
to bolster exports, reduced taxes on
property purchases to support the real
estate market, and cut the interest rate on
savings and stamp duties of stock trading to
boost the financial market.
Based on the draft budget report (dated on
15 March 2009) for the fiscal year 2009,
the Chinese government will focus on
reforming taxes and fees and implementing
structural tax reductions to achieve a tax
cut of 500 billion yuan (US$75 billion).
On 31 March 2009, the China Securities
Regulatory Commission (CSRC) issued
the Temporary Regulation for IPO for
Growth Enterprise, to be effective from
1 May 2009. The regulations aim to
provide an additional source of equity
funding for growth enterprises and set
the profit requirements of 10 million yuan
(US$1.5 million) for the last 2 years,
with net assets of at least 20 million yuan
(US$2.9 million).

Accelerated depreciation
Accelerated depreciation is available to
certain industries/assets. For example,
with approval from the tax authorities,
enterprises may shorten the depreciation
or amortization period of purchased
software to a minimum of two years.
In addition, the depreciation period of
machinery and equipment of the Integrated
Circuit enterprises may be shortened to a
minimum of three years.
27

Worldwide fiscal stimulus —
tax policy plays a major role

Company tax measures (other)
To encourage development, small- and
medium-sized enterprises will receive tax
preferential policies.
High and New Technology Enterprises:
a company that is certified as a High and
New Technology Enterprise can be entitled
to reduced tax rate at 15% (instead of
statutory rate of 25% under the new
law). If a newly established High and
New Technology Enterprise is established
in Pudong New Area (part of Shanghai
municipality) or any of the special
economic zones (i.e. Shenzhen, Hainan,
Zhuhai, Xiamen, Shantou), it can further
be entitled to a tax holiday of "two-year
exemption, followed by 3-year 50% tax rate
reduction (i.e., 12.5%)."
Resident taxpayers are allowed to
deduct 150% of qualified research and
development (R&D) expenditures (“R&D
expense super deduction”) for corporate
income tax purposes. If the R&D activities
result in an intangible asset, the company
can amortize the intangible asset based on
150% of its actual costs.
Environment: companies engaged in
approved projects of environmental
protection, energy saving and water saving
nature, etc. may enjoy a tax preferential
treatment of "3-year exemption, followed
by 3-year 50% tax reduction." The company
may realize an additional 10% in tax savings
by using special environmental protection
equipment.

Grants and incentives
None reported, but grants and incentives
continue to be available in practice
especially when foreign investment
is needed in less popular investment
locations.

Industry-specific measures

Rebates and refunds

• A VAT rebate for some textiles and
clothing exporting companies was
raised to 16% from 1 April 2009 under
CaiShui[2009]43.

Export refund of consumption tax ("CT") of
processing goods.

• A VAT rebate for some electronic and
information exporting companies was
raised to 17% starting from 1 April 2009
under CaiShui[2009]43.
• Adjustment of export duty rates for
certain artificial fertilizers.
• Adjusting tax policies for import of largescale coal mining equipment and its key
spare parts and material.
• Extending availability of tax rebates
on key imported components for
domestically owned oceangoing ships to
2012.
• Sales tax receipts resulting from reform
of taxes and fees for refined petroleum
products.
• Reduction in the purchase tax rate from
10% to 5% on cars under 1.6 liters from
20 January to 31 December 2009 under
CaiShui[2009]12.
• Exemption from VAT for company
providing residential heat for 2009 and
2010 under CaiShui[2009]11.
• Financial subsidy for the farmers who
purchase cars under 1.3 liters from
20 January to 31 December 2009.
• A tax rebate for some exported steel
products will be increased.
• Reduction of holding-period requirement
for business tax exemption on transfer of
residential properties.
• New tax policies for the nuclear power
industry.

Other measures
Rescind and cease collecting 100 items of
government administrative levies.

Rebate on domestically owned oceangoing
ships.

Tax measures affecting individuals
Tax exemption on individual interest income
earned after 9 October 2008.

Tax policy reform
Change to consumption-based VAT regime
providing full input tax credit for capital
goods effective 1 January 2009.

Tax treatment of debt
Interest expense: on 23 September 2008,
the Ministry of Finance (MOF) and the
State Administration for Taxation (SAT)
jointly issued Caishui[2008]121, which
stipulates that the related party debt-toequity (DE) ratio cannot be in excess of 5:1
for financial institutions and 2:1 for other
industries. The excessive interest expense
is not allowed to be deducted in the current
year or deferred to the following years. Thus
any excess interest is lost.
Departure from DE ratio permitted under
two conditions: the company is able to
provide relevant information as required in
the CITL and the CITLIR to substantiate that
a related party financing activity is at arm’s
length; or the effective tax rate of a resident
borrower is not higher than a resident
related-party lender.
On 8 January 2009, GaoShuiFa[2009]2,
Administrative Procedures for Special Tax
Adjustments (Trial) was issued, and there
is a separate Chapter on thin capitalizations,
which first brings forth the formula to
compute the disallowed interest deduction
being the total interest expenses on relatedparty borrowings times (1- DE ratio as per
Circular 121/ the actual related-party DE
ratio). Additionally, a monthly average
calculation is applied to reach the relatedparty DE ratio. When determining relatedparty borrowings, guarantee and other
similar arrangements are included.

Ernst & Young
Tax contacts
• Owen Chan
Business Tax Services
owen.chan@hk.ey.com
Tel: +852 2629 3388
• Becky Lai
Tax Policy Services
becky.lai@hk.ey.com
Tel: +852 2629 3188
• Joseph Lee
Tax Policy Services
joseph.lee@cn.ey.com
Tel: +86 10 5815 3383

A guide to understanding opportunities
and challenges in 24 key jurisdictions

28

The Czech Republic
Key changes reported
• Accelerated depreciation
• Company tax measures
(other)
• Grants and incentives
• Industry-specific measures
• Tax measures affecting
individuals
• Tax rate changes
• Corporate income tax
• Tax treatment of debt

No reported activity
• Interest deductibility
• Other measures
• Profit repatriation
regulations
• Rebates and refunds
• Tax credits — new or
amended
• Tax policy reform
• Tax rate changes
• Customs and duty
• VAT
• Treatment of losses
(carrybacks, etc.)

Overview of measures to
reinvigorate the economy
In February 2009, the Czech government
approved a CZK41.5 billion (approximately
US$2 billion) budget stimulus package
designed to help businesses and preserve
jobs. However, the majority of tax changes
included in the package need to be
approved by the Czech parliament, where
they are currently under review.
Given an uncertain political situation in the
Czech Republic, the result is difficult to
predict, and some of the stimulus measures
approved by the government may change
in due course. The stimulus package,
if approved, would introduce a range
of changes, including the acceleration
of depreciation of certain assets and a
decrease in social security payments for
low-earning employees. Some changes
have already been introduced, including
a VAT deduction on the purchase of
passenger cars, the shortening of the
excess VAT refund period and an exemption
from corporate income tax prepayments for
self-employers and companies with up to
five employees.

Accelerated depreciation
Temporary acceleration of tax depreciation
in the first and second (out of six)
depreciation groups (to be approved in
parliament):
In the first depreciation group (e.g.,
computers and other stationary), from
three years to 12 months (linearly).
In the second depreciation group (e.g.,
cars and machinery), from five years to 24
months (60% in the first 12 months and
40% in the second 12 months).

Company tax measures (other)
Social security payments (employer
contribution): a decrease in the employer
contribution for employees earning
up to 115% of the average wage has
been proposed and requires approval in
parliament.
VAT: electronic filing period for excess VAT
refunds has been shortened from 30 to
15 days (approved in February 2009).
Insolvency law: changes in insolvency law
are aimed at assisting selected companies
in maintaining employment and to protect
employees of an insolvent company (to be
approved in parliament).
State guarantee: loans taken by small- and
medium-sized enterprises (SMEs) will
receive state guarantee.
Green investment: subsidies are provided
for projects involving insulation of houses
and replacement of boilers with lowemission energy sources (e.g., solar
panels).
Income tax prepayments: corporate
income tax prepayments are not required
for self-employers and companies with
up to five employees (i.e., CIT would be
payable at full upon filing CIT return). This
measure was approved in parliament in
February 2009.

29

Worldwide fiscal stimulus —
tax policy plays a major role

Grants and incentives

Tax rate changes

• Grants are available for increasing
personal mobility.

Corporate income tax (CIT)

• Grants available for up to 80% of salary
costs.
• Grants are provided for employee
training.

Industry-specific measures
VAT deduction: a
 VAT deduction is provided
on the purchase of passenger cars;
however, a regulation taxing private use
shall be observed.

Tax measures affecting
individuals
Decrease in social security payments
(employee contribution) of 1.5% from
2009 onwards (approved in 2008).

Decrease in corporate income tax rate from
21% in 2008 to 20% in 2009 and 19% in
2010 (approved in 2007).

Tax treatment of debt
Softening of thin-capitalization rules:
Return to a 4:1 debt-to-equity ratio (6:1 for
banks) — from current 2:1 (resp. 3:1).
Subordinated debts will be CIT-deductible.
Related-party guarantee of a bank loan
should not trigger adverse tax implications
— only “back-to-back” loans will be subject
to thin-capitalization rules.
Retroactively effective for tax periods that
began in 2008.

Ernst & Young
Tax contacts
• Libor Fryzek
Business Tax Services
libor.fryzek@cz.ey.com
Tel: +420 225 335 310
• Ondrej Janecek
Business Tax Services
ondrej.janecek@cz.ey.com
Tel: +420 225 335 360

A guide to understanding opportunities
and challenges in 24 key jurisdictions

30

European Union
Tax issues related
to fiscal stimulus
activities
• Member States and
the effects of “acquis
communautaire”
• Pressure to end
retrospective changes to
European Union tax law
• Ministers struggle to
agree on reduced
VAT rates
• European Union Member
States under pressure
to raise maximize tax
revenue

Overview of measures to
reinvigorate the economy

Member States and the effects of
“acquis communautaire”

The European Commission (EC) on
26 November 2008 presented a plan to
drive Europe's recovery from the current
economic crisis. The recovery plan is
based on two mutually reinforcing main
elements. Firstly, short-term measures to
boost demand, save jobs and help restore
confidence. Secondly, “smart investment”
to yield higher growth and sustainable
prosperity in the longer term. The plan calls
for a timely, targeted and temporary fiscal
stimulus of around €200 billion or 1.5%
of European Union (EU) GDP, within both
national budgets (around €170 billion, 1.2%
of GDP) and EU and European Investment
Bank budgets (around €30 billion, 0.3% of
GDP).1 This plan was adopted in December
2008 as the European Economic Recovery
Plan.

The entire accumulation of European
laws thus far is known as the acquis
communautaire, and must be adopted,
implemented and enforced by all Member
States. The pressure on Member States
to make provisions to combat the
financial crisis continues to put the acquis
communautaire under intense pressure, as
countries strive to bring about measures
that combat the downturn on one hand,
while remaining aligned to the union on the
other. In this section, we use some of the
stimulative activities that have occurred in
Germany as an example of these pressures.

Amid worries over the fragile state of
banking in Central and Eastern Europe,
the World Bank, the European Bank for
Reconstruction and Development and the
European Investment Bank announced on
27 February 2009 that they would lend up
to €24.5 billion to the region.2
At a meeting of the European Council
on 19/20 March 2009, the Presidency
Conclusions (a form of meeting minutes)
stated that:
“Good progress has been made in
implementing the European Economic
Recovery Plan adopted last December.
Although it will take time for the
positive effects to work their way
through the economy, the size of the
fiscal effort (around 3.3% of EU GDP
or over €400 billion) will generate new
investments, boost demand, create jobs
and help the EU move to a low-carbon
economy.”

1
European Commission press release, 26 November 2008
2
Financial Times, 27 February 2009

31

Worldwide fiscal stimulus —
tax policy plays a major role

The following description of a national
safety measure in respect to Germany
should serve only as an example of a
re-birth of national thinking despite the
establishment of an internal market. Other
EU Member States have introduced similar
legislation to safeguard their national
banking system.
The implementation of parts of the stimulus
packages in the Member States may
lead to a variety of issues concerning the
compatibility of the domestic regulations
with EU law, which becomes obvious when
reviewing the newly adopted provisions of
the German Financial Markets Stabilization
Act. Although the European Commission
declared this measure of state aid as
compatible with the common market on
27 October 2008, it discloses several
aspects that might infringe EU law at first
sight.
First, it seems questionable whether the
qualification of the Financial Markets
Stabilization Fund as a nonentrepreneur
for VAT purposes (Sec. 14 (1) German
Financial Markets Stabilization Act) is in
line with the VAT directive. Furthermore,
the unilateral qualification as resident in

Germany for double-tax treaty purposes
despite its exemption from German income
and withholding tax does not correspond
with the common requirements for
treaty entitlement, such as the form of
organization and the carried-out activities.
However, the imposition of German income
tax on capital gains from nonresident (state)
funds — levied in the form of (a lump sum)
withholding tax — might be considered as
an infringement of the free movement
of capital or a violation of the freedom
of establishment as far as the EC parentsubsidiary directive is not applicable. This
consequence might result from the fact
that, although the foreign (state) fund itself
and the Member States themselves are not
protected by the internal market freedoms,
the favored companies (e.g., financial
institutions) are negatively affected by this
legislation. Therefore, a justification for
the unequal treatment would have to be
checked in every particular case.
Accordingly, although the change of loss
trafficking rules preventing the total or
prorata loss of carryforwards for corporate
income and trade tax purposes (Section
8c German Corporate Income Tax Act,
Section 10a German Trade Tax Act) in the
case of the direct or indirect assignment of
shares from or to the German state fund
may not entitle the foreign state itself, the
resident subsidiaries of the funds as private
companies would be entitled to enforce
their rights deriving from EU law. In fact,
the same should apply to the tax exemption
from German real estate transfer tax, which
is exclusively granted for the German state
fund.

Until now, the European Court of Justice
(ECJ) has not yet established a suitable
justification for such infringements of
the respective EU law. However, it is well
imaginable that the court might create a
new justification on the grounds of public
interest in form of the conservation of a
functioning financial market. Plus, it can
be doubted whether the one-sided support
of the German state funds by the means
of tax benefits is reasonable as it could be
equally efficient to promote foreign states’
stabilizing measures. The restriction of the
tax benefits to the German state fund does
not at all seem to be compellent.
Finally, further questions might arise when
considering the treatment of foreign private
investors investing in a domestic financial
institution or its foreign parent or the
treatment of resident investors investing
in a foreign parent of a resident financial
institution. Of course, it is questionable
whether the situation of a private investor
is comparable to the situation of a Member
State. However, assuming the comparability
of the two situations (private investments,
public investments), a justification of the
different treatments and the violation of
EU law must be found.

Ernst & Young
Tax contacts
• Klaus von Brocke
International Tax Services
klaus.von.brocke@de.ey.com
Tel: +49 89 14331 12287

A guide to understanding opportunities
and challenges in 24 key jurisdictions

32

European Union (cont’d.)
Pressure to end retrospective
changes to European Union
tax law
At a time of worldwide financial crisis,
there is mounting concern over the
losses in national tax revenues that may
be caused by the retrospective impact
of decisions made by the ECJ. Germany
and several other Member States of the
EU have therefore been studying the
impact of ECJ decisions and assessing
their subsequent financial consequences
in the Member States, in comparison
with different approaches applied by
national constitutional courts. Under
ECJ law, decisions are generally applied
retroactively. Exemptions are possible only
in very limited circumstances, a principle
followed by the ECJ in the early Defrenne
case (C-149/77) and in other taxation
cases such as Meilicke (C-292/04). For
governments, however, retrospective
changes in tax law can play havoc with
national budgeting.
On 22-23 September 2008, at a special
conference in Berlin, an international
commission of European constitutional
law experts presented their results about
the practice of the national constitutional
law courts in the 27 EU Member States.
They concluded that the majority of the
national constitutional courts or highest
administrative courts of the EU Member
States apply their decisions only from the
time of the publication of the decision
onwards or even determine a point of
time in the future as the effective date.
Based on these findings, the constitutional
law experts have made an official
recommendation to the ECJ to limit the
effect of future decisions on tax matters in
accordance with the current constitutional
law practice used by the EU Member States.
In the experts’ view, such an approach
would better serve the needs of Member
States in the area of nonharmonized

33

Worldwide fiscal stimulus —
tax policy plays a major role

taxation systems with respect to legal
certainty, the protection of taxpayer
confidence and the prevention of legal
loopholes.

Ministers struggle to agree on
reduced VAT rates
It had been hoped that the Economic
and Financial Affairs Council (ECOFIN),
meeting in Brussels on 10 March 2009,
would agree to definitive proposals on
the vexed issue of reduced VAT rates. In
advance of the ECOFIN meeting, the Czech
presidency had proposed a compromise
aimed at enabling ministers to settle the
issue, in response to a specific request from
the European Council. The compromise
was based on the optional use of reduced
VAT rates in certain sectors, such as
labor-intensive local services, including
restaurant services. This was among the
actions identified by heads of government
under the European Economic Recovery
Plan agreed in December 2008. Current
rules on reduced rates are set by Directive
2006/112/EC and are due to expire at the
end of 2010.
Discussion at the ECOFIN meeting was
vigorous and in the end, ministers managed
to agree a solution. They acknowledged
that reduced VAT rates could have both
positive and negative economic effects, so
that Member States should always consider
more efficient alternative measures before
using the reduced-rate option.
They also reached a political agreement
that all Member States should have the
option to apply reduced VAT rates on a
permanent basis to the minor repairing of
bicycles, shoes and leather goods, clothing
and household linen, plus window-cleaning,
household cleaning, domestic care services,
hairdressing, restaurant services, certain
books and, with some restrictions, the
renovation and repair of private dwellings.

Ministers also supported a two-year
extension of the UK’s derogation regarding
the reverse charge mechanism, and minor
concessions were approved for Portugal,
Cyprus and Malta. Clearly, however, the
policy debate over reduced VAT rates is far
from over.

