Two developments in mainland China will have a far-reaching impact on many financial institutions investing in or carrying on activities in the country:

• The new Enterprise Income Tax Law (New Law), which becomes effective January 1, 2008, will replace existing tax laws and regulations governing domestic enterprises, foreign enterprises and foreign-invested enterprises.
• Circular GuoShuiHan, issued by the State Administration of Taxation (SAT Circular) in April, provides guidance on the interpretation of the China-Hong Kong double tax arrangement that entered into effect on January 1, 2007, as applied to mainland China.

This article highlights various areas where financial institutions might be affected by the New Law and the SAT Circular, and what steps can be taken to mitigate some of the risks.

Also in this issue:

• Hong Kong
  - Court of Final Appeal rules on source of profits, clarifies agency rule
• Australia
  - Proposed changes to tax consolidation rules may affect M&A transactions
• European Union
  - French annual real estate tax exemption violates EC treaty
• European Union
  - ECJ rules Hungarian HIPA may continue to be applied
• European Union
  - Commission to investigate Spanish goodwill amortization rule
• France
  - Capital gains taxation of sale of shares in real estate companies to be increased
• Hong Kong
  - IRD issues advance ruling on restricted and deferred stock plans
• Iceland
  - New Iceland-U.S. treaty signed
• Indonesia
  - Proposed tax incentives for publicly listed companies may be changed
• Ireland
  - Guidance issued for overseas employees working temporarily in Ireland
• Italy
  - Budget 2008 includes major changes for company taxation
• Japan
  - Business outline report increases filing burden
• Korea
  - Changes proposed to anti-abuse, thin cap rules
• Luxembourg
  - Protocol to treaty with France closes loophole
• Luxembourg
  - Capital duty to be reduced
• Namibia
  - Withholding tax on interest to be introduced
• Norway
  - Major changes announced to shipping company taxation
  - Budget 2008 targets investments into low tax jurisdictions
• Rwanda
  - Transfer pricing rules issued
• Singapore
  - Treaty with Qatar enters into effect
• Switzerland
  - Parliament considering major changes to Swiss taxation
• Taiwan
  - Employee profit sharing to be treated as company expense
  - Thin cap rules may be introduced
• Thailand
  - Additional deduction granted for new investment
• United Kingdom
  - Pre-budget report contains few international tax changes
  - VAT tribunal finds insurance web site is VATable
• United States
  - U.S. and U.K. cmpetent authorities define “first notification” under MAP
• Venezuela
  - Tax on financial transactions introduced

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