Daily Tax Update - April 23, 2009

SIGNIFICANT INTERNATIONAL TAX MODIFICATIONS IN 2009 UK BUDGET:  The Budget Notes issued as part of the UK Budget 2009 exceed 90 in number and set out numerous measures that are to be enacted. The long-awaited measures relating to the taxation of foreign profits and the treatment of interest are summarized below.

Taxation of Foreign Profits

  • After a long period of consultation the foreign profits package will be introduced in Finance Bill 2009 and will consist of (i) dividends and other distributions received from foreign companies will largely be exempt from corporation tax and UK distributions will be exempt to the same extent, (ii) finance expense payable by UK members of a group of companies will be subject to a cap equal to the consolidated gross finance expense of that group, (iii) the controlled foreign company exemptions and the acceptable distribution policy exemption will be removed, and (iv) the Treasury Consents rules (that requires approval from HM Treasury before certain transactions are undertaken) will be repealed and replaced by a post-transaction information-reporting requirement.
  • The most complex part of these proposals is the aspect which caps the tax deduction for finance expense payable by UK members of a group of companies to the consolidated gross finance expense of that group. Following consultation a number of changes are proposed to the draft legislation published in December 2008. These include (i) the way in which the net finance expense is calculated, (ii) the calculation of the consolidated gross finance expense, and (iii) introducing or amending a number of exclusions to deal with, for example, financial services, finance expense in respect of short term debt, group treasury companies and relatively small amounts of net finance expense.
  • The changes relating to dividends and distributions, controlled foreign companies and Treasury Consents apply from 1 July 2009 and the debt cap applies to finance expense payable in accounting periods beginning on or after 1 January 2010.
  • For additional information, contact Kassim Meghjeekmeghjee@steptoe.com or Philip R. West - pwest@steptoe.com

TAX BILLS INTRODUCED APRIL 22nd:
H.R.2022: To amend the Internal Revenue Code of 1986 to provide for tax preferred savings accounts for individuals under age 26, and for other purposes.
Sponsor: Rep Murtha, John P. [PA-12] (introduced 4/22/2009)      Cosponsors (6)

H.R.2023: To amend the Internal Revenue Code of 1986 to reform the estate and gift tax.
Sponsor: Rep McDermott, Jim [WA-7] (introduced 4/22/2009)      Cosponsors (None)

H.R.2024: To amend the Internal Revenue Code of 1986 to provide a credit against income tax to facilitate the accelerated development and deployment of advanced safety systems for commercial motor vehicles.
Sponsor: Rep Thompson, Mike [CA-1] (introduced 4/22/2009)      Cosponsors (11)

H.R.2037: To amend the Internal Revenue Code of 1986 to provide an exception to the reduction of renewable energy credit for certain authority under the Farm Security and Rural Investment Act of 2002.
Sponsor: Rep Herseth Sandlin, Stephanie [SD] (introduced 4/22/2009)      Cosponsors (1)

H.R.2045: To amend the Internal Revenue Code of 1986 to allow a deduction for expenses paid for household and dependent care services necessary for gainful employment and to increase, and make refundable, the credit for such expenses.
Sponsor: Rep Maloney, Carolyn B. [NY-14] (introduced 4/22/2009)      Cosponsors (2)

S.857: A bill to amend the Internal Revenue Code of 1986 to allow a $1,000 refundable credit for individuals who are bona fide volunteer members of volunteer firefighting and emergency medical service organizations.
Sponsor: Sen Schumer, Charles E. [NY] (introduced 4/22/2009)      Cosponsors (4)

S.860: A bill to amend the Internal Revenue Code of 1986 to provide a Federal income tax exclusion for assistance provided to participants in State student loan programs for certain health professionals.
Sponsor: Sen Nelson, E. Benjamin [NE] (introduced 4/22/2009)      Cosponsors (6)

S.864: A bill to amend the Internal Revenue Code of 1986 to expand tax-free distributions from individual retirement accounts for charitable purposes.
Sponsor: Sen Dorgan, Byron L. [ND] (introduced 4/22/2009)      Cosponsors (10)

S.870: A bill to amend the Internal Revenue Code of 1986 to expand the credit for renewable electricity production to include electricity produced from biomass for on-site use and to modify the credit period for certain facilities producing electricity from open-loop biomass.
Sponsor: Sen Lincoln, Blanche L. [AR] (introduced 4/22/2009)      Cosponsors (2) 

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

STEPTOE & JOHNSON LLP - TAX PRACTICE
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