European Union Member States
under pressure to maximize tax
revenue
On 2 February 2009, the European
Commission issued two draft directives
regarding administrative cooperation
between Member States in the assessment
of taxes and the cross-border recovery of
taxes. The two proposals are part of the
EC's strategy to tackle tax evasion and tax
fraud.
The proposed draft directives titled
“Administrative cooperation in the field of
taxation” and “Mutual assistance for the
recovery of claims relating to taxes, duties
and other measures” will replace current
directives, respectively Council Directive
1977/799/EEC and 1967/308/EEC.

Administrative cooperation in the
field of taxation
The scope of the improved administrative
cooperation is widened to all taxes except
those that are dealt with by separate EU
legislation (for example, the VAT directive).
To achieve this scope, the proposed
directive provides clearer and more precise
rules regarding mutual cooperation.
Besides common rules of procedures, forms
and information channels, the directives
propose allowing the tax authorities of
the Member State to make administrative
enquiries in the territory of the other
Member State. In addition to this farreaching measure, another element of
the proposed directive is more stringent
restrictions on bank secrecy. According to
the draft directive a Member State will no
longer be able to refuse an information
request regarding taxpayers solely on the

basis that this information is kept by a bank
(or any other financial institution). This
element of the directive has already drawn
significant criticism from some Member
States.

Mutual assistance for the recovery of
claims relating to taxes, duties and
other measures
This draft directive mainly concerns the
collection of due taxes. The directive aims
to improve the ability of Member States to
recover due taxes, as well as reinforce the
overall message that due taxes must be
paid. Furthermore, the levels of assistance
possible between Member States in the
collection of taxes will also be improved.
The proposed measures intend to improve
the current tax recovery ratio. At present
this only totals 5% of all the matters in
which assistance of the other Member State
is required. The new directive will apply
to all taxes and duties of Member States
and will also include compulsory social
security contributions. In addition to these
taxes, Member States will be obligated
to spontaneously provide information
regarding the refund of taxes by national
tax authorities to nonresidents if the tax
amount exceeds €10,000.
The proposed directive also creates
competence for tax authorities to
participate in administrative enquiries
on the territory of other Member States.
In order to ensure recovery of taxes due,
a Member State will be able to request the
tax authorities of the other Member State
to take precautionary measures. This might
occur in the event the tax assessment has
not yet been finalized. On this matter, the
commission emphasizes the importance
of a renewed and broadened directive for
the fight against, amongst other things,
VAT fraud.

A guide to understanding opportunities
and challenges in 24 key jurisdictions

34

France
Key changes reported
• Accelerated depreciation
• Company tax measures
(other)
• Grants and incentives
• Tax credits — new or
amended
• Tax policy reform
• Treatment of losses
(carrybacks, etc.)

No reported activity
• Industry-specific measures
• Interest deductibility
• Other measures
• Profit repatriation
regulations
• Rebates and refunds
• Tax measures affecting
individuals
• Tax rate changes
• Corporate income tax
• Customs and duty
• VAT (except for restaurant
services)
• Tax treatment of debt

35

Worldwide fiscal stimulus —
tax policy plays a major role

Overview of measures to
reinvigorate the economy
In order to improve the cash position of
companies, the 2008 Amended Finance
Bill makes it possible for companies in
2009 to claim immediate reimbursement
of tax credits resulting from loss carrybacks
and excessive corporate income tax
installments, as well as remaining research
tax credit (RTC) for 2005, 2006 and
2007, and excessive RTC for 2008 income.
To stimulate investment, the bill also
provides for a temporary increase in the
accelerated depreciation rates that apply
to newly acquired or created assets and
a quasi-exemption from business tax for
newly acquired or created investments.
This quasi-exemption from business
tax addresses the anticipated reform
of the French business tax that was
announced by the President of France on
5 February 2009.
Finally, a decree dated 29 January 2009
provides for the possibility for French
VAT-registered companies to apply for a
VAT credit refund claim on a monthly basis
instead of a quarterly basis.

Accelerated depreciation
A temporary increase in the accelerated
depreciation rates may apply for assets
acquired or created between 4 December
2008 and 31 December 2009.

Company tax measures (other)
Excessive corporate income installments:
companies may be reimbursed for excessive
corporate income installments on the
first day following the closing of the fiscal
year (i.e., before the determination of the
corporation tax). This measure applies to
fiscal years ending from 1 January 2009 to
30 September 2009.
VAT credit refunds: French VAT-registered
companies may apply for a VAT credit
refund claim on a monthly basis instead
of a quarterly basis. This measure applies
to a French VAT return that should be
filed from February 2009 in connection
with transactions performed during
January 2009.
Reduced rate of VAT: as a result of
changes announced at the ECOFIN meeting
on 10 March 2009, the French government
has decided to reduce the VAT rate from
10.6% to 5.5% for restaurant services with
effect from 1 July 2009.

Grants and incentives

Tax policy reform

Quasi-exemption from business tax
with respect to investments acquired or
created between 23 October 2008 and
31 December 2009.

Reform of the French business tax was
announced by the President of France on 5
February 2009.

Tax credits — new or amended
Companies may apply for the following
temporary measures regarding the
research tax credit (RTC):
• RTC for 2005, 2006 and 2007 that
have not been previously offset may be
reimbursed immediately
• RTC for 2008 may be immediately offset
against the tax on the 2008 results
• Companies that estimate that the
amount of RTC for 2008 will exceed the
amount of tax due for 2008 may claim
reimbursement of the excess (if the
estimate differs from the real figures by
more than 20%, a 5% penalty increase
and late-payment interest apply)

Treatment of losses
(carrybacks, etc.)
In 2009, companies may claim immediate
reimbursement of the tax credit resulting
from loss carrybacks on the first day after
the close of the fiscal year (if the amount
reimbursed exceeds the real figures by
more than 20%, a 5% penalty increase and
late-payment interest applies).
This measure applies to loss carrybacks
on fiscal years ending on or before
30 September 2009.

Ernst & Young
Tax contacts
• Frederic Laureau
Business Tax Services
frederic.laureau@ey-avocats.com
Tel: +33 1 55 61 18 77
• Charles Menard
Tax Policy Services
charles.menard@ey-avocats.com
Tel: +33 1 55 61 15 57

A guide to understanding opportunities
and challenges in 24 key jurisdictions

36

Germany
Key changes reported
• Accelerated depreciation
• Grants and incentives
• Interest deductibility
• Other measures
• Tax measures affecting
individuals
• Tax policy reform
• Tax rate changes
• Corporate income tax
• Treatment of losses
(carrybacks, etc.)

No reported activity
• Company tax measures
(other)
• Industry-specific measures
• Profit repatriation
regulations
• Rebates and refunds
• Tax credits — new or
amended
• Tax rate changes
• Customs and duty
• VAT
• Tax treatment of debt

Overview of measures to
reinvigorate the economy
On 13 October 2008, the German federal
government ratified a package of measures
designed to stabilize financial markets.
The law governs the creation of a financial
market stabilization fund. This fund is
intended to strengthen the equity of
companies in the financial sector. It has a
volume of €100 billion.
On 5 November 2008, the German
government ratified its Economic
Program I. Faced with a global economic
downturn, the government introduced
this program to safeguard growth and
employment. The fiscal measures promote
investment and business for companies
totaling more than €25 billion. The Act
passed the lower house of the German
Parliament (Bundestag) on 4 December
2008 and the upper house of the German
Parliament (Bundesrat) on 5 December
2008.
The Economic Program II is designed to
relieve the strain on ordinary citizens while
supporting the economy and safeguarding
jobs. The package of measures has a
total volume of €50 billion. The Economic
Program II passed the German lower house
on 13 February 2009 and the German
upper house on 20 February 2009.

Accelerated depreciation
Declining-balance depreciation:
reinstatement of declining-balance
depreciation for assets acquired or
produced after 31 December 2008 but
before 1 January 2011. The decliningbalance depreciation may not exceed
2.5 times the amount calculated using
straight-line depreciation and a depreciation
rate of 25%.
Small- and medium-size enterprises
(SMEs): under certain conditions, SMEs
can apply special depreciation to the
acquisition or production of movable

37

Worldwide fiscal stimulus —
tax policy plays a major role

assets. For business years ending
after 31 December 2008 and before
1 January 2011, special depreciation is
permitted if the business property does not
exceed €335,000 or the profits generated
are not more than €200,000.

Grants and incentives
New motor vehicle tax incentive: if a new
automobile is purchased and licensed for
the first time between 5 November 2008
and 30 June 2009, a motor vehicle tax
exemption of one year is granted. For new
automobiles fulfilling the euro-5 or euro-6
emission rule, the exemption from motor
vehicle tax can be extended by up to two
years to 31 December 2010. Additionally,
automobiles licensed for the first time
before 5 November 2008 are exempt from
motor vehicle tax for one year commencing
1 January 2009 if the automobile fulfils the
criteria of the euro-5 emission rule.
Scrapping bonus: in order to promote
demand for passenger cars, anyone
scrapping a passenger car that is at least
nine years old and purchasing a new one
receives a €2,500 “scrapping bonus.”

Interest deductibility
Lump sum allowance for deductible tax
interest: on 20 March 2009, the Finance
Committee of the Bundesrat proposed
to provide limited, temporary relief by (i)
increasing the interest deduction limitation
for business taxpayers and (ii) mitigating
the adverse effects of the strict change in
ownership rules for loss corporations in the
event of certain insolvency restructurings.
The €1 million lump sum allowance for
deductible net interest expense, if passed,
would be increased to €3 million. The
increase will only be granted for the tax
years 2008-10 (that is, with retroactive
effect also for 2008). To become law,
the proposals must be approved by the
Bundesrat and the Bundestag.

Other measures

• Loss limitation rules (minimum taxation)

Financial market stabilization fund: the
financial market stabilization fund has
€80 billion at its disposal for measures
intended to strengthen the equity of
companies in the financial sector (e.g.,
injection of equity by the state or buying up
toxic assets). Guarantees for the liabilities
of companies in the financial sector can
also be taken on, to the value of up to
€400 billion.

The Federal Ministry of Finance submitted
a second draft of an Act for the Combating
of Tax Fraud and Other Harmful Taxation,
dated 5 March 2009. This Act addresses
the current debate that many countries
do not provide an open exchange of tax
information according to OECD standards.
Most of the countries affected have already
responded by opening their information
policies.

Credit and state guarantee program: a
credit and state guarantee program is
implemented in order to free up credit for
companies in Germany that are in trouble
because of the financial crisis.

Tax rate changes

German infrastructure investment: the
federal government wants to invest an
additional €4 billion in infrastructure.
A further €10 billion will go to local
government as part of an investment
program.
Additional resources have been allocated to
research and education.

Tax measures affecting
individuals
Automobiles: see above under “Grants and
incentives.”
The basic rate of income tax will be reduced
from 15% to 14%.
Basic income-tax-free allowance: the basic
income-tax-free allowance will be increased
by €170 to €7,834 as of 1 January 2009.
As of 1 January 2010, the basic allowance
will be raised by an additional €170 to
€8,004.

Tax policy reform
The debate around adjusting tax policy
reform has intensified as a result of the
downturn. The following regulations are
under review:
• Loss trafficking (change in ownership
rule)
• Interest limitation rule
• Trade tax base (add-backs)

Corporate income tax
The progressive income tax rate is to be
reduced from 2009 onwards. The entrylevel bracket rate is 14 % (instead of 15%).
The zero rate bracket will increase from
€7,664 to €7,834, and the progression
steps are to be raised by €400.

Treatment of losses
(carrybacks, etc.)
Insolvency restructuring exception on
loss carryforward: current German law
dictates that any direct or indirect transfer
of more than 25% of the shares in a loss
corporation to a new owner results in an
immediate and complete prorated forfeiture
of the loss carryforward and any current
accumulated losses. A 100% forfeiture
of the loss carryforward occurs if more
than 50% of the shares are transferred to
a new owner within five years. Transfers
to multiple new shareholders are
aggregated, if those shareholders acted
on the basis of a common plan. A new law,
which was proposed on 20 March 2009
but has not yet been passed by the
Bundesrat and the Bundestag, includes
an insolvency restructuring exception.
Under the restructuring exception, a
change in ownership would not result
in a forfeiture of a loss carryforward,
if (i) the transfer of shares in a loss
corporation is part of a plan to make
the loss corporation solvent and (ii) in
addition, the “structural integrity”
of the loss corporation’s business is
preserved by the plan.

Ernst & Young
Tax contacts
• York Zoellkau
Business Tax Services
york.zoellkau@de.ey.com
Tel: +49 221 2779 25647
• Ute Witt
Tax Policy Services
ute.witt@de.ey.com
Tel: +49 30 25471 21660

A guide to understanding opportunities
and challenges in 24 key jurisdictions

38

Hong Kong
Key changes reported
• Company tax measures
(other)
• Other measures
• Tax measures affecting
individuals
• Tax rate changes
• Customs and duty

No reported activity
• Accelerated depreciation
• Grants and incentives
• Industry-specific measures
• Interest deductibility
• Profit repatriation
regulations
• Rebates and refunds
• Tax credits — new or
amended
• Tax policy reform
• Tax rate changes
• Corporate income tax
• VAT
• Tax treatment of debt
• Treatment of losses
(carrybacks, etc.)

39

Worldwide fiscal stimulus —
tax policy plays a major role

Overview of measures to
reinvigorate the economy
Perhaps because Hong Kong’s current
economic conditions and retail
consumption are not that weak relative
to other countries, stimulating short-term
immediate consumption does not appear to
have been an urgent task for the financial
secretary in the current year’s budget,
which was released on 25 February 2009.
Instead, the budget focused on sustaining
the economy over the next few years so as
to protect and create employment.
The few short-term measures announced
do not appear to deliver an immediate
boost to consumption. At the earliest, the
2008-09 salaries tax reduction will benefit
taxpayers at the end of 2009 when their
final 2008-09 assessment is issued. By
comparison, the waiver of rates for the first
two quarters of 2009-10 should provide
some immediate relief.
The financial secretary appears instead to
have concentrated his efforts on protecting
employment and improving Hong Kong’s
long-term competitiveness. In this regard,
perhaps the financial secretary believes
that current consumption is holding up
relatively well and that a conservative
approach is prudent in case of a future
decline in consumption.

Company tax measures (other)
Government rates are waived for the
first two quarters of 2009-10, capped at
HK$1,500 per quarter for each rateable
tenement.

Other measures
Government property: a 20% rent
reduction is introduced for a period of three
months for most government properties
and short-term tenancies of government
land.
Tax legislative amendments are proposed
to mitigate the tax costs associated with
Islamic finance.
Local bond market: issuance of
government bonds are considered to
promote the development of the local bond
market.
Exchange of information: legislative
proposals liberalize the exchange of
information clause included in international
tax agreements.

Tax measures affecting
individuals
A one-off tax rebate of 50% of salaries tax
and tax under personal assessment for
2008-09, capped at HK$6,000.
An extension of the freeze on government
fees and charges related to people’s
livelihoods through to 31 March 2010.

Tax rate changes
Customs and duty
To increase tobacco duty by 50% with
immediate effect.

Ernst & Young
Tax contacts
• Owen Chan
Business Tax Services
owen.chan@hk.ey.com
Tel: +852 2629 3388

A guide to understanding opportunities
and challenges in 24 key jurisdictions

40

Hungary
Key changes reported
• Other measures
• Tax credits — new or
amended
• Tax measures affecting
individuals
• Tax rate changes
• Corporate income tax
• VAT
• Profit repatriation
regulations
• Grants and incentives
• Industry-specific measures

No reported activity
• Accelerated depreciation
• Company tax measures
(other)
• Interest deductibility
• Rebates and refunds
• Tax policy reform
• Tax rate changes
• Customs and duty
• Tax treatment of debt
• Treatment of losses
(carrybacks, etc.)

Overview of measures to
reinvigorate the economy

Tax credits — new or amended
(proposed)

On 14 April 2009, the Hungarian
parliament endorsed Gordon Bajnai to
become the next prime minister. The new
prime minister quickly announced his
government’s plans, including various tax
law amendments. Parliament is expected
to vote on the tax law amendments to be
effective as of 1 July 2009 on its 11-13
May session, but the tax bill on tax law
changes to be effective from 1 January
2010 have not yet been submitted to
Parliament Some of the taxation proposals
the new government announced are
reduced corporate tax, personal income
tax, and social security contribution
rates. However, this would be offset by
increases in VAT and excise tax rates, as
well as by the elimination of some tax
allowances. The shift in taxation from
income to consumption – according to the
expectations of the Hungarian government
– will encourage new investments, increase
employment and improve Hungary’s
competitiveness in the region, and is also in
keeping with past OECD recommendations
in this area. The proposed measures are
expected to keep Hungary’s budget deficit
below 3% of GDP for 2009.

Certain corporate tax base decreasing items
are proposed to be abolished from 2010,
i.e., these items would not be deductible for
Corporate income tax (CIT) purposes (e.g.,
gains from stock exchange transactions on
deals made on “regulated markets,” local
business tax expenses, donations).

Other measures (proposed)

From 2010, any enterprise will be
entitled to keep its books and prepare its
financial statements in euros (without any
restriction).

41

Worldwide fiscal stimulus —
tax policy plays a major role

Tax measures affecting
individuals (proposed)
According to proposed plans, from 1 July
2009 (effective retroactively to 1 January
2009), the yearly income limit, up to which
the lower personal income tax rate (18%)
applies, would increase from HUF1.7 million
to HUF1.9 million. From 2010, the lower
personal income tax rate would decrease
from 18% to 15-17%. However, the lower
tax rate would apply up to yearly income
HUF4-5 million. Further, the upper personal
income tax rate would decrease from 36%
to 33-35% from 2010. The basis of the tax
would be gross salary increased by social
security contributions (super-grossing
method). The solidarity surtax of individuals
(currently, 4% applicable to yearly income
exceeding HUF7,446,000) remains in
effect.
In personal income taxation, certain tax
allowances and tax exemptions would be
cancelled.
A general, value-based real estate tax would
be introduced in 2010.

