INDONESIA jailed an oil company executive because his company failed to pay the proper amount of taxes.

The action is a warning to senior corporate executives in other countries.

This is the first detention under a regulation announced in July 2003 that allows the jailing of delinquent taxpayers owing taxes of more than 100 million rupiah — or about $12,000 — for up to one year without trial, reports Hilton King with Makarim & Taira S. in Jakarta.  The amount of taxes in this case is about $5 million.  The executive — a British citizen — works for a Canadian company, Fortune Oil & Gas. “There are supposed to be dozens of other persons, including more expatriates, that will be made subject to a detention order if their taxes are not paid,” King said.  It is not unusual in developing countries for companies to fail to declare their incomes fully to preserve some bargaining room because of the habit of tax inspectors to “negotiate” over the amount of taxes payable.

ITALY is replacing its corporate income tax.

Starting on January 1, corporations will be subject to tax at a flat rate of 33%.  Italy is adopting a “check-the-box” system that will allow taxpayers to elect to treat certain companies as transparent for tax purposes.  Companies will have the option of filing consolidated returns with Italian affiliates or even filing a worldwide consolidated return that includes affiliated entities that are outside Italy.  Unused foreign tax credits may be carried backward and forward for the first time.  There are also new “thin capitalization” tests that will limit the ability of parent companies to “strip” earnings from Italian subsidiaries by injecting capital into the subsidiary heavily as debt so that earnings may be pulled out in the form of interest.

PERU will collect a 0.15% banking transaction tax starting January 1.  However, banks will have until February 1 to comply.  Details were published in the official gazette on December 5.

HUNGARY will impose a new tax on electricity and gas sales starting January 1.

The tax is HUF 186 per megawatt hour of electricity and HUF 56 per gigajoule of natural gas.  It must be paid by energy distributors and traders on sales to commercial and industrial customers who consume more than 6.5 gigawatts of electricity a year or more than 500 cubic meters per hour of gas.  The tax is expected to raise HUF 11 billion in 2004, or a little under $49 million.

The Hungarian parliament also voted to cut the corporate tax rate from 16 to 14%.

GREECE said in October that it will cut the corporate tax rate from 35% to 25% on investments of more than 30 million Euros in an effort to attract foreign investors.  An investor will benefit from the reduced rate for 10 years.

BRAZIL increased a social security tax called COFINS from 3% to 7.6% by presidential decree in October.  At the same time, it decided to eliminate an 5% excise tax, called IPI, on purchases of machinery and equipment.  The IPI tax will be gradually eliminated starting January 1 under a timetable still to be determined.

BULGARIA cut its corporate tax rate to 19.5%, effective January 1.

LUXEMBOURG is preparing to subject certain holding companies formed under Luxembourg law to corporate income taxes.

The change will apply to “1929 holding companies.” These are often used by multi-national corporations to own foreign operations.  They had been exempted from tax in Luxembourg on income.  The finance ministry released a draft bill in early November that would subject such holding companies to tax in the future in situations where at least 5% of dividends received from their subsidiaries are taxed at less than an 11% effective rate in the country from which the dividends were paid.

The change will apply from January 1.  However, existing 1929 holding companies will be exempted until January 2011.

 

Keith Martin