Tax rate changes (proposed)
Corporate income tax
• In 2010, the corporate income tax
rate would increase from 16% to 19%.
However, the 4% solidarity surtax
currently payable by companies would be
abolished.
Payroll-related taxes (payable by
the employer) (proposed)
• The social security contributions payable
by employers would be reduced from
29% to 26% of the salary. From 1 July
2009, this reduction would be applicable
only up to double of the minimum wage.
However, from 2010, the entire salary
would be subject to the lower rate.
• The employer’s contribution to the
unemployment fund would reduce from
3% to 1%. The reduction of the tax rate
would apply up to double of the minimum
wage from 1 July 2009, but the entire
salary would be subject to the lower rate
from 2010.
• The amount of the rehabilitation
contribution would be increased to 300%
of the current amount from 2010.
• Some currently tax-free benefits-in-kind
would be subject to tax in the future,
and the tax on benefits-in-kind (payable
by the employer or disburser) would
increase.
VAT and excise taxes (proposed)
• The general VAT rate would increase
from 20% to 25% from 1 July 2009.
On the other hand, a reduced 18% VAT
rate would be introduced temporarily
for dairy products, baked goods and
district heating (the 5% VAT bracket is
unchanged with only newspapers, books
and pharmaceutical products ).
• As of 1 July 2009, the excise tax rates
applicable for fuel, tobacco, and alcohol is
set to increase by an average 5%-6%, and
a further increase of excise taxes would
be introduced from 2010.

Profit repatriation regulations
(proposed)
• The definition of a Controlled Foreign
Company (CFC) would be amended.
As a consequence, the tax payment
obligation on income deriving from a CFC
or allocated to a CFC would extend with
respect to companies and individuals as
well.
• Withholding taxes would be reintroduced
on interests, royalties, capital gains
(realized on the sale of shares in a
domestic company), and other service
fees (in practice, it would be applicable
only if no double tax treaty is in place).
However, no further information is available
on the details of these amendments for the
time being.

Grants and incentives (proposed)
• Further grants would be available for job
retention and for boosting investments.
• Applications for grants would be judged
faster.

Industry-specific measures
(proposed)
• The new government would treat the
following industries as a priority:
• Automobile industry
• Logistics
• Pharmaceutical industry and
Biotechnology
• Telecommunication technology
• New measurements would be introduced
for:
• Construction industry
• Tourism
• Agricultural industry

Ernst & Young
Tax contacts
• Botond Rencz
Business Tax Services
botond.rencz@hu.ey.com
Tel: +36 1 451 8602

A guide to understanding opportunities
and challenges in 24 key jurisdictions

42

India
Key changes reported
• Accelerated depreciation
• Company tax measures
(other)
• Grants and incentives
• Industry-specific measures
• Other measures
• Tax rate changes
• Indirect taxes

No reported activity
• Interest deductibility
• Profit repatriation
regulations
• Rebates and refunds
• Tax credits — new or
amended
• Tax measures affecting
individuals
• Tax policy reform
• Tax rate changes
• Corporate income tax
• Customs and duty
• VAT
• Tax treatment of debt
• Treatment of losses
(carrybacks, etc.)

Overview of measures to
reinvigorate the economy

After the budget, a third stimulus
package launched

On 16 February 2009, India’s acting finance
minister introduced the Interim Budget
of 2009. Within the context of upcoming
elections and the global economic
downturn, Indian industry expected
significant proposals to be announced.
However, the budget did not propose any
change to existing direct and indirect tax
legislation and did not contain any new tax
incentives, much to the disappointment of
select sectors, such as textiles, gems and
jewelry and real estate. Further, existing
direct tax incentives for software units,
which are set to expire shortly, have not
been extended, and this decision will be left
to the new government.

As noted, contrary to industry and investor
expectations, India’s Interim Budget did
not make any changes to the tax regime.
However, just a few days later, the Indian
government announced incentives in
the form of tax cuts of approximately
US$6 billion to provide a further stimulus
to the Indian economy. These changes are
detailed below after the Interim Budget
changes.

The finance minister cited constitutional
constraints for the absence of any direct
and indirect tax proposals in the budget.
The government also stated that no new
proposals were in the budget since it
had announced fiscal stimulus packages
in December 2008 and January 2009,
providing tax relief to boost demand, as well
as increase expenditure on public projects.
The finance minister stated that with a
GDP growth rate of 7.1% in the current
year, India was the second-fastest-growing
economy in the world. However, the news
on the fiscal deficit side is not heartening
and, as in the case of several other
countries, has been held back. The fiscal
deficit is projected to go up from 2.5% of
GDP to 6% of GDP.
The budget contained certain fiscal and
economic policy pronouncements with
a view to countering the negative fallout
of the global slowdown for the Indian
economy.

43

Worldwide fiscal stimulus —
tax policy plays a major role

Implications
A reduction in excise duty rates will result
in a reduction in the cost of manufacturing
goods in India, including common
household goods, which in turn could
boost domestic demand. Together with the
service tax reduction, which will produce
lower service costs, the clarification of
export of services will provide relief to
the service sector, in particular to those
who provide services to foreign recipients.
Clarification of foreign direct investment
(FDI) policy and the proposed procedural
change could promote additional
investment into India.
While the Interim Budget does not put forth
proposals for significant amendments to
tax policies and does not extend any tax
incentives to investors in India, presumably
due to constitutional restraints, it does
provide significant proposals for increased
government spending on infrastructure
development in India. This could open
up business opportunities for various
industries in India, such as infrastructure
companies, design and engineering
companies and construction. Similarly,
higher allocations for the defense budget
could also open up business opportunities
for multinational companies operating in
the defense sector.

Accelerated depreciation

Recent developments in FDI policy

The depreciation rate for new commercial
vehicles acquired on or after 1 January
2009, and put to use for the purpose of a
business or profession before 1 April 2009,
has been increased from 40% to 50%.

• Indian foreign investment regulators
have issued substantive policy changes
to the current FDI environment. The
changes are aimed at bringing clarity
and consistency in methodology for
computing FDI in various sectors,
specifically in the case of indirect
investments. Detailed guidelines
explaining the above amendments to the
policy were recently released. A separate
tax alert on this matter will be issued
shortly.

Company tax measures (other)
Clarification of export of services from
India: under Indian services tax legislation,
services exported from India are not subject
to service tax, if certain conditions are
met. A circular was issued on 24 February
2009 that clarifies when services would
be considered as “exported from India.”
Pursuant to the circular, irrespective of
where the service is rendered, as long as
the benefits from the service exist outside
India, the service should be considered as
“used outside India” and, therefore, should
fall under the definition of a service being
exported from India. As a result, service tax
is not imposed. The following are examples
of export services:

• Currently, the foreign investment
regulations require any foreign-owned
Indian company to obtain prior approval
when establishing a subsidiary. It is
expected that the requirement to obtain
approval for such investments will be
repealed and, therefore, help foreign
investors increase the efficiency of doing
business in India.

• Call centers engaged by foreign
companies taking calls from across the
world, including calls from India
• Indian agents undertaking marketing in
India of goods of a foreign seller
• An Indian architect preparing a design
in India for a property located outside
India and handing it to the owner of the
property whose business and residence
is in India

Ernst & Young
Tax contacts
• Sameer Gupta
Business Tax Services
sameer.gupta@in.ey.com
Tel: +91 22 6665 5000
• Satya Poddar
Tax Policy Services
satya.poddar@in.ey.com
Tel: +91 11 4154 0000

A guide to understanding opportunities
and challenges in 24 key jurisdictions

44

India (cont’d.)
Grants and incentives

Other measures

Proposal to continue providing interest
grants in 2009-10 on short-term credit to
farmers.

• Budgetary support increased for
rural development, road transport
and highways, railways, power and
information technology to meet the
requirements of rural and infrastructure
development.

Extension of interest grants of 2% on
pre- and post-shipment credit for certain
employment-oriented sectors beyond
31 March 2009 to 30 September 2009, to
counter the negative impact on exports due
to the global financial crisis.
Proposal to amend tax holiday provisions
to remove a current anomaly: Indian tax
laws provide for a tax holiday on export
profits earned from operations set up in
special economic zones (SEZ). Under the
present formula, an eligible tax holiday is
based on a ratio of export sales of the SEZ
unit over total sales of the taxpayer. As a
consequence, the total tax holiday benefit
is smaller than if the ratio is solely based
on the operations of the SEZ unit. The
government has acknowledged the present
anomaly and has announced its intent to
make suitable amendments to the tax law.

Industry-specific measures
Major subsidies to be provided for food,
fertilizer and petroleum industries.

45

Worldwide fiscal stimulus —
tax policy plays a major role

• Allocation for government’s flagship
rural employment guarantee scheme of
INR301 billion for the year 2009-10.
• Allocation of funds of INR131 billion
for primary schools under a national
program for achieving universal
elementary education.
• Allocation for defense increased
to INR1,417 billion with significant
allocation for capital expenditure.
• Allocation of funds amounting to INR118
billion proposed for the year 2009-10 for
urban development.
• Proposal to recapitalize the public sector
banks over the next two years to ensure
that credit growth continues to sustain
economic growth.
The acting finance minister also stated that
expenditures for 2009-10 may have to be
increased substantially at the time of the
presentation of the regular budget if the
economy is to be given the stimulus needed
to cope with the global recession that is
likely to continue through the year. Further,
the finance minister also stated that, in
the current environment, a substantial
increase in expenditure in infrastructure
development is needed.

Tax rate changes
Indirect taxes
• Customs duty: decrease of effective
tax rates from 26.849% to 24.421%.
Customs duty is charged on import of
goods into India.
• Excise duty: decrease of effective tax
rates from 10.3% to 8.24%. Excise
duty is a central charge on the act of
manufacture or production of goods in
India.
• Service tax: decrease of effective tax
rates from 12.36% to 10.30%. Service
tax is a tax charged on certain identified
taxable services provided or to be
provided in India by specified service
providers.

A guide to understanding opportunities
and challenges in 24 key jurisdictions

46

Ireland
Key changes reported
• Accelerated depreciation
• Company tax measures
(other)
• Grants and incentives
• Industry-specific measures
• Interest deductibility
• Other measures
• Rebates and refunds
• Tax credits — new or
amended
• Tax measures affecting
individuals
• Tax policy reform
• Tax rate changes
• Corporate income tax
• Customs and duty
• VAT

No reported activity
• Profit repatriation
regulations
• Tax treatment of debt
• Treatment of losses
(carrybacks, etc.)

47

Worldwide fiscal stimulus —
tax policy plays a major role

Recent tax-related stimulus
elements: overview of measures
to reinvigorate the economy
Strong corrective action is being taken
by the Irish government to stabilize the
public finances and put the Irish economy
on the road to recovery. A series of very
tough tax measures were announced by
the Minister for Finance, Brian Lenihan, in
a Supplementary Budget on 7 April 2009.
While the budget is seen as the toughest in
60 years, a number of incentives have also
been announced to stimulate the economy.
The Irish government brought forward
the annual budget by two months from
December 2008 to 14 October 2008 in
an effort to respond to the worsening
economic situation. These measures were
brought into law in the Finance (No. 2) Act
2008. Notwithstanding the measures taken
then, the scale of the downturn and the
impact on tax receipts has been such that
a Supplementary Budget was introduced
to deal with the substantial deterioration in
public finances.
Despite the introduction of a range of
personal and indirect tax increases in both
the Finance (No. 2) Act 2008 and the
Supplementary Budget, the encouraging
news for companies with operations in
Ireland or those considering investing in
Ireland is the strong reiteration by the
minister of the government’s commitment
to maintaining the 12.5% rate of
corporation tax.

attractive location for international
R&D activities, as well as encouraging
indigenous Irish businesses to put further
resources into R&D
• A new relief for the cost of acquiring
intangible assets
• A three-year tax holiday for start-up
ventures
• Accelerated depreciation allowance for
investment in energy-efficient equipment
Large companies will need to be aware of
an acceleration of the payment dates for
corporation tax, and all companies should
be mindful of changes in the rates of VAT
and capital gains tax.

Accelerated depreciation
Normally, tax depreciation (capital
allowances) is available on capital
expenditure incurred by a business on
plant and equipment on a straight-line
basis and written off over eight years. The
Finance Act 2008 introduced a scheme for
companies to accelerate tax depreciation on
certain energy-efficient equipment so that
the expenditure is written off in full in the
year of acquisition. The Finance (No. 2) Act
2008 extends the qualifying categories of
expenditure from three to seven categories.
The seven qualifying categories are:
• Electric motors and variable-speed drives
• Lighting units and sensors
• Building energy management systems

A range of tax measures has been
introduced in the Finance (No. 2) Act 2008
and the Supplementary Budget to stimulate
the economy including:

• Information and communications
technology

• Significant improvements have
been made to Ireland’s research and
development (R&D) tax credit scheme
with a view to making Ireland a more

• Process and heating, ventilation and airconditioning (HVAC) systems

• Heating and electricity provision

• Electric and alternative-fuel vehicles

Company tax measures (other)
• Large companies with a corporation
tax liability of more than €200,000 in
their previous accounting period are
now obliged to pay their preliminary
corporation tax in two installments on an
accelerated basis. The first installment
is payable in the sixth month of the
accounting period (e.g., 21 June for
a company with a 31 December yearend), and the amount payable is 50% of
corporation tax liability in the preceding
accounting period or 45% of corporation
tax liability for the current accounting
period. The second instalment is payable
(as previously) in the eleventh month of
the accounting period (e.g., 21 November
for a company with a 31 December
year-end), and the amount payable must
bring the total preliminary tax paid to
90% of the corporation tax liability for the
current accounting period. This applies
to accounting periods commencing on or
after 14 October 2008.
• New companies that commence
trading in 2009 will be exempted from
corporation tax and capital gains tax in
each of the first three years to the extent
that the liability in each year does not
exceed €40,000. This particular proposal
requires a ministerial order to bring it into
effect.
• A number of preferential reliefs are
available in domestic legislation for
payments to and from countries with
which Ireland has signed a doubletax agreement (DTA). There can be
significant delays between the signing

of a DTA and its ultimate ratification.
Finance (No. 2) Act 2008 extends those
preferential reliefs to situations where a
DTA has been signed but not yet ratified.
Treaty relief will continue to be subject to
ratification of the treaty itself.
• The Finance (No. 2) Act 2008 changes
the way tax relief is obtained for transfer
pricing adjustments. A tax deduction will
be denied for any additional payments
that a company is contracted to make
to an associated company as a result of
a transfer pricing adjustment. Instead,
companies in Ireland will have to seek
the appropriate correlative relief either
through the relevant DTA or through
the European Union (EU) arbitration
convention mechanism.
• A new incentive has been introduced
for certain fund managers investing in
research, development or innovation
activities. The new relief offers reduced
rates of tax on profits arising from
certain investments at a rate of 12.5% for
companies and 15% for partnerships.

Grants and incentives
• The government will set up an Enterprise
Stabilization Fund worth €100 million
over two years. In conjunction with the
banking sector, this fund will provide
direct financial support to eligible
internationally trading enterprises.
• The government has also committed to
providing €128 million in funds to provide
25,000 additional places in retraining
and further education initiatives.

Ernst & Young
Tax contacts
• Kevin McLoughlin
Business Tax Services
kevin.mcloughlin@ie.ey.com
Tel: +353 1 2212 478

A guide to understanding opportunities
and challenges in 24 key jurisdictions

48

Ireland (cont’d.)
Industry-specific measures

Tax credits — new or amended

• The tax relief for investment in film
production (known as Section 481 Relief)
has been improved. The percentage of
production costs that can qualify for relief
has been increased from 80% to 100%.
Individual investors can now obtain relief
for investment up to €50,000, up from
€31,750.

• For accounting periods commencing on
or after 1 January 2009, the rate of
tax credit for incremental expenditure
undertaken by a company on qualifying
R&D is increased from 20% to 25%.
The credit is available for qualifying
expenditure in excess of the amount
spent in the base year of 2003, and
means that effective tax relief of up to
37.5% can be obtained for qualifying
expenditure. (The figure of 37.5% is a
combination of a tax credit of 25% and a
tax deduction at the standard corporate
tax rate of 12.5% for the R&D spend.)

Interest deductibility
• Tax relief for interest on funds borrowed
to acquire rented residential property has
been reduced from 100% to 75%.
• Mortgage interest relief for homeowners
will only be available for the first seven
years of homeownership.

Other measures
• The introduction of tax relief in the
upcoming Finance Bill for acquired
intangible assets is very welcome.
While the details of the regime are to
be confirmed through the legislative
process, such a relief should help position
Ireland more favorably compared to its
international competitors for this type of
investment.

Rebates and refunds
• Excess R&D tax credits can be refunded,
see below for more details.

49

Worldwide fiscal stimulus —
tax policy plays a major role

The Finance (No. 2) Act 2008 provides for
enhancements to the tax credit as follows:
• The option to carryback excess R&D
credits to the previous year, which could
lead to cash refunds of tax paid.
• Any excess credits may be refunded over
a three-year period.
• The base year of 2003 is fixed for all
future accounting periods.
• The definition of a qualifying building is
extended to include buildings used partly
for R&D purposes (subject to EU approval
from a State Aid perspective).
With effect from 1 January 2009, claims
for R&D credits must be made within 12
months from the end of the period in which
expenditure was incurred. Retrospective
claims for prior years were required to have
been lodged with Revenue by 31 December
2008.

Tax measures affecting
individuals
• A new personal income levy was
introduced with effect from 1 January
2009. The levy is charged on income
from all sources (subject to exemptions
for low-income categories and income
from certain specified sources). With
effect from 1 May 2009, the levy is
charged as follows:
Income

Rate

• Up to €75,036

2%

• €75,037 – €174,980

4%

• €174,981+

6%

For the period 1 January to 30 April 2009,
the income levy is charged as follows:
Income
• Up to €100,100

Rate
1%

• €100,101 – €150,020 2%
• €150,021 +

3%

Transitional measures will apply.
• With effect from 1 May 2009, the
health levy has been increased to 4%
on income up to €75,036 and 5% on
all income in excess of this amount.
Previously, the health levy was charged
at the rate of 2% on income up to
a ceiling of €100,100 and 2.5% on
income above that level.

• Finance (No. 2) Act 2008 redefined the
rules for determining the number of days
spent in Ireland during the year. With
effect from 1 January 2009, presence
in the state at any time during a day will
be counted as a day in determining tax
residency.
• The Finance (No. 2) Act 2008
reintroduces a form of the remittance
basis of taxation in respect of certain
employments. The new tax relief,
aimed at encouraging key employees
from overseas companies to take up
assignments in Ireland, will be given by
way of a partial rebate of income tax. The
relief is subject to a number of conditions.
Relief only applies to an assignee
seconded by a relevant employer, i.e.,
a company incorporated and resident
in a country outside of the European
Economic Area with which Ireland has a
DTA. The employee must be employed
and paid by a relevant employer and
must have worked for that same relevant
employer, or an associated company of
the relevant employer, prior to being
seconded to Ireland. The assignment
must be for a minimum period of three
years, and the assignee must be tax
resident in Ireland in the year in respect
of which the claim is made.

• With effect from 1 May 2009, the
employee PRSI ceiling has been
increased from €52,000 to €75,036,
with no change to the rate applying
(4%). There has been no change to
the employer’s rate of PRSI.

A guide to understanding opportunities
and challenges in 24 key jurisdictions

50

Ireland (cont’d.)
Tax policy reform

Tax rate changes

The Commission on Taxation was
established by the Irish government on 14
February 2008 to review the structure,
efficiency and appropriateness of the Irish
taxation system. Its work will help establish
the framework within which tax policy will
be set for the next decade at least.

• The rate of capital gains tax is increased
to 25% from 22% in respect of disposals
made from midnight on 7 April 2009.
The participation exemption rules are
unchanged, and holding companies
continue to qualify for full exemption
from capital gains tax on the disposal of
an interest in qualifying subsidiaries.

The work of the Commission is being
conducted in the context of the
commitments on economic competitiveness
and on taxation contained in the Program
for Government:
• To keep the overall tax burden low and
implement further changes to enhance
the rewards of work while increasing the
fairness of the tax system
• To ensure that the regulatory framework
remains flexible, proportionate and upto-date
• To introduce measures to further lower
carbon emissions and to phase in on a
revenue-neutral basis appropriate fiscal
measures including a carbon levy over
the lifetime of the government
• A guarantee that the 12.5% corporation
tax rate will remain
The Commission is expected to publish
its report later this year and its
recommendations are likely to strongly
influence the framing of the 2010 Budget.

51

Worldwide fiscal stimulus —
tax policy plays a major role

• The rate of capital acquisitions tax (CAT)
is increased from 22% to 25% in respect
of gifts or inheritances taken on or after
midnight on 7 April 2009. In addition,
the CAT tax free thresholds have been
reduced by 20% “in light of declining
asset values,” also applying from
midnight on 7 April 2009.
• The rate of retention tax that applies to
deposit interest, together with the rates
of tax that apply to (a) life assurance
policies and (b) investment funds, are
increased by two percentage points to
25% and 28%, respectively. The increased
rates apply to payments, including
deemed payments, made on or after 8
April 2009.
• The top rate of stamp duty applicable
to commercial property was reduced
from 9% to 6% in respect of instruments
executed on or after 15 October 2008.
• With effect from 1 December 2008, the
standard rate of VAT was increased from
21% to 21.5%.

• With effect from 1 January 2009,
the special 20% rate of tax applied to
the trading profits from dealing in or
developing residential development
land is being abolished. The income
will be charged at the person’s relevant
marginal rates of income tax or the 25%
rate of corporation tax. Existing losses
will generally only be available on a value
basis up to a maximum of 20%. This
applies to profits made after 1 January
2009.

A guide to understanding opportunities
and challenges in 24 key jurisdictions

52

Italy
Key changes reported
• Company tax measures
(other)
• Tax credits — new or
amended

No reported activity
• Accelerated depreciation
• Grants and incentives
• Industry-specific measures
• Interest deductibility
• Other measures
• Profit repatriation
regulations
• Rebates and refunds
• Tax measures affecting
individuals
• Tax policy reform
• Tax rate changes
• Corporate income tax
• Customs and duty
• VAT
• Tax treatment of debt
• Treatment of losses
(carrybacks, etc.)

Overview of measures to
reinvigorate the economy
On 29 November 2008, the Italian
government approved Law Decree n.
185/2008 (the Decree) introducing
certain provisions relevant to the taxation
of Italian businesses. The Decree is effective
immediately and was ratified by parliament
on 28 January 2008 with Law n.2/2009.
The new provisions are designed to
support Italian businesses and address the
significant financial and economical crisis.

Step-up elections may prove tax-efficient
because of the mismatch between
the upfront tax cost, which is usually
a discounted rate, and the ordinary
depreciation achievable through the
elections. The availability of different
policies for step-up accounting may even
accelerate depreciation thereby increasing
the tax benefit. Case-by-case analysis
and financial modeling of the net present
value, as well as the accounting effect, are
necessary in order to assess effectiveness.

Company tax measures (other)

Mergers and acquisitions

Partial IRAP (an Italian regional tax)
deduction from corporate taxable income:
IRAP is generally levied on gross profits
tax before interest and labor expenses.
As enacted, IRAP is not deductible from
corporate tax (IRES), and this further
restriction has also been challenged
before the constitutional court, where the
case is still pending. The stimulus Decree
addresses this issue and allows taxpayers
to deduct 10% of IRAP for corporate tax
purposes. The 10% deduction is effective
immediately; furthermore, the provision is
retroactive and a refund may be claimed for
past years. Under the statute of limitations,
refund claims may be filed for the past 48
months.

Intangibles step-up: the 2008 Budget
Law introduced a step-up election for
specific extraordinary transactions, namely,
going-concern contributions in exchange
for shares, mergers and demergers. The
recognition of any accounting step-up
for tax purposes under the 2008 rules
is contingent on paying a substitute tax
ranging from 12% to 16% in three brackets,
regardless of whether the step-up is related
to intangibles or other assets:

S
 tep-up elections in the statutory
accounts and/or in the tax base of
certain assets: step-up elections have
been amended or introduced in different
forms several times over the last 10 years,
yet the long-standing practice has been
to raise cash by mitigating the effects
of the ordinarily high tax rates in Italy.
Ordinary rates have been reduced lately,
but the corporate tax (IRES) rate is still
27.5%, with a 5.5% additional tax on
industries, such as energy and oil and gas,
as implemented in mid-2008. Also, IRAP
ordinarily applies at a 3.9% rate, subject to
a maximum 0.92% increase or decrease.

53

Worldwide fiscal stimulus —
tax policy plays a major role

• 12%
	
for any step-up up to €5 million
• 14%
	
for any step-up between €5 million
and €10 million
• 16%
	
for any step-up over €10 million
Under the stimulus Decree, a specific stepup election is allowed for any intangibles,
subject to the payment of a 16% step-up
tax as a lump sum. The benefit of this
additional election mainly relates to
goodwill and trademarks and trade names.
Such intangibles may be amortized over
18 years but, under the new rules, the
amortization period is reduced to nine years
if the new 16% substitute tax payment is
made.

Working capital and financial asset stepup: entities applying the Italian accounting
standard may step up working capital and
financial (noncurrent) assets. In order
to step up such assets, taxpayers have to
pay a substitute tax equal to the ordinary
applicable tax rates (i.e., 27.5% for IRES
purposes, 3.9% for IRAP purposes and the
relevant rate for personal tax — IRPEF —
purposes). Whether the entities decide to
step up the credits (either accounted as
financial noncurrent assets or as working
capital), the substitute tax is reduced at flat
20% tax.

The accounting step-up is not recognized
per se for tax purposes. However, the
payment of a substitute tax may allow for
its recognition for tax purposes. It will be
levied at a 3% rate on depreciable property
or at a 1.5% rate on nondepreciable
property.

In general, entities may get advantage
by realigning the tax base of assets
like interests without the participation
exemption (i.e., PEX) requirements.
Indeed, in such a case, any future disposal
of the interests would not trigger any
capital gain taxation.

Research and development (R&D) tax
credit: the 2007 Budget Law introduced
a tax credit for R&D expenses. Any entity
performing R&D activities may benefit
from the credit, regardless of industry. The
annual R&D tax credit is equal to 10% of
the allowed R&D expenses, up to a cap of
€15 million; that is, the tax credit cannot
exceed €1.5 million. However, for expenses
incurred in R&D activities subcontracted
to universities and public research
organizations, the tax credit is increased
to 15% for fiscal year 2007 and to 40% for
fiscal years 2008 and 2009. The allowed
expenses increase to €50 million for fiscal
years 2008 and 2009.

Real estate accounting and tax step-up:
Italian entities may step up the basis of
their real estate property up to the current
fair market value in the 2008 statutory
accounts. All real estate may be stepped
up, except property held for sale (therefore
booked as inventory) and land qualifying as
construction sites. This opportunity should
improve certain ratios linked to assets of
companies owning real estate.
The accounting reserve corresponding to
the step-up may be allocated to shares
capital or booked as an extraordinary
reserve under the Decree, which for
tax purposes will be subject to deferred
taxation if distributed. Such deferred tax
liability may be canceled by paying a further
10% substitute tax.

The tax benefit arising from the step-up
election will be deferred. It will be effective
from the fifth fiscal year following the one
in which the election is made (ordinarily,
from fiscal year 2014).

Tax credits — new or amended

Under the stimulus Decree, the tax credit
will be extended to Italian entities and
branches engaging in R&D as contractors
and subcontractors of foreign principals
if they are resident in any country that is
white-listed. The provision will apply from
fiscal year 2007. The Decree introduces
procedural requirements and deadlines
for the R&D tax credit. Taxpayers should
submit the required files as soon as possible
in order to receive the credit.

Ernst & Young
Tax contacts
• Gerard Prinsen
International Tax Services
gerard.prinsen@it.ey.com
Tel: +39 0 2851 4225
• Maria Antonietta Biscozzi
Tax Policy Services
maria-antonietta.biscozzi@it.ey.com
• Marco Magenta
Business Tax Services
marco.magenta@it.ey.com
Tel: +39 0 2851 4529

A guide to understanding opportunities
and challenges in 24 key jurisdictions

54

Japan
Key changes reported
• Company tax measures
(other)
• Grants and incentives
• Other measures
• Profit repatriation
regulations
• Tax credits — new or
amended
• Tax measures affecting
individuals
• Tax rate changes
• Corporate income tax
• Treatment of losses
(carrybacks, etc.)

No reported activity
• Accelerated depreciation
• Industry-specific measures
• Interest deductibility
• Rebates and refunds
• Tax policy reform
• Tax rate changes
• Customs and duty
• VAT
• Tax treatment of debt

55

Worldwide fiscal stimulus —
tax policy plays a major role

Recent tax-related stimulus
elements: overview of measures
to reinvigorate the economy
The Japanese government on 19 January
2009 submitted to the Diet a ¥88 trillion
budget for fiscal 2009 — the biggest initial
budget in history — to stimulate the sagging
economy. A supplementary ¥ 56.8 trillion
budget was proposed on 10 April 2009
and will be submitted to the Diet around
27 April 2009. With the major increase in
government spending due to the rapidly
declining economy, the fiscal 2009 budget
is 6.6% higher than the initial budget
for fiscal 2008. But due to falling tax
revenues, ¥33.3 trillion in new government
bonds must be issued plus an additional
¥16 trillion expected for the 27 April 2009
Supplementary Budget. While the prime
minister stressed that the large budget was
to prioritize economic measures, such as
loan guarantees and equity participations,
under the current situation some
commentators were quick to note that the
strategy will steer Japan away from fiscal
reconstruction.
The FY 2009 tax reform of 1 April
2009 has taken appropriate measures
regarding taxation of housing and land,
taxation of corporations, taxation of
small- and medium-sized enterprises
(SMEs), inheritance taxation, taxation of
financial and securities transactions and
motor vehicle taxation, with a view to
contributing to economic recovery. The
95% tax exemption of dividends received
from overseas subsidiaries will allow
a repatriation of ¥17 trillion retained
overseas earnings and result in significant
income recognition upon the reversal of
deferred tax liabilities, accounting for
the excess of 40.7% Japanese effective
corporate tax over foreign tax incurred
locally, which had been enacted by
31 March effective 1 April 2009.

Company tax measures (other)
Investment activities by foreign partners:
in the case of a fund investment executed
by LPs, if the requirements for a “qualified
investor” are satisfied by a foreign partner,
the investment activities of the foreign
partner will not constitute a Permanent
Establishment (PE) in Japan. Also, the
disposition of shares through certain
investment funds by foreign limited
partners having no PE in Japan may be
excluded from the 25%/5% aggregation
rules, and the 25%/5% threshold is tested
at the foreign partner level provided certain
“tax-free requirements” are met.
Small- and medium-sized enterprises
(SMEs): a deferral of inheritance tax
assessment on unlisted shares will be
introduced as part of a business succession
tax system for SMEs. This is applicable
to recipients of an inheritance after the
enactment of the SME Business Succession
Law on 1 October 2008. Deferral of gift
tax assessment will also be available for
unlisted shares received by a successor to a
business before the death of the donor.

Additional company tax measures
proposed on 10 April 2009
Gift tax: under the proposal, which has a
two-year duration, an additional ¥5 million
will be added to the current basic gift taxexemption of ¥1.1 million per annum if a
gift is made by parents to adult children
for the purpose of acquiring or renovating
houses.
IT tax credit for R&D expenditures: the
current maximum creditable amount is
presently limited to 30% of the corporate
tax due per annum. Under the proposal,
the maximum creditable amount will be
raised up to 40% of the tax due. Also, for
unused creditable amounts an increase of
the carryforward period from one to three
years is planned.

Entertainment expense: for SMEs, the
maximum tax-deductible amount will be
raised from 4 to 6 million ¥ per annum.

Grants and incentives
Employment subsidy: to qualify,
enterprises must have incurred a 5%
decline in sales (SMEs may qualify with
lower declines), and must have introduced
“work sharing,” e.g., reduced work-hour
programs. The subsidy amounts to up to
75% of wages, SMEs qualify for subsidies of
up to 80%.
Subsidies are also to be granted to
employees undergoing training.
Additional employment subsidies are
contemplated in the April 2009 economic
stimulus program.

Other measures
Renewable energy incentives: in order
to encourage investment in energy
conservation technology, including those to
improve the energy efficiency of production
facilities or to produce energy-efficient
home appliances, certain investment tax
relief measures, such as an immediate
deduction for costs incurred, will made
available for two years. The April 2009
stimulus plan provides for further benefits,
including subsidies for the replacement
of 13-year-old vehicles by qualified
environment-friendly cars. Foreign cars are
expected to rarely qualify for the planned
subsidies.

Profit repatriation regulations
Foreign subsidiary dividend exclusion:
dividends received by a Japanese domestic
corporation from a “foreign subsidiary”
will be excluded from the calculation
of the domestic corporation’s taxable
income. Interest/royalties paid by a
foreign subsidiary and profits attributable
to a foreign branch will not be covered
by this exemption system. 5% of the
dividend received by a Japanese domestic
corporation from its foreign subsidiary will
be excluded from the tax-exempt dividend

amount. The foreign subsidiary mentioned
above is defined as a foreign corporation
in which a Japanese domestic corporation
holds 25% or more of the total issued
shares for at least six months before the
decision to distribute the dividends (“25%
ownership test”).

Tax credits — new or amended
See above on R&D tax credit changes
planned as part of the April 2009 stimulus
package.
Tax credit for housing loans: to boost
housing investment, a larger tax credit for
housing loans will be introduced. Also, to
reduce the burden on low- to middle-income
earners, a system will be created to allow
excess housing loan tax credits to be used
to reduce local inhabitants tax.

Tax measures affecting
individuals
Reduced tax rate for individual
taxpayers: for individual taxpayers, the
current reduced tax rate of 10% (7%
national income tax, 3% local income
tax) on dividends and capital gains
from listed shares shall be extended to
31 December 2011.

Tax rate changes
Corporate income tax
SMEs corporate tax rate: as a temporary
relief, the corporate tax rate applicable to
SMEs with annual taxable income of up to
¥8 million will be reduced from 22% to 18%
for the fiscal years ending during 1 April
2009 to 31 March 2011.

Treatment of losses
(carrybacks, etc.)
A tax loss carryback will be available to
SMEs for tax losses incurred in fiscal years
ending on or after 1 February 2009.

Ernst & Young
Tax contacts
• Yasuo Horikawa
Business Tax Services
yasuo.horikawa@jp.ey.com
Tel: +81 3 3506 2417
• Hans Peter Musahl
Tax Policy Services
hans-peter.musahl@jp.ey.com
Tel: +81 3 3506 2087

A guide to understanding opportunities
and challenges in 24 key jurisdictions

56

Netherlands
Key changes reported
• Accelerated depreciation
• Interest deductibility
• Other measures
• Tax measures affecting
individuals
• Tax rate changes
• Corporate income tax
• VAT
• Tax treatment of debt
• Treatment of losses
(carrybacks, etc.)

No reported activity
• Company tax measures
(other)
• Grants and incentives
• Industry-specific measures
• Profit repatriation
regulations
• Rebates and refunds
• Tax credits — new or
amended
• Tax policy reform
• Tax rate changes
• Customs and duty

Overview of measures to
reinvigorate the economy
On 21 November 2008, the Dutch cabinet
sent a letter to the Dutch parliament
outlining and analyzing the potential effect
the financial crisis may have on the real
economy in the Netherlands. In this letter,
the Dutch cabinet announced various
measures to reduce the adverse effects of
the financial crisis. Some of the measures
were tax related.
Meanwhile, a group of tax professors
proposed new measures to battle the
financial crisis.

57

Worldwide fiscal stimulus —
tax policy plays a major role

On 25 March 2009, the Dutch cabinet
published a new policy document with a
broad indication of further actions to be
taken to fight the adverse consequences of
the financial crisis.
On 3 April 2009, the State Secretary of
Finance submitted a legislative proposal
with tax related measures that — according
to the State Secretary — need to be taken
on short notice. Some measures will have
retroactive effect. In his proposal, the State
Secretary also mentioned a few measures
that do not need an amendment to the
tax act.

Accelerated depreciation
Accelerated depreciation of assets
under new facility: in order to encourage
companies to invest in new assets, a
facility has been reintroduced that allows
for accelerated depreciation of such
assets. The facility applies to investments
made during the period 1 January 2009
to 31 December 2009. Accelerated
depreciation is possible in 2009 and 2010,
limited to a maximum of 50% per calendar
year. The facility applies to all business
assets with some exceptions. Assets such
as real estate and intangible assets, for
example, are excluded.
The accelerated depreciation offers
potential opportunities for investments
made in 2009. The accelerated
depreciation does not apply to assets that
are leased to third parties.
On 3 March 2009, three tax professors
proposed the introduction of accelerated
depreciation for real estate (used by the
tax payer or intragroup). It is not yet
clear whether the cabinet will adopt this
proposal.

Interest deductibility
Dutch corporate income tax has multiple
limitations on interest deduction: three
tax professors have proposed to dispose of
most of these limitations. According to this
proposal, group interest will not be subject
to taxation anymore, which will make the
Netherlands more attractive for intragroup
financing structures. These proposals are
currently being considered.

Streamlining interest deduction: in the
near future, the Dutch cabinet is expected
to submit a legislative proposal streamlining
interest deduction. It is likely that the
cabinet will adopt the major elements of the
proposal of the tax professors.

Other measures
On 3 March 2009, three tax professors
published a list of tax measures they
thought would help during the financial
crisis.
• The taxation of a book profit made when
selling a business asset can be postponed
by allocating the profit to a capital
replacement reserve. The book profit will
nevertheless be taxed if the amount is
not reinvested within three years. The tax
professors proposed to extend this period
by a further two years if the taxpayer
can not reinvest because of financing
problems.
• The tax professors also proposed to
increase the additional tax deduction
for employee training. They proposed
an additional deduction amounting to
100% of training costs.
• They also proposed a postponement
or even remission of tax payments for
taxpayers with severe liquidity problems
due to the financial crisis.
Neither of the above measures proposed
by the tax professors have been adopted by
the Dutch cabinet.
However, in a policy document dated
25 March 2009, the cabinet proposed
other measures. Most of them have been
worked out in the legislative proposal of
3 April 2009:
• More flexibility for carry back of 2008 tax
losses. See under ‘Treatment of losses
(carrybacks, etc.)'.
• More flexibility for VAT payments. As per
1 July 2009, entrepreneurs are allowed
to file the VAT tax return on a quarterly
basis instead of a monthly basis. Because
of this, entrepreneurs will be able to
postpone VAT payments to the Tax
Authorities. Entrepreneurs that receive
a monthly repayment of VAT can still file
the VAT tax return on a monthly basis.

• Temporarily increased wage tax reduction
for R&D staff in 2009 and 2010. In short,
this wage tax reduction is a percentage of
the wage of the R&D staff.
• The State Secretary increased the 2009
and 2010 budget available for investment
allowances for certain environmentally
friendly investments. From 1 April 2009
until 1 January 2011, the investment
allowance also applies for investments
in provisionally rented houses if those
investments make the houses more
sustainable and environmentally friendly.
• The State Secretary has also proposed to
reduce the air passenger duty to nil per
1 July 2009.
In the aforementioned policy document,
the Dutch cabinet also mentioned a
simplification of wage tax regulations
to decrease administrative burden for
employers.
On 1 April 2009, a part-time
unemployment scheme was introduced.
If certain conditions are met, employers
are allowed to reduce working hours with
a maximum of 50%. For the loss of salary,
employees will receive an unemployment
benefit. This part-time unemployment
scheme is applicable for a maximum period
of three months, but can be extended two
times for another three months.

Tax measures affecting
individuals
Reduction in unemployment insurance:
unemployment insurance premiums
payable by employees have been reduced to
zero in 2009. In 2008 employees still paid
3.5% of their salary towards unemployment
insurance premiums to the Netherlands
government. This rate has been reduced
to nil to improve the liquidity positions
and maintain the spending power of Dutch
employees.
Release of block savings: the Dutch cabinet
also suggested to release blocked savings
from salary savings schemes in order to
speed up consumer expenditures. However,
no measures have been taken yet.

Tax rate changes
Corporate income tax
Reduction of corporate income tax rate —
at the end of 2008, the corporate income
tax rate for 2008 has been reduced with
retroactive effect to 1 January 2008. For
calendar year 2008, 20% corporate income
tax is due on taxable income not exceeding
€275.000. A 25.5% rate applies for income
exceeding €275,000.
Future of corporate income tax rate — the
cabinet has proposed a reduced corporate
income tax rate for 2009 and 2010 as
well (although not to the same amount as
2008). For calendar year 2009 and 2010,
20% is due on taxable income not exceeding
€ 200.000. A 25.5% rate applies for income
exceeding € 200,000. The 2009 and
2010 tax rate has not yet been affirmed by
parliament.
VAT
The VAT rate will not be increased from
19% to 20%. On 25 November 2008, the
Dutch parliament affirmed that the VAT rate
would not be increased from 19% to 20% as
of 1 January 2009, as initially proposed in
the 2009 Budget.

Tax treatment of debt
See remarks under ‘Interest deductibility’.

Treatment of losses
(carrybacks, etc.)
Carry forward and back losses: for
corporate income tax purposes, there
is a one year carryback and nine years
carryforward of losses.
The State Secretary will ease the carryback
of 2008 losses. Basically, these losses
can only be carried back when the 2008
tax return has been filed and the tax
assessment has been imposed. However,
the State Secretary now allows a carryback
if a reasonable estimation of the 2008 tax
losses is possible, for example, based on the
preliminary annual accounts. In practice,
this means that a company can carry back
at least six months earlier.
On 3 March 2009, three tax professors
proposed to extend the carry back to
three years as a measure to tackle
the financial crisis. At this moment, it
doesn’t look like this proposal will be
adopted by the Dutch cabinet.

Ernst & Young
Tax contacts
• Anthony van der Wilden
Business Tax Services
anthony.van.der.wilden@nl.ey.com
Tel: +31 10 406 8575
• Marnix van Rij
Tax Policy Services
marnix.van.rij@nl.ey.com
Tel: +31 70 328 6742

A guide to understanding opportunities
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58

Russia
Key changes reported
• Accelerated depreciation
• Company tax measures
(other)
• Interest deductibility
• Other measures
• Tax measures affecting
individuals
• Tax policy reform
• Tax rate changes
• Corporate income tax
• Customs and duty
• VAT
• Tax treatment of debt

No reported activity
• Grants and incentives
• Industry-specific measures
• Profit repatriation
regulations
• Rebates and refunds
• Tax credits — new or
amended
• Tax rate changes
• Customs and duty
• Treatment of losses
(carrybacks, etc.)

Overview of measures to
reinvigorate the economy
The Kremlin has responded to the financial
crisis in Russia's by offering a bailout
package and economic stimulus measures
that are worth over US$200 billion when
combined. Russia's sovereign debt was
downgraded by Standard & Poor's for the
first time in 10 years on 8 December 2008,
stocks have lost about 70% of their value
since May 2008 and the central bank has
spent US$160.3 billion in a bid to support
the rouble.1

1
Reuters, December 16 2008

59

Worldwide fiscal stimulus —
tax policy plays a major role

Although economic growth has been
enviable over the last several years, the
signs are now clear that high world oil
prices will not be enough to maintain
that momentum. The economy remains
overreliant on the energy sector to
drive growth. Moreover, given the
underdeveloped state of the financial
sector, it also remains overly dependent
on external financing for the banking and
enterprise sector. Thus, the unfolding
global economic slowdown and receding
world-market commodity prices, together
with a worldwide credit crunch, have
created serious economic difficulties
for Russia just months after a very
robust economic performance had been
registered.
The government and central bank, as in the
West, have put together rescue packages
and a stimulus plan, financed by drawing
down the massive fiscal and foreigncurrency reserves accumulated during
the period of record-high world-market oil
prices. These programs are aimed at the
most important financial and industrial
entities2.

Accelerated depreciation
Maximum one-off deduction increased:
the maximum one-off deduction for
expenditure on the acquisition, extension,
further equipping, reconstruction,
modernization, retooling or partial
dismantling of fixed assets has been
increased from 10% to 30% for fixed assets
belonging to depreciation groups 3 to 7
(fixed assets deemed to have useful lives
of 3 to 20 years). The balance after this
deduction is subject to depreciation. An
additional condition for the application of
the deduction has also been introduced
whereby it is granted on condition that the
fixed assets in question are used for the
next five years. This rule applies to fixed
assets commissioned on or after 1 January
2008. In the event that the fixed assets are
sold before five years have elapsed from
the date on which they are brought into
use, the amount of the deduction will be
clawed back.

2
IHS Global Insight, 5 March 2009

Company tax measures (other)
Federal tax organization indebtedness:
if an organization’s indebtedness with
respect to federal taxes exceeds 10 billion
roubles, and settlement in a single
payment would create a threat of adverse
social and economic consequences,
the organization has the right from
1 January 2009 to apply to the minister
of finance for a deferral or an installment
plan for a period not exceeding five
years. Federal taxes are profits tax, VAT,
excise duties, mineral extraction tax,
unified social tax and other taxes listed in
Article 13 “Federal Taxes and Levies” of
the Tax Code.
A planned increase in the rate of unified
social tax has been postponed until 2010.
Deductions for certain R&D expenses: a
50% uplift applies from 1 January 2009
in calculating deductions for certain R&D
expenses. The amendment to the Tax Code
was enacted in July 2008 but the list of
qualifying expenditure was not concluded
until 24 December 2008, so it is possible
that the list was extended to provide
broader relief than originally intended.
Miscellaneous expenses: expenses
associated with the development of natural
resources that were incurred under an
agreement with a contractor may be
included in miscellaneous expenses evenly
upon the completion of each phase of
work. Under the previous wording of the
Tax Code, expenses associated with the
development of natural resources could be
taken into account for profits tax purposes
only after all work had been completed,
and not upon completion of a particular
phase of work.
Previous quarter profit tax base:
taxpayers who normally pay tax based on
the previous quarter’s actual profit were
given the right to pay tax based on profit
actually earned in the fourth quarter of
2008, instead of the third quarter’s profit.

Interest deductibility
Cap on reductions for interest on debt:
for the period from 1 September 2008 to
31 December 2009 the cap on deductions
for interest on debt obligations has been
significantly increased: to 150% of the

central bank refinancing rate in the case
of rouble liabilities, and to 22% for debt
obligations in a foreign currency.

Other measures
Effective date of tax laws that improve
position of taxpayers: with effect from
1 October 2008, tax laws that improve the
position of taxpayers may enter into force
from the date of their official publication.
The Tax Code previously only allowed for
such amendments to take effect one month
from the date of their official publication.

Tax measures affecting individuals
Increase in maximum deduction
associated with new housing construction
or acquisition: the maximum deduction
available to personal income taxpayers for
qualifying expenditure associated with the
new construction or acquisition of a house,
apartment or room or shares therein has
been increased from one to two million
roubles. The deduction is now the lower of
expenses actually incurred and two million
roubles with the increased cap applying with
retroactive effect from 1 January 2008.

Tax policy reform
Amendments to Russia’s thin capitalization
rules (Article 269 of the Tax Code): it has
been put to the ministry of finance that this
legislation has a discriminatory character
in respect of companies with foreign
shareholders, and in the context of the world
financial crisis, this rule can be harmful for
companies urgently requiring additional loan
finance. The ministry of finance is preparing
draft amendments to the rules based on
recommendations of business associations.
New transfer pricing legislation remains
under development.

Tax rate changes
Corporate income tax
The profits tax rate has been decreased to
20% (2% payable to the federal budget, 18%
to the relevant regional budget). Taking into
account possible regional rate reductions the
minimum rate possible is now 15.5%.
VAT
The time limit for presenting documents
supporting the right to a VAT reimbursement
in relation to exports has been increased by

90 days, i.e., the time limit is now 270 days.
The increase in the time period entered into
force from July 2008 and will remain in
effect until 31 December 2009.
A new procedure has been introduced for
the treatment of VAT on advance payments
for purchasers. Now a purchaser has the
right to include tax paid to a supplier as part
of an advance payment in deductible input
VAT.
Instead of submitting actual customs
declarations or copies of such declarations
to the tax authorities, taxpayers now have
the right to submit a register of customs
declarations, certified by a customs
authority.
The tax authorities have been given the right
to issue two separate decisions regarding
VAT reimbursements after checking a tax
declaration: one regarding the amount
that is not disputed, and one regarding
the amount on which the taxpayer and the
tax authority disagree. This will enable the
taxpayer to receive prompt reimbursement
for those amounts of tax that are not
disputed.
Prior to 2009, a VAT exemption applied
when manufacturing equipment and
components and spare parts for such
equipment were imported as a contribution
to the charter capital of a Russian
organization. In the future, this exemption
is to apply to all imports of manufacturing
equipment for which there are no
equivalents made in Russia. However, the
government must approve a list of such
equipment and it has not yet done so. The
new rules will begin to have effect no earlier
than the first day of the next tax period for
VAT (calendar quarter) following the tax
period in which the relevant government
decree enters into force. In the meantime
such imports are subject to VAT unless
covered by the previous exemption (which
remains in force until the new rules apply).
It remains to be seen whether the list
will provide a broader exemption than
previously or a narrower one.

Tax treatment of debt
None reported other than changes to
interest deductibility (see above).

Ernst & Young
Tax contacts
• Petr Medvedev
Business Tax Services
petr.v.medvedev@ru.ey.com
Tel: +7 495 755 9877
• Maureen O’Donoghue
Business Tax Services
maureen.odonoghue@ru.ey.com
Tel: +7 495 228 3670
• Alexandra Lobova
Tax Policy Services
alexandra.lobova@ru.ey.com
+7 495 705 9730

A guide to understanding opportunities
and challenges in 24 key jurisdictions

60

Singapore
Key changes reported
• Accelerated depreciation
• Company tax measures
(other)
• Grants and incentives
• Other measures
• Profit repatriation
regulations
• Rebates and refunds
• Tax measures affecting
individuals
• Tax rate changes
• Corporate income tax
• Treatment of losses
(carrybacks, etc.)

No reported activity
• Industry-specific measures
• Interest deductibility
• Tax credits — new or
amended
• Tax policy reform
• Tax rate changes
• Customs and duty
• VAT
• Tax treatment of debt

61

Worldwide fiscal stimulus —
tax policy plays a major role

Overview of measures to
reinvigorate the economy
On 22 January 2009, the minister for
finance announced in parliament the
Singapore budget for the fiscal year
1 April 2009 to 31 March 2010. The speed
and scale of the deterioration in the global
economy in the last six months restricted
Singapore’s economic growth to 1.2% in
2008. Staring at a prolonged downturn,
the Singapore government brought forward
its budget from February to January
2009 and introduced a S$20.5 billion
(US$13.7 billion) budget stimulus package
to help businesses and save jobs.
The budget introduced, among other tax
changes, a reduction in the corporate tax
rate to 17%, a temporary expansion and
relaxation of the foreign-sourced income
exemption incentive and accelerated tax
depreciation claim on capital expenditure,
to encourage companies to invest, as well
as repatriate, funds back to Singapore.
There are also enhancements to the
existing financial services sector incentives
to maintain Singapore’s status as one of
Asia’s major financial hubs.

Accelerated depreciation
Plant and machinery costs write-down:
accelerated write-down of plant and
machinery costs incurred in the basis
periods for tax years 2009 and 2010
Special allowance write-down: accelerated
write-down of special allowance on
renovation and refurbishment (R&R) works
in the basis periods for tax years 2009 and
2010

Company tax measures (other)
Extension of tax deduction: extension of
the tax deduction for general provisions
made by banks, merchant banks and
finance companies for a further three years

Grants and incentives
A range of R&D grants and training
schemes to develop new capabilities and
spur innovation

Other measures
Jobs credit scheme: employers will receive
a cash credit of 12% of the first S$2,500 of
the wages of each employee who is on the
Central Provident Fund (CPF) payroll for
2009. This is a temporary one-year scheme
for 2009 and is equivalent to a ninepercentage-point CPF cut for employers

Profit repatriation regulations
Temporary expansion of foreign-sourced
income exemption — waiving of conditions
for remittance of all foreign-sourced income
during the period from 22 January 2009 to
21 January 2010

Rebates and refunds
A 40% property tax rebate is given for
commercial and industrial properties for
2009

Tax measures affecting
individuals
Personal income tax rebate of 20% for tax
resident individuals capped at S$2,000
A 40% property tax rebate is given for
owner-occupied residential properties for
2009

Tax rate changes
Corporate income tax
Reduction in the corporate tax rate from
18% to 17%

Treatment of losses
(carrybacks, etc.)
Enhancement of loss carryback relief: an
increase of the loss carryback cap from
S$100,000 (US$66,500) to S$200,000
(US$133,000) for tax years 2009 and
2010

Ernst & Young
Tax contacts
• Russell Aubrey
International Tax Services
russell.aubrey@sg.ey.com
Tel: +65 6309 8690
• Lim Gek Khim
Tax Policy Services
gek-khim.lim@sg.ey.com
Tel: +65 6309 8452

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and challenges in 24 key jurisdictions

62

South Korea
Key changes reported
• Company tax measures
(other)
• Profit repatriation
regulations
• Tax credits — new or
amended
• Tax measures affecting
individuals
• Tax policy reform
• Tax rate changes
• Corporate income tax
• Treatment of losses
(carrybacks, etc.)

No reported activity
• Accelerated depreciation
• Grants and incentives
• Industry-specific measures
• Interest deductibility

Overview of measures to
reinvigorate the economy
On 1 September 2008, the Korean
government issued a final version of
its 2008 tax reform proposal after
several months of debate among the
government, the ruling Grand National
Party and the taxation policy development
review committee. The proposal includes
21.3 trillion won (US$19 billion1) in
personal and corporate tax cuts over the
fiscal years 2008 to 2012. The proposal
was passed by the National Assembly on
26 December 2008 and has been effective
from 1 January 2009.
The proposal was introduced primarily to
increase jobs and to stimulate growth of the
Korean economy through a set of changes
to various types of taxes. Most notably,
the corporate tax cut initiative is aimed at
improving Korea’s business environment
and reversing the trend of weakening
corporate investments.

• Other measures

Implications of changes stated below

• Rebates and refunds

The tax changes will provide a number
of potential opportunities for companies
currently operating or planning to expand
their business in Korea. The corporate tax
rate cut will offer companies significant
tax savings in the future. It may be
beneficial to review current transfer
pricing documentation to determine if it
is sufficient for the waiver in the event of
adjustments. The change in deductibility
of stock option costs could give a foreign
parent company an opportunity to charge
back stock option costs to its Korean
subsidiary without any adverse tax
implications.

• Tax rate changes
• Customs and duty
• VAT
• Tax treatment of debt

1
Exchange rate of US$1: KRW1,120 is used in this document

63

Worldwide fiscal stimulus —
tax policy plays a major role

Company tax measures (other)
Corporate taxpayers will be allowed to file a
consolidated tax return for the fiscal years
beginning on or after 1 January 2010,
but this filing position is only available for
a common parent and its wholly owned
subsidiaries.
The 10% penalty on additional tax arising
from transfer pricing adjustments may be
waived, provided the taxpayer maintains
sufficient documentation to support
their transfer pricing and demonstrates
reasonableness with regard to the transfer
pricing method. Such a waiver may be
granted for assessments made on or after
1 January 2009.
The tax incentive application process will
be simplified for foreign-owned companies
that are set up in the free economic zone.
It is expected to take a shorter time to
obtain approval for tax exemption through
an application to the free economic zone
committee. The simplified process will grant
a 100% exemption from income tax for the
first three years and a 50% exemption for
the subsequent two years.
With regard to the stock options granted
by a foreign parent company to the
employees of its Korean subsidiary,
relevant costs arising from the local
employees’ exercise of the stock options
are allowed as deductible expenses for the
Korean subsidiary’s corporate income tax
purposes from 3 February 2009 if certain
requirements are met.

Profit repatriation regulations
The withholding tax rate is reduced from
25% to 20% (exclusive of a 10% resident
surtax). This lowered tax rate will be
applied to interest, dividends, etc., to
be paid to a nonresident or a foreign
corporation on and after 1 January 2009.

Tax credits — new or amended
To encourage investments in research and
development (R&D) activities, existing
tax incentives for R&D expenditure will be
expanded to include the following from
1 January 2009:
• A reserve for R&D investment is allowed
as a deduction within 3% of the revenue
limit. The amount set aside shall be
added back to the taxable income over
36 months from the third business year
after deduction of the reserve.
• In the case of small- and medium-sized
enterprises (SMEs)2, a tax credit for R&D
expenditures3 is allowed at the maximum
of either 25% (previously, 15%) of the
amount spent for the current fiscal
year or 50% of the incremental amount
compared to the average of the preceding
four fiscal years.
The tax credit rate for investments in
environment-friendly facilities will be raised
from the prior rate of 7% to 8% (please
note that a 10% tax credit rate will be
applied to such investments made in the
fiscal years whose closing date falls before
31 December 2009).

Tax measures affecting
individuals
The existing individual income tax rates
will be reduced by 2% for the purpose of
boosting private spending by easing the tax
burden on individual taxpayers. Tax rates
on individual income will be progressively
lowered to a range between 6% and 33% by
2010.

2
To qualify as a small- and medium-sized company, a company
must meet two conditions: (1) the type of its business must be
manufacturing, logistics, R&D, wholesale, retails, etc.; and (2) the
size of the company must meet certain requirements, depending
on the type of business. For example, a manufacturing company
may qualify as a SME if it hires less than 300 employees or its
stated capital is 8 billion won (US$ 7.1 million) or less
3
Qualified R&D expenditures are those listed in the Presidential
Decree of Tax Incentive Limitation Law, which include, but are not
limited to, expenses for the registered R&D division, expenses for
co-development projects with listed organizations, and certain
types of employee training costs

With a view to attracting talented foreign
workers, if a foreign resident who has
had an abode or domicile in Korea for a
combined period of five years or less during
the 10-year period before the closing date
of the concerned tax year, only the foreign
source income paid within or remitted to
Korea will be subject to individual income
tax in Korea from 1 January 2009.
Consistent with the reduction of the
individual income tax rate, the flat
individual income tax rate applicable to
foreign workers will be reduced from the
prior rate of 17% to 15% (exclusive of
a 10% resident surtax) from 1 January
2009.

Tax policy reform
Please see above in section “Recent taxrelated stimulus elements.”

Tax rate changes
Corporate income tax
The two-tier standard corporate tax
rates will be lowered. For taxable income
exceeding 200 million won (US$179,000),
the 25% corporate tax rate was retained for
2008 but the rate will be reduced to 22%
for 2009 and 20% for 2010 and thereafter.
For taxable income of 200 million won or
less, the corporate tax rate will be 11% for
2008 and 2009 and 10% for 2010 and
thereafter. The 10% resident surtax will still
apply to the new rates.

Treatment of losses
(carrybacks, etc.)
The corporate net operating loss
carryforward period is extended from
5 years to 10 years.

Ernst & Young
Tax contacts
• Jong Yeol Park
Tax Policy Services
jong-yeol.park@kr.ey.com
Tel: +82 2 3770 0904

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64

Switzerland
Key changes reported
• Other measures
• Tax measures affecting
individuals
• Tax rate changes
• VAT

No reported activity
• Accelerated depreciation
• Company tax measures
(other)
• Grants and incentives
• Industry-specific measures
• Interest deductibility
• Profit repatriation
regulations
• Rebates and refunds
• Tax credits — new or
amended
• Tax policy reform
• Tax rate changes
• Corporate income tax
• Customs and duty
• Tax treatment of debt
• Treatment of losses
(carrybacks, etc.)

Overview of measures to
reinvigorate the economy
On 10 February 2009, the Swiss finance
minister announced financial results for
2008. Despite a budgetary surplus of
CHF6.2 billion (US$5.22 billion), 10%
higher than in the previous year, a deficit
resulted. This was due to the CHF890
million (US$768 million) aid package of
November 2008 to strengthen the financial
sector.
Following a prolonged downturn, the Swiss
government brought forward the CHF890
million stabilizing package, which took
effect at the beginning of 2009. A second
package was proposed by the cabinet on
11 February 2009 and has an investment
value of CHF700 million (US$604 million).
The stabilizing packages introduced an
abolishment of the credit block to enable
various ventures of the Swiss federation.
Projects that were not originally scheduled
within budget 2009 can be bought forward
and be carried out now. Investments were
chosen where the most benefit to the
economic situation can be gained, that can
be carried out quickly and which have a
broad effect.
A further extension of short-time work
compensation (i.e., where companies
offer employees shorter working hours as
opposed to redundancies) from 12 to 18
months was proposed, offering government
grants to those companies who shorten
worker hours, as opposed to making those
workers redundant.
Switzerland is a confederation of 26
cantons with about 3,000 municipalities.
Taxes are levied not only by the federation
but also at the cantonal and municipal level.
Aside from the federation, the cantons are
also expected to take adequate measures.

65

Worldwide fiscal stimulus —
tax policy plays a major role

Other measures
Increased government spending: other
investments include infrastructure (road
and rail), maintenance of federal buildings,
export promotion, tourism marketing and
encouragement to build housing space.
Specifically, the maintenance of federal
buildings and encouragement of housing
projects have been brought forward in order
to increase the overall level of government
spending on infrastructure projects.
Future tax deductions: tax deductions for
Investments in privately owned homes are
possible in many cantons. On the federal
level this will likely come into effect in
2009, dependent on the implementation
of newly created legislation. However,
it is expected that the deductibility of
such investments will be introduced at
the federal level by no later than 2010.
These deductions are applicable for valueincreasing investments as well as for those
promoting renewable energy.

Tax measures affecting
individuals

Tax rate changes

Higher tax deduction: families with children
will benefit from additional tax relief. A
higher tax deduction for families with
children is the main remedy to achieve that
goal. Parents who pay for childcare while
working will no longer be discriminated
against with regard to tax tariffs. This
measure will create an incentive for the
compatibility of career and family. Due to
this, an additional CHF600 million will stay
with the consumers in order to increase
spending capacity. The amendment of the
statute is in consultation and is expected to
become effective on 1 January 2010.

The planned revision of the VAT legislation
was postponed from May 2009 to
September 2009. The proposed new
legislation foresees a universal VAT rate
(uniform rate for products and services of
all kinds) of 6.1% in place of the current
7.6% standard rate, 2.4% rate for goods of
daily use and 3.6% rate for accommodation
which are currently in force.

VAT

Short-term work compensation:
the possibility for short-time work
compensation was extended from 12 to
18 months until 31 March 2011. This
measure is taken in order to avoid the
dismissal of employees due to temporary
lack of demand.

Ernst & Young
Tax contacts
• York Zoellkau
Business Tax Services
york.zoellkau@de.ey.com
Tel: +49 221 2779 25647
• Bernhard Zwahlen
Tax Policy Services
bernhard.zwahlen@ch.ey.com
Tel: +41 58 286 6362

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and challenges in 24 key jurisdictions

66

Taiwan
Key changes reported
• Company tax measures
(other)
• Grants and incentives
• Other measures
• Rebates and refunds
• Tax measures affecting
individuals
• Tax policy reform
• Tax rate changes
• Corporate income tax
• Treatment of losses
(carrybacks, etc.)

No reported activity
• Accelerated depreciation
• Industry-specific measures
• Interest deductibility
• Profit repatriation regulations
• Tax credits — new or amended
• Tax rate changes
• Customs and duty
• VAT
• Tax treatment of debt

Recently released data showed that GDP
in real terms contracted by an annualized
8.4% during 4Q 2008, representing the
largest drop on record. This followed a
revision of the 3Q 2008 GDP number to
a contraction of 1.1% and resulted in the
economy entering recession for the first
time since 2001.

Company tax measures (other)
Tax rule invalidated: an interpretation
issued by the justice of the constitutional
court invalidated a rule which stipulated
that, by lending its capital to shareholders
or other persons, a company which
does not otherwise charge interest
or undercharge interest in the [loan]
agreement shall nevertheless report
interest income which is then subject to
tax levy based upon the applicable prime
lending rate of the Bank of Taiwan as of 1
January of that year. The rule summarily
levied tax on interest income on company
loans to its shareholders or other persons.
The rule was invalidated because it
lacked clear and specific authorization
from the Income Tax Act, increased the
tax obligation which did not legally exist
for taxpayers, and contradicted the
meaning and purpose of Article 19 of the
Constitution.

Grants and incentives
Overview of measures to
reinvigorate the economy
The Taiwan cabinet recently passed a
NTD150 billion (US$4.27 billion) plan
designed to stimulate the economy and
to expand public infrastructure.
The plan is expected to help boost
GDP growth by almost 1% in 2009 and
to create in the region of 190,000 to
200,000 jobs. The plan is expected to be
approved by the end of 1Q 2009.
The Taiwan economy shrank at its fastest
pace in history during the 4Q 2008, with
heavy exposure to an decreasing demand
for its exports from other countries
around the world.
67

Worldwide fiscal stimulus —
tax policy plays a major role

Tax holiday incentive to new investments:
Taiwan’s legislative Yuan passed an
amendment to the Statute for Upgrading
Industries on 13 January 2009. The
amendment extends a five-year tax
holiday incentive to new investments
(including original capital registration or
additional capital increase) made during
the period beginning 1 July 2008 to 31
December 2009 by manufacturing and
related technical service companies.
Before passage of the amendment, only
investments made in the period from 1
January 2002 to 31 December 2003
by qualified companies may be eligible
for the tax holiday provided under the
article. To stimulate economic growth, the
legislative Yuan extended the tax holiday

by amending the article. However, the
amendment includes certain limitations:
• The total amount of income that may
be exempt from income tax during the
tax holiday period should not exceed
the total amount of investments, to
which the tax holiday is granted, made
by qualified companies in the qualifying
period.
• Only one approval for the tax
holiday may be granted in respect
of investments made by qualified
companies during the qualifying period.
• Companies eligible for other tax
incentives as provided under Article 8
or Article 9 of the SUI may not apply for
the tax holiday in accordance with the
amendment.
The Ministry of Economic Affairs (MOEA)
has drafted regulations governing the
application of the tax holiday to stipulate
procedural details such as eligibility
criteria, scope of the article, application
procedures and deadline, and other
related matters. The MOEA will submit the
draft regulations to executive Yuan for
review and approval. Once approved, the
government bureau-in-charge will begin
to accept applications for the tax holiday
from qualified companies. The applications
may be filed to cover any new investments
made on or after 1 July 2008, until
31 December 2009.

Other measures
Tax free zone: for the first time in Taiwan’s
history, a physical income tax free zone
has been designated. The Statute for
International Airport Park Development
will allow companies in the airport park
to carry on international distribution,
including simple transformation of
products, and enjoy exemption from
Taiwan income tax, business tax (VAT)
and customs duties.
There are no restrictions as to the type
of products that can be processed in
the new Airport Park. Companies in the
semiconductor industry, for example, may

welcome this development as this may
help to remove the current tax exposures
associated with their distribution activities
in Taiwan.
Sales to Taiwan from the Airport Park are
limited to 10% of total sales turnover.

Customs importation regulations: the
cabinet is proposing to amend the customs
importation regulation to comply with the
harmonized system of the World Customs
Organization.

Tax rate changes

The extent to which transformation of
products may be carried on in the Airport
Park has yet to be clarified. Enforcement
rules of the new statute and relevant
guidelines will be released soon.

Corporate income tax

Rebates and refunds

Treatment of losses
(carrybacks, etc.)

Statute of limitation: : Article 28 of the
Tax Collection Act stipulates that the statue
of limitation is five years. Nevertheless,
a subparagraph added to Article 28
states that if the mistake or negligence
is attributable to the tax authority, the
taxpayer can apply for a tax refund without
a time limit.

Tax measures affecting
individuals
Estate and gift tax law: the legislative Yuan
amended the Estate and Gift Tax Law to
replace the progressive tax brackets (with
a top marginal rate of 50%) with a flat 10%
tax rate for both estate tax and gift tax.
The 2008 individual income tax brackets
have been changed.
The 2009 personal exemption and
deduction have been changed.

Tax policy reform
Statute for Upgrading Industries: the
prevailing Statute for Industries will cease
to be effective from 1 January 2010 and
a new legislation will be promulgated. The
new legislation will preserve the following
tax incentives: personnel training, R&D,
enterprise operation headquarter and
logistics center.
Individual income tax bracket rates: the
cabinet is currently drafting new legislation,
reducing the individual income tax bracket
rates of 21%, 13%, 6% to 20%, 12%, 5%,
respectively, and lowering the corporate
income tax rate from 25% to 20%.

The cabinet is currently working on a
proposal to reduce the corporate income
tax rate from 25% to 20%, although this has
not yet been approved.

Taiwan loss carryforwards now extended
to 10 years: in the current economic
situation, the Taiwan government
recognizes financial challenges that
Taiwanese companies may be facing. In
order to enhance their competitiveness in
operating in Taiwan and to retain a balance
between enterprises’ sustainability and
the ability to pay income tax liability, the
government has passed an amendment to
Article 39 of the Income Tax Act to extend
the loss carryforward period from five to
ten years. The amendment is applicable to
losses incurred in future years, as well as
in the tax year ended 31 December 2008
and unexpired losses carried forward from
taxable years ended December 2003 to
2007. The following criteria of eligibility for
the loss carryforward remain unchanged:
• Keeps a complete set of accounting books
• Files its tax return on time
• Files loss year tax returns with a special
filing form, or has the losses duly
certified by a certified public accountant
in Taiwan.
The new legislation will enable US
multinationals’ (MNC) loss -making
Taiwanese operations to reduce their
future income tax liabilities. As the
amendment may affect tax provision
calculations, US MNCs may need to
review their Taiwanese subsidiaries’
financial accounts for the year ended
2008 and to determine the impact of
the rules on the tax provisions.

Ernst & Young
Tax contacts
Taiwan
• ChiChang Hsu
chichang.hsu@tw.ey.com
Tel: +886 2 2720 4000 ext 2715
• Sophie Chou
sophie.chou@tw.ey.com
Tel: +886 2 2720 4000 ext 1610
• Alice Chung
alice.chung@tw.ey.com
Tel: +886 2 2720 4000 ext 2712
• Jennifer Williams
jennifer.williams@tw.ey.com
Tel: +886 2 2720 4000 ext 1688
US
• Sandy Chu
Greater China foreign tax desk,
based in New York
sandy.chu@ey.com
Tel: + 1 212 773 6721

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68

Turkey
Key changes reported
• Company tax measures
(other)
• Profit repatriation
regulations

No reported activity
• Accelerated depreciation
• Grants and incentives
• Industry-specific measures
• Interest deductibility
• Other measures
• Rebates and refunds
• Tax credits — new or
amended
• Tax measures affecting
individuals
• Tax policy reform
• Tax rate changes
• Corporate income tax
• Customs and duty
• VAT
• Tax treatment of debt
• Treatment of losses
(carrybacks, etc.)

Overview of measures to
reinvigorate the economy
Although a specific fiscal stimulus package
has not been passed in Turkey, a new law
passed in November 2008 aims to facilitate
the bringing in of certain unrecorded
assets, either located in or outside of
Turkey and owned by Turkish-resident real
and legal persons, by introducing beneficial
tax provisions for transferring these assets
into Turkey or having these assets recorded
in the formal sector. Law number 5811,
titled The Law on Bringing in Certain Assets
to the Domestic Economy, was published in
the Official Gazette and came into force on
22 November 2008.
A second significant measure of the law
also regulates the exemption of qualifying
foreign-sourced income of Turkish
residents, provided that conditions stated in
the law are met.
The major intention of the government in
the development of these measures is to
make additional liquidity available to the
economy during the economic downturn,
as well as overcoming the duality between
formal and informal sectors in the Turkish
economy.

Company tax measures (other)
Provisions on bringing in certain assets
to the Turkish domestic economy: as
the basic principle, the law foresees the
recording of some unrecorded assets in
the legal books of companies by payment
of taxes to be levied at certain rates on
the value of these assets. In return for the
declaration of such assets, the law protects
taxpayers from possible tax inspections and
tax reassessments related to the declared
assets, for financial periods before the date
of 1 January 2008. The law stipulates that:
• The unrecorded assets, located either
in or outside of Turkey, which are
owned by real or legal persons as of
1 October 2008, and which are in the
form of cash, gold, foreign currency,
securities, other capital market
instruments and immovable property,
were permitted to be registered
and declared from their market
values in Turkish lira until the date of
2 March 2009.
• Tax will be levied at the rate of 2% on the
value of declared assets that are outside
of Turkey and at 5% on the value of assets
in Turkey. The amount of tax is to be paid
by the end of the month following the
month the tax is levied.
• Paid taxes will be considered as
nondeductible and will not be allowed to
be credited from other tax liabilities.
• Qualifying assets that are found outside
of Turkey should be registered through a
bank or a financial institution or may be
declared to the tax offices. On the other
hand, assets that are located in Turkey
can only be declared to the tax offices.

69

Worldwide fiscal stimulus —
tax policy plays a major role

• Companies are obliged to book the value
of the declared assets in a special reserve
account in their balance sheets. For
the declared assets that are located in
Turkey, it is mandatory to contribute the
amount of the value of the assets to the
share capital in six months.
• For the assets registered and declared
according to the procedures explained
above, no tax inspections or tax
reassessments will be executed related
to the periods before 1 January 2008.
Values of assets declared in scope of
this law’s provisions will be permitted
to be credited against the reassessed
additions to tax bases of companies that
are computed by tax inspectors in the tax
inspections started after 22 November
2008 for reasons other than declaration
of these assets.
• No restriction, procedure or
documentation obligations have been
stipulated in the law for the purpose
of determining the market value of the
assets. The law only states that market
value is the sale price of the concerned
assets on the date of declaration, and it is
expected that this amount will reflect the
real value of the assets.
• The only constraint that should be taken
into account is the requirement to prove
the existence of foreign unrecorded
assets as of 1 October 2008. Although
no documentation will be requested
at the date of the declaration (except
for immovable property), if existence
of these assets cannot be documented
as of this date in case of a future tax
inspection, taxpayers will lose the benefit
of protection from tax inspections and
reassessments, which has been explained
above.

Profit repatriation regulations
Provisions on exemption on the foreignsourced income: qualifying foreign-sourced
income of Turkish residents is exempted
from corporate tax and income tax by this
law, provided that the income is transferred
into Turkey until certain dates. For the
purposes of this exemption, the term
“qualifying income” includes:
• Capital gains of Turkish residents arising
from the sale of shares of foreign
(nonresident) corporations
• Dividend income received by Turkish
residents from nonresident corporations
• Business profits derived by Turkish
residents through their permanent
establishments or permanent
representatives outside of Turkey
The exemption can be applied to the
above-mentioned income derived from
22 November 2008 until 30 April 2009 and
transferred into Turkey until 31 May 2009.
Furthermore, liquidation proceeds derived
by Turkish residents from a nonresident
entity from 22 November 2008 until
31 October 2009 and transferred into
Turkey until 31 October 2009 are also in
the scope of this exemption.
For the mentioned income to be exempted
in scope of this law, the only requirement
is to transfer them into Turkey until the
specified dates. No minimum holding
thresholds of the share capital, minimum
holding periods or minimum taxation
rates for the nonresident corporations are
requested.

Ernst & Young
Tax contacts
• Mustafa Camlica
Business Tax Services
mustafa.camlica@tr.ey.com
Tel: +90 21 2368 5233
• Erdal Calikoglu
Tax Policy Services
erdal.calikoglu@tr.ey.com
Tel: +90 212 368 53 75

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70

United Kingdom
Key changes reported
• Accelerated depreciation
• C
► ompany tax measures
(other)
• Grants and incentives
• I►nterest deductibility
• O
► ther measures
• Profit repatriation
regulations
• T
► ax credits — new or
amended
• Tax measures affecting
individuals
• T
► ax rate changes
• Corporate income tax
• Customs and duty
• VAT
• T
► reatment of losses
(carrybacks, etc.)
• Industry-specific measures

No reported activity
• Rebates and refunds
• T
► ax policy reform
• Tax treatment of debt

Overview of measures to
reinvigorate the economy
The United Kingdom has not deployed a
medium term stimulus package in the same
manner as some other countries. Instead,
the UK has introduced limited short term
measures to stimulate the economy
(primarily in the period to March 2010),
followed by considerable fiscal tightening
over the medium and longer term. This,
at least in part, reflects the unique and
reactive manner in which the UK has been
forced to respond to the downturn – in
particular, to bolster the banking sector –
requiring the Government to take on large
levels of debt that will take a number of
years (estimates suggest up to 2018) to
return to pre-economic crisis levels.
In response to the recession, the
government announced a range of
measures in the November 2008 PreBudget Report (PBR) and April 2009
Budget to stimulate economic activity and
boost aggregate demand. These measures
aim to “…smooth the path of the economy
in the short term while ensuring sound
public finances over the medium term…1”
Two important items of the PBR package
were a temporary reduction in the VAT
rate and the bringing forward of planned
government spending by two years, aimed
at ensuring the benefits of associated
increases in economic activity are felt in
the years when the shocks are likely to
be strongest. These measures, alongside
changes to the personal tax system and
certain indirect taxes, provide a stimulus
to the economy of £16 billion in 2009-10,
equivalent to about 1% of GDP, and are in
addition to measures totaling more than £9
billion in 2008-09. The April 2009 Budget
added a further £5 billion in stimulus for
2009-10, primarily for businesses

1

71

Worldwide fiscal stimulus —
tax policy plays a major role

HM Treasury Budget Report 2009

including through deferred business rates
payment and the extension of capital
allowances to 40%. In total, the PBR and
Budget packages provide a stimulus of
around £30 billion over the two tax years
from 2008 to 2010; followed by fiscal
tightening of almost £20 billion over the
two following years and rising eventually to
almost £40 billion a year.
Taken in isolation, the one off approach to
stimulus in the UK looks relatively minor in
comparison to targeted stimulus packages
announced elsewhere (ranging from about
1.5% in other European countries to about
3% in the US), but this should be seen in
the context of considerable expenditure
to shore up financial services in the UK,
including:
• More than £200 billion made available
to banks under the Special Liquidity
Scheme
• A
►	 bank recapitalization scheme to
address concerns about solvency of at
least £50 billion
• A
►	 government-established credit
guarantee scheme to address concerns
about funding of loans and mortgages
issued by banks and an asset purchase
scheme
• Hands-on
►	
action, such as the public
sector purchase of stakes in the Royal
Bank of Scotland and Lloyds TSB.
Prospects for economic recovery in the
UK, even allowing for the effects of the
stimulus package are predicted to be
modest, with growth slowing to less than
1% in 2008-09 and then a negative growth
forecast in 2009-10. Many commentators
are less positive about the forward picture
than the Treasury’s forecast but in any
event, the Treasury estimates the impact
of the credit crunch to be a contraction

of productive capacity in the economy of
about 6 1/2 % of national income (or about
£90 billion a year) in lost tax and increases
in social security spending2.

Other measures

Accelerated Depreciation

Green stimulus package: bringing forward
£3 billion of spending from 2010-11 to
2008-09 to support low-carbon growth
and jobs through energy efficiency, rail
transport and adaptation measures.

First year capital allowances increased for
one year from 20% to 40%, costing £1.7
billion in 2009-10.

Company tax measures (other)
Empty property relief: temporary increase
in the threshold at which an empty property
becomes liable for business rates.

Housing package: bringing forward £865m
of public spending from 2010-11 to
2008-09.

Department for Work and Pensions
(DWP) job center plus funding: more than
£2 billion increase split over 2009-10 and
2010-11.

Payment of backdated business rates bills:
businesses to be able to pay their liability to
backdated business rates for previous bills,
in equal, interest-free installments over
eight years, rather than immediately.

Grants and incentives
More than £250 billion support for the
banking sector (see introductory section).

Interest deductibility
Restricting tax-deductibility: the
government is introducing from 1 January
2010 a cap on interest deductability, set
with reference to the group’s consolidated
gross external finance costs, thereby
restricting tax-deductible interest to the
amount of interest paid by the worldwide
group.

Ernst & Young
Tax contacts
• Chris Sanger
Tax Policy Services
csanger@uk.ey.com
Tel: +44 (0) 20 7951 0150

2

HM Treasury Budget Report 2009

• Christine Oates
Business Tax Services
coates1@uk.ey.com
Tel: +44 121 535 2 466

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72

United Kingdom (cont’d.)
Profit repatriation regulations
Large company foreign dividend
exemptions: the government has
announced a participation regime that
would exempt foreign dividends received
by large companies, subject to various
anti-avoidance rules including on interest
deductions (as described above). This will
come into force from 1 July 2009.

Tax credits — new or amended
[See “Tax measures affecting individuals”
below.]
Bringing forward increases in the child tax
credit (£190 million in 2009 plus £140
million in 2010,) plus increases to the
child benefit (£170 million in 2008).

Tax measures affecting
individuals
Changes to the structure and levels of
income tax, the personal allowance, and
movements in the rates and thresholds
for employee and self-employed National
Insurance Contributions (NICs) provide
the most tangible changes for individuals,
and represent a fiscal loosening in
themselves of approximately £7 billion in
2009-10, after which point the changes
redistribute from higher up the income
scale to lower down, as a new 50% income
tax rate and removal of personal allowance
for high earners begin to take effect). The
measures which benefit individuals are, in
detail:
• Indexation of personal allowance and
basic rate limit: a £600 increase in
personal allowance in 2008.
• Increase in personal allowance in 200910 and 2010-11: a further £130 a year
to be added to the personal allowance in
2009-10 and 2010-11.

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Worldwide fiscal stimulus —
tax policy plays a major role

• Aligning the NICs primary threshold
with personal allowance in 2011-12: the
point at which individuals begin to pay
NICs is aligned with the higher amount at
which they begin to pay income tax.
• Payments to individuals: child benefit
and child tax credit increases; increasing
the pension credit above indexation; and
an additional January “bonus” payment.
These measures are funded primarily
from the withdrawal of personal allowance
reliefs for those earning over £100,000 a
year, a new 50% top rate of income tax for
those earning £150,000 a year and the
gradual restriction of tax relief for pension
contributions to the basic rate of 20% relief
for those earning over £150,000 a year. In
combination, these measures raise about
£7 billion a year from 2012-13.

Tax rate changes
Corporate tax rate
Small companies’ corporation tax rate:
the increase in the small companies’ rate
of corporation tax, from 21% to 22%, which
was legislated for in the Finance Act of
2008, will be postponed from 1 April 2009
to 1 April 2010.
Customs and duty
Vehicle excise duty (VED) — cars and
vans: deferral of increase in VED rate for
cars and vans announced at budget 2008.
Instead of a £15 increase this year, the
increase will be only £5.
Fuel duty: delaying a pre-announced
increase in fuel duty, of two pence per liter,
from April to December 2008. Fuel duty
escalator raises £3.5 billion over 2009-10
to 2011-12.

VAT
VAT rate reduction: the PBR confirmed a
temporary reduction in the standard rate of
VAT from 17.5% to 15%, providing a fiscal
loosening of £12.4 billion across the period.
The 15% rate will apply from 1 December
2008 to 31 December 2009, with the
standard VAT rate reverting to 17.5%
from 1 January 2010. There are no other
changes to any of the reduced VAT rates,
the zero VAT rates or VAT exemptions.

Treatment of losses
(carrybacks, etc.)
Loss carry-back: losses can currently be
carried forward indefinitely but can also be
set against profits of the preceding year.
For the two year period to 23 November
2010, the carryback will be extended from
one year to three but with a £50,000 cap
on the total amount that can be set against
profits of the two earliest years.

Industry-specific measures
Automotive industry
Budget 2009 announced a £300 million
boost to the car industry by introducing
a vehicle scrappage scheme, offering a
discount of £2,000 to consumers buying
a new vehicle to replace another, more
than ten year old vehicle (which they have
owned for more than twelve months). The
current announcement time-limits and
caps the cost of the scheme, ending by
the beginning of March 2010, or when the
£300 million fund is exhausted, if earlier.

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United States
Key changes reported

Overview of measures to
reinvigorate the economy

• Accelerated depreciation

On 17 February 2009, President Obama
signed into law the American Recovery
and Reinvestment Act of 2009 (the Act),
which has significant tax implications for
certain businesses and individuals. This
document highlights key tax provisions
and their implications across businesses
and industries. The Act contains US$787
billion of spending and tax relief; most of
which can be found in increased spending,
designed to create and save jobs through
government investment.

• Company tax measures
(other)
• Grants and incentives
• Industry-specific measures
• Other measures
• Profit repatriation
regulations
• Rebates and refunds
• Tax credits — new or
amended
• Tax measures affecting
individuals
• Tax policy reform
• Tax rate changes
• Corporate income tax
• Tax treatment of debt
• Treatment of losses
(carrybacks, etc.)

No reported activity
• Interest deductibility
• Tax rate changes
• Customs and duty
• VAT

The fiscal stimulus is combined with major
financial regulatory changes, including
the US$700 billion Troubled Asset Relief
Program (TARP), which has infused capital
into a number of financial institutions; a
new Term Asset-Backed Securities Loan
Facility (TALF) with US$200 billion of
lending on consumer loan securitizations;
the government takeover of Fannie Mae
and Freddie Mac, which is most of the
residential mortgage market; plus extension
of federal guarantees to money market
funds. In addition, the fiscal policy stimulus
follows aggressive monetary policy,
which has reduced the federal funds rate
to almost zero and includes significant
purchases of Treasury bonds and mortgagebacked securities.
The tax provisions of the legislation are
often cited as totaling over US$300 billion,
but in fact, many of them involve cash
payments, such as refundable earned
income and child tax credits which are
treated as government spending. Actual
tax collections will only decline — US$213
billion from the stimulus over the next 10year period.
United States fiscal year 2010 budget
The Obama Administration, on 26 February
2009, released an outline of its US$3.55
trillion fiscal year 2010 budget, which
proposes to eliminate some major corporate
tax provisions, make dramatic (but as yet

75

Worldwide fiscal stimulus —
tax policy plays a major role

unspecified) changes to the international
tax regime, and raise tax rates and limit
deductions for those in the top income tax
brackets beginning in 2011. In addition,
it provides for a permanent R&D credit,
now through 2010 of “tax extenders” and
a continuation of the 2001 and 2003 tax
rates for low- and middle-income taxpayers.
Details on the tax proposals are limited;
more detailed information is expected in
late April or May.
While from an overall standpoint, the 2010
budget is not of a stimulative nature, it does
propose expanding the temporary five-year
net operating loss carryback period (at a
cost of $63.5 billion in 2009 and 2010) to
businesses with revenues exceeding US$15
million.
Emergency Economic Stabilization Act
of 2008
On 3 October 2008, the Emergency
Economic Stabilization Act of 2008
(the Act) was signed into law. The Act is
designed to promote the stability of the
US financial system. A short guide from
Ernst & Young provides an overview of the
provisions and is available at ey.com/EESA.
Economic Stimulus Act — February 2008
The United States also passed the Economic
Stimulus Act in February 2008. The Act was
signed into law on 13 February 2008 by
President Bush and provided for tax rebates
to low- and middle-income US taxpayers,
tax incentives to stimulate business
investment, and an increase in the limits
imposed on mortgages eligible for purchase
by government-sponsored enterprises.
The total cost of this bill was projected at
US$152 billion for 2008. The Act contained
around US$116 billion of targeted
individual tax relief plus one year of bonus
depreciation. That stimulus provided some
increase in consumption, but a recent study
by academics at the University of Michigan
and the National Bureau of Economic
Research (NBER) found that only 20%
reported mostly spending the rebate, 32%

reported mostly saving the rebate, and 48%
reported mostly paying off debt with the
rebate.
The American Recovery and Reinvestment
Act (the Act) delivered tax-specific
measures across a broad range of taxes.
Below is an overview of the key measures
affecting corporations and industries. Full
coverage of the Act is available in a detailed
guide available from Ernst & Young at
ey.com/ARRA.

Accelerated depreciation
Extension of First-Year Bonus
Depreciation: prior law generally allowed
additional (bonus) first-year depreciation
of 50% of the adjusted basis of qualifying
property purchased and placed in service
in 2008 (2008 and 2009 for certain
transportation property). The Act extends
the availability of 50% bonus depreciation
to property placed in service during 2009
(2010 for certain transportation and
longer-lived property). To qualify, the
taxpayer must be the original user of:
tangible property with a recovery period
of 20 years or less; water utility property;
certain computer software; or qualified
leasehold improvement property, as defined
under Section 168(k)(3).
The extension is welcome news to owners
of office and other commercial real
property who generally incur significant
costs for qualified leasehold improvement
property. The power and utility industry
will likewise welcome the extension, as
sizable capital investments are typical for
that industry. Because the accelerated
depreciation deduction must be normalized
for rate-making purposes, regulated entities
will need to provide for the appropriate
deferred income tax and related rate base
reduction. To the extent bonus depreciation
creates a net operating loss, taxpayers may
be able to carry that loss back to prior tax
years and recoup taxes previously paid. The
benefit of bonus depreciation is limited for
companies in a loss position, if they are only
able to carryback two years. Combined with

a five-year carryback for smaller companies
($15 million of receipts or less), it could
provide needed cash benefits. The budget
proposal to expand the five-year carryback
to a wider range of companies would in turn
enhance the benefit of bonus depreciation
for many other companies.
For further information on accelerated
depreciation measures, please see
ey.com/ARRA.

Company tax measures (other)
Bonds
• RICs allowed to pass-through tax credit
bond credits
• Repeal of AMT limitations on tax-exempt
bonds issued in 2009 and 2010
• Temporarily expand industrial
development bonds to include creation of
intangible property
• De minimis safe-harbor exception for
tax-exempt interest expense of financial
institutions
• Build America Bonds
• Expand new clean renewable energy
bonds
• Expand qualified energy conservation
bonds
• Other bond provisions
One-year delay of 3% withholding on
government contracts
The Act delays, to 31 December 2011,
implementation of the requirement that
federal, state and local governments
withhold 3% of certain payments to
contractors providing goods or services,
which was scheduled to go into effect on
1 January 2011. The one-year delay gives
Treasury time to study the effects of the
requirement, which was designed to help
close the tax gap, but has been challenged
as excessive by some government entities
and small businesses.
For further information on this range of
measures, please see ey.com/ARRA.

Ernst & Young
Tax contacts
• Barbara Angus
Tax Policy Services
barbara.angus@ey.com
Tel: +1 202 327 5824
• Tom Neubig
Quantitative Economics and Statistics
tom.neubig@ey.com
Tel: +1 202 327 8817
• David Helmer
Business Tax Services
david.helmer@ey.com
Tel: +1 202 327 8355

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76

United States (cont’d.)
Small business
Greater exclusion for gain from qualified
small business stock (QSBS)
Temporary reduction of S corporation builtin gain recognition period
Temporary increase in Section 179
expense limits Section 179 allows
taxpayers to elect to fully expense the
cost of qualifying depreciable property
placed in service during the year in lieu of
taking depreciation. The Act extends the
deduction limit of $250,000 to include tax
years beginning in 2009. Otherwise, the
limit would have dropped to US$125,000
in 2009. That limit is still reduced dollarfor-dollar by any property placed in service
above US$800,000.
For further information on this range of
measures, please see ey.com/ARRA.

Grants and incentives
Department of Treasury grant program, as
alternative to renewable energy tax credits.
For further information on these grants and
incentives, please see ey.com/ARRA.

Industry-specific measures
See various entries throughout this
document.

Other measures
Unemployment compensation
modernization
COBRA premium subsidies
Other provisions
For further information on these other
measures, please see ey.com/ARRA.

Profit repatriation regulations
No profit repatriation measures were
included in the Act; however, on 3 October
2008, the Internal Revenue Service
(IRS) released Notice 2008-91, which
is intended to help taxpayers deal with

77

Worldwide fiscal stimulus —
tax policy plays a major role

near-term liquidity issues. Notice 2008-91
is a two-year elective provision that allows
controlled foreign corporations (CFCs) to
exclude from the definition of “obligation”
— and thus not include as an investment in
US property under Section 956(c) — an
obligation held by a CFC that is collected
within 60 days from the time it is incurred,
provided that all such obligations are held
for less than 180 days in the aggregate
during the year. A further refinement of
this guidance was released by the IRS on
2 February 2009 as Notice 2009-10.

Rebates and refunds
See entries under “Tax measures affecting
individuals”

Tax credits — new or amended
Election to accelerate recognition of historic
alternative minimum tax (AMT)/research
credits
Work Opportunity Tax Credit
Housing Credit Exchange Program
Extension of the renewable electricity credit
Election of investment credit in lieu of
production tax credits
Modification of Section 48 energy credit
New credit for advanced energy property
investment
Other tax credits
For further information on this range of
new or amended tax credits, please see
ey.com/ARRA.

Tax measures affecting
individuals
Making Work Pay Credit: for 2009 and
2010, the Act creates a refundable tax
credit of $400 for working individuals
and $800 for working families. The credit
is calculated at a rate of 6.2% on earned
income for 2009 and 2010 and phases out
for taxpayers with adjusted gross income

over US$75,000 (US$150,000 for married
couples filing jointly). Employers will deliver
the credit to their employees by reducing
their federal income tax withholding by the
amount of the credit as computed for the
periodic wage payment. Any portion of the
credit that is not delivered by the employer
through payroll checks as of 31 December,
would be claimed by eligible taxpayers on
Form 1040.
Increased individual AMT exemption
amounts: The Act increases the 2009 AMT
exemption amounts from:
• US$45,000 (US$69,950 in 2008) to
US$70,950 for married couples filing
jointly and surviving spouses
• US$33,750 (US$46,200 in 2008)
to US$46,700 for other unmarried
individuals
• US$22,500 (US$34,975 in 2008) to
US$35,475 for married individuals filing
separately
The increase is effective for only one
year. The AMT exemptions fully phase
out at US$433,800 of alternative
minimum taxable income (AMTI) for
married couples filing jointly and surviving
spouses; US$299,300 for other unmarried
individuals; and US$216,900 for married
individuals filing separately. The higher
AMTI phase-out amounts increase the
income range in which AMT taxpayers
would be subject to a marginal tax rate of as
high as 22% on capital gains and qualified
dividends (i.e., 15% plus (0.25 x 28%)).
American Opportunity Tax Credit
Motor vehicle purchase incentives
Expansion of first-time homebuyer credit
Other provisions
For further information on this range of tax
measures affecting individuals, please see
ey.com/ARRA.

Tax policy reform
The 2010 budget proposals provide a clear
indication that the new president will seek
to dramatically change tax policy in the US,
increasing taxes on high-income individuals
and corporations to pay for tax reductions
for low and middle-income taxpayers.
Modest business tax relief is included in
the proposals, with a focus on renewable
energy and R&D.

Tax rate changes
The 2010 budget proposes a significant
tax reduction in the form of lower tax rates
for low and middle-income taxpayers, with
higher tax rates for high-income individuals,
taking effect in 2011. The budget proposes
a significant broadening of the corporate
income tax base in 2011, without any
reduction in the corporate tax rate.

Tax treatment of debt
Deferral of discharge of indebtedness
income: generally, taxpayers must
include in gross income, cancellation of
indebtedness (COD) income. COD income
can be excluded in certain situations, such
as insolvency or bankruptcy of the taxpayer
and for “qualifying real property business
indebtedness.”
The Act allows taxpayers to elect to defer
COD income from business debt discharged
in 2009 or 2010 and include such COD
income in income ratably, 20% each year,
from 2014 through 2018. A repurchase of
debt for cash, for another debt instrument,
for corporate stock or partnership interests,
or through a contribution of the debt to
capital, as well as a complete forgiveness
of the debt by the holder, all qualify for the
deferral election. However, the deduction
of original issue discount (OID) in debt, or
deemed debt, exchanges generally is not
allowed before 2014, unless it exceeds the
amount of the COD income deferral.

A guide to understanding opportunities
and challenges in 24 key jurisdictions

78

United States (cont’d.)
For partnerships, the election must be
made at the partnership (or other passthrough entity) level. Deferred COD income
must be allocated to partners immediately
before the COD event, as if such income
had been allocated at that time. The
deemed reduction in outside partnership
basis under Section 752, resulting from
a COD event, is deferred, to the extent it
would trigger gain under Section 731, until
the COD income is taken into income.
For more information on the range of
measures related to the tax treatment of
debt, please see ey.com/ARRA.

Treatment of losses
(carrybacks, etc.)
Prospective repeal of Section 382 relief:
Section 382 limits a loss corporation's
ability to use prechange losses following
an ownership change. Prechange losses
include both loss carryforwards and builtin losses in the corporation's assets. On
30 September 2008, Treasury and the
IRS announced in Notice 2008-83 that
postchange deductions for losses on loans
or bad debts that are properly allowed to a
loss corporation that is a bank, immediately
after an ownership change, will not be
treated as built-in losses or deductions.
Thus, Section 382 would not limit the ability
to utilize such losses or deductions.
The Act repeals Notice 2008-83 on a
prospective basis for most ownership
changes occurring after 16 January
2009. However, it generally allows
institutions to apply the notice to ownership
changes occurring after 16 January, if
the ownership change was pursuant to a
written binding contract entered into on or
before that date, or a written agreement

79

Worldwide fiscal stimulus —
tax policy plays a major role

entered into on or before that date and
described on or before that date in a
public announcement or in a filing with the
SEC. Because the change is prospective
in nature, it does not require companies
that may have applied Notice 2008-83 to
ownership changes occurring before the
notice's issuance date to reevaluate those
transactions. Repeal of the notice, however,
will likely inhibit the take-over of certain
financial institutions, as a significant taxsavings opportunity has been removed.
Extended carryback period for small
business net operating losses
The Act permits eligible small businesses to
elect to extend from two years up to three,
four, or five years the carryback period for
an NOL for any tax year ending in 2008.
Eligible small businesses may also elect to
apply such extended a carryback period to
an NOL for its tax year beginning, rather
than ending, in 2008. Once made, this
election is irrevocable and applies only for
that one tax year. (Note: when applying
these elections to a consolidated group,
the common parent makes the election for
the group and the election binds all group
members.)
The Act defines an eligible small business
similarly to a Section 172(b)(1)(F)(iii)
“small business,” but increases the average
annual gross receipts test under Section
448(c) from $5 million to $15 million. For
this purpose, a business generally qualifies
as having $15 million or less in average
annual gross receipts if the average of its
annual gross receipts for the last three
tax years does not exceed $15 million.
Because the gross receipts test treats
controlled group members or entities under
common control (including corporations,

partnerships, and sole proprietorships)
as one person, a business that is part of a
controlled group of corporations or under
common control may need to look beyond
its own revenues to determine whether it
has averaged $15 million or less in annual
gross receipts over the last three tax years.
The president’s FY2010 budget proposes
expanding the temporary five-year NOL
carryback to other companies, which
could provide needed cash-flow benefits in
combination with bonus depreciation.
For further information on the extended
carryback period for small business net
operating losses, please see ey.com/ARRA.
Common implications among provisions
Tax accounting effects: the effects of
a change in tax laws on taxes currently
payable or refundable for the current year
should be reflected in the computation of
the annual effective tax rate beginning as
of the first interim period that includes the
enactment date of the new legislation. The
effect of a change in tax laws on deferred
tax assets or liabilities as of the beginning
of the fiscal year should be recognized as
a discrete event as of the enactment date
and should not be allocated to subsequent
interim periods by an adjustment of
the estimated annual effective tax rate.
Similarly, the effects of a change in tax laws
on taxes currently payable or refundable for
a prior year should be recognized as of the
enactment date.

State and local tax implications: passage
of the Act will affect state governments in
several ways. The clearest revenue effect
will come in the form of direct aid to the
states. The infusion of over $200 billion
in federal assistance to state and local
governments will enable them to reduce
spending cutbacks or tax increases during
the recession.
The other significant budgetary effect will
come as a result of the states’ conformity
to federal income as a starting point for
calculating state taxable income. In general,
states may approach this federal conformity
in one of several ways. Some states adopt
a "rolling" conformity date and, as such,
automatically conform to the latest version
of the IRC, while other states use a fixed
or static IRC conformity date, with still
other states taking a selective approach
by adopting only certain provisions. Some
of the provisions of the Act that will be
the most significant to the states include
the extension of the bonus depreciation
provisions and increased expense
limitations, the increased NOL carryback
period for small businesses, the deferral of
COD income, and the prospective repeal
of Notice 2008-83. Additionally, the
enactment of several energy-related tax
incentives may result in increased attention
to state energy incentives, while some
states may decide to adopt new tax credits
that are tied to the Act.

A guide to understanding opportunities
and challenges in 24 key jurisdictions

80

Ernst & Young contact list
Country contacts

81

Argentina		

Jorge Gebhardt			

+54 11 4510 2203		

jorge.gebhardt@ar.ey.com

			

Carlos Casanovas		

+54 11 4510 2270		

carlos.casanovas@ar.ey.com

Australia		

Trevor Hughes			

+61 3 8650 7363		

trevor.hughes@au.ey.com

			

Alf Capito			

+61 2 8295 6473		

alf.capito@au.ey.com

			

Howard Adams			

+61 2 9248 5601		

howard.adams@au.ey.com

Belgium			

Herwig Joosten			

+32 02 774 9349		

herwig.joosten@be.ey.com

			

Reginald Beyaert		

+32 02 774 9363		

reginald.beyaert@be.ey.com

			

Joris Draye			

+32 02 774 9539		

joris.draye@be.ey.com

Brazil			

Carlos S. Romero		

+55 11 2112 5268		

carlos.s.romero@br.ey.com

			

Romero Tavares			

+55 11211 254 44		

romero.tavares@br.ey.com

Canada			

Greg Boehmer			

+1 416 943 3463		

greg.c.boehmer@ca.ey.com

			

Jim Morrisey			

+1 613 598 4306		

james.a.morrisey@ca.ey.com

			

Bob Neale			

+1 416 943 2571		

robert.n.neale@ca.ey.com

China			

Owen Chan			

+852 2629 3388		

owen.chan@hk.ey.com

			

Becky Lai			

+852 2629 3188		

becky.lai@hk.ey.com

			

Joseph Lee			

+86 10 5815 3383		

joseph.lee@cn.ey.com

The Czech Republic

Libor Fryzek			

+420 225 335 310		

libor.fryzek@cz.ey.com

			

Ondrej Janecek			

+420 225 335 360		

ondrej.janecek@cz.ey.com

European Union		

Klaus von Brocke		

+49 89 14331 12287		

klaus.von.brocke@de.ey.com

France 			

Frederic Laureau		

+33 1 55 61 18 77		

frederic.laureau@ey-avocats.com

			

Charles Menard			

+33 1 55 61 15 57		

charles.menard@ey-avocats.com

Worldwide fiscal stimulus —
tax policy plays a major role

Country contacts
Netherlands 		

Anthony van der Wilden		

+31 10 406 8575		

anthony.van.der.wilden@nl.ey.com

			

Marnix van Rij			

+31 70 328 6742		

marnix.van.rij@nl.ey.com

Russia 			

Petr Medvedev			

+7 495 755 9877		

petr.v.medvedev@ru.ey.com

			

Maureen O’Donoghue		

+7 495 228 3670		

maureen.odonoghue@ru.ey.com

			

Alexandra Lobova		

+7 495 705 9730		

alexandra.lobova@ru.ey.com

Germany		

York Zoellkau			

+49 221 2779 25647		

york.zoellkau@de.ey.com

			

Ute Witt				

+49 30 25471 21660		

ute.witt@de.ey.com

Hong Kong		

Owen Chan			

+852 2629 3388		

owen.chan@hk.ey.com

Hungary		

Botond Rencz			

+36 1 451 8602		

botond.rencz@hu.ey.com

India 			

Sameer Gupta			

+91 22 6665 5000		

sameer.gupta@in.ey.com

			

Satya Poddar			

+91 11 4154 0000		

satya.poddar@in.ey.com

Ireland 			

Kevin McLoughlin		

+353 1 2212 478		

kevin.mcloughlin@ie.ey.com

Italy 			

Gerard Prinsen			

+39 0 2851 4225		

gerard.prinsen@it.ey.com

			
Maria Antonietta Biscozzi					
											
			
Marco Magenta			
+39 0285 14529		

maria-antonietta.biscozzi@it.		
ey. com
marco.magenta@it.ey.com

Japan 			

Yasuo Horikawa			

+81 3 3506 2417		

yasuo.horikawa@jp.ey.com

			

Hans Peter Musahl		

+81 3 3506 2087		

hans-peter.musahl@jp.ey.com

Singapore 		

Russell Aubrey			

+65 6309 8690			

russell.aubrey@sg.ey.com

			

Lim Gek Khim			

+65 6309 8452			

gek-khim.lim@sg.ey.com

A guide to understanding opportunities
and challenges in 24 key jurisdictions

82

Ernst & Young contact list
Country contacts

83

South Korea		

Jong Yeol Park 			

+82 2 3770 0904		

jong-yeol.park@kr.ey.com

Switzerland 		

York Zoellkau			

+49 221 2779 25647		

york.zoellkau@de.ey.com

			

Bernhard Zwahlen		

+41 58 286 6362		

bernhard.zwahlen@ch.ey.com

Taiwan 			
ChiChang Hsu			
							

+886 2 2720 4000		
ext. 2715

chichang.hsu@tw.ey.com

			
Sophie Chou			
							

+886 2 2720 4000 		
ext. 1610

sophie.chou@tw.ey.com

			
Alice Chung			
							

+886 2 2720 4000 		
ext. 2712

alice.chung@tw.ey.com

			
Jennifer Williams		
							

+886 2 2720 4000		
ext. 1688

jennifer.williams@tw.ey.com

			

Sandy Chu			

+1 212 773 6721		

sandy.chu@ey.com

Turkey 			

Mustafa Camlica			

+90 21 2368 5233		

mustafa.camlica@tr.ey.com

			

Erdal Calikoglu			

+90 21 2368 5375		

erdal.calikoglu@tr.ey.com

United Kingdom 		

Chris Sanger			

+44 (0) 20 7951 0150		

csanger@uk.ey.com

			

Christine Oates			

+44 121 535 2 466		

coates1@uk.ey.com

United States 		

Barbara Angus			

+1 202 327 5824		

barbara.angus@ey.com

			

Tom Neubig			

+1 202 327 8817		

tom.neubig@ey.com

			

David Helmer			

+1 202 327 8355		

david.helmer@ey.com

Worldwide fiscal stimulus —
tax policy plays a major role

Completing a guide of this scope was achieved by a committed team working in concert across
geographies and disciplines. We are grateful for the valued input of our tax professionals representing
the 24 jurisdictions covered in this guide. We also extend special thanks to Tim Graf and Rob Thomas
for their talents in creative vision and writing.

A guide to understanding opportunities
and challenges in 24 key jurisdictions

84

Ernst & Young
Assurance | Tax | Transactions | Advisory
About Ernst & Young
Ernst & Young is a global leader in assurance,
tax, transaction and advisory services.
Worldwide, our 135,000 people are united
by our shared values and an unwavering
commitment to quality. We make a difference
by helping our people, our clients and our
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For more information, please visit
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of member firms of Ernst & Young Global
Limited, each of which is a separate legal
entity. Ernst & Young Global Limited, a UK
company limited by guarantee, does not
rovide services to clients.
© 2009 EYGM Limited.
All Rights Reserved.
EYG no. DL0109
This publication contains information in summary form and is
therefore intended for general guidance only. It is not intended
to be a substitute for detailed research or the exercise of
professional judgment. Neither EYGM Limited nor any other
member of the global Ernst & Young organization can accept
any responsibility for loss occasioned to any person acting
or refraining from action as a result of any material in this
publication. On any specific matter, reference should be made
to the appropriate advisor.

About Ernst & Young’s Tax services
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