The new income tax treaty and protocol between Canada and Mexico , signed on 12 September 2006, entered into force on 18 April 2007. The treaty generally applies from 1 January 2008. From this date, the new treaty generally replaces the Canada-Mexico income tax treaty of 8 April 1991, as well as the Canada-Mexico exchange of information treaty signed on 16 March 1990.

 

 

On 26 January 2007, the Russian Ministry of Finance issued a letter clarifying the taxation of remunerations paid to members of the board of directors of joint-stock companies.

 

Under Art. 64 of the Russian Law on Joint-Stock Companies, members of the board of directors of joint-stock companies may receive remunerations in accordance with the decision of the shareholders' general meeting. Remunerations for this purpose include, among others, bonuses and premiums.

 

Under Art. 270 of the Russian Tax Code, remunerations paid to directors or employees not provided under their labour contract are not deductible from the taxable income of the company. The letter clarifies that remunerations paid to members of the board of directors of a joint-stock company in accordance with the charter of the company are not deductible from the taxable income of the company for corporate income tax purposes.

 

According to Art. 236 of the Russian Tax Code, the uniform social tax paid by employers is payable in respect of employment contracts as well as civil law contracts. In respect of social security contributions, the letter clarifies that such remunerations are not taxable under the uniform social tax.

Under Art. 251 of the Russian Tax Code, assets, including money, transferred free of charge by a parent company to its subsidiary, or vice versa, are exempt from corporate income tax in the hands of the recipient, provided, inter alia, that the parent company holds more than 50% of the subsidiary's capital. On 30 March 2007, the Russian Ministry of Finance issued a letter clarifying that the exemption does not apply to the discharge of debt and that the relevant amount must be included in the debtor's taxable base. According to the Ministry, the discharge of debt does not constitute a transfer of assets and, therefore, the exemption cannot be claimed.

 

 

 

On 18 April 2007, the Danish government published a revised bill amending the Corporate Income Tax Act (L-213), as announced on 2 April 2007.

 

The bill covers the following:

 

–	reduction of the corporate income tax rate;
–	amendments to CFC legislation;
–	taxation of dividends;
–	taxation of shareholders;
–	limitation of deduction for interest expenses; and
–	reduction of depreciation for certain assets.

 

 

The US Internal Revenue Service (IRS) has published the text of a reciprocal agreement between the United States and the United Kingdom (on behalf of the Bailiwick of Jersey) for income from the international operation of ships.

 

The agreement sets out the conditions under which the United States will exempt from tax gross income derived from the international operation of ships by Jersey residents and corporations organized in Jersey . The agreement notes that this exemption is granted by Jersey to United States residents and to corporations organized in the United States .

 

Note. The agreement entered into force on 12 November 1997 and has effect with respect to taxable years beginning on or after 1 January 1997. However, the text of the agreement was recently released in IRS Announcement 2007-23 dated 5 March 2007.

 

 

The Minister for Enterprise , Trade and Employment made the European Communities (European Public Limited Liability Company) Regulations 2007 on 22 January 2007. These regulations provide an Irish legal framework for establishing a European Company in Ireland .

 

Armenia and Croatia initialled a first-time tax treaty on 15 March 2007, in Yerevan . Further details of the treaty will be reported subsequently.

 

 

On 14 March 2007, the Federal Cabinet adopted the Draft Bill initially issued by the Federal Ministry of Finance on 5 February 2007 with minor changes. The most important changes are:

 

–	the assumed fictitious interest percentage regarding rent and lease payments for movable business assets in terms of interest payments and financing costs that are not deductible from the municipal business tax base is reduced from 25% to 20%;
–	the new provisions in the Foreign Tax Act regarding the transfer of functions are brought more in line with OECD principles;
–	the retained income of partnerships distributed to fulfil inheritance tax obligations are not subject to the 25% taxation at distribution; and
–	the thin capitalization of a company within a group of companies results in the application of the interest barrier to all companies in the group.

 

Further changes are expected.

 

 

Russia's investment accumulated abroad totaled $7,275 billion at the end of 2005. Some $31,1 billion in foreign investments was transferred from Russia abroad during the year, 7,8% less than 2004, the Federal State Statistics Service (Rosstat) reported. Among major countries that received Russian investments were Cyprus ($1,132 billion, or 15,6% of the total volume), the Bahamas ($651 million, or 9%), the Netherlands ($607 million, or 8,3%), Ukraine ($516 million, or 7,1%), the USA ($440 million, or 6%), Austria ($432m, or 5%), Great Britain ($ 397 million, or 5,4%), Iran ($347 million, or 4,6%), Gibraltar ($304 million, or 4%) and Lithuania ($275 million, or 3,8%).

None of the sectors of Russian economy will suffer as a result of the country's accession to the WTO. A relevant study to the World Bank has shown, that already a few years a few years after the accession, the Russian economy will be getting an additional $19 billion a year, said Alexei Portansky, director of the information bureau for Russia's accession to the WTO. Nevertheless, Olga Belenkaya, an economist of the Finam investment company, considers that in the short term, Russia's WTO entry would lead to a loss by Russian companies of a considerable share in the domestic market as a result of a large-scale emergence of foreign companies with better quality goods and a lower production cost.

The volume of initial public offerings (IPO) in Russia could reach $4 billion—$6 billion in 2006 if forecasts by investment bank analysts turn out to be true, Alexei Rybnikov, MICEX (Moscow Interbank Currency Exchange) general director, said at a press conference on Tuesday.

Investment banks said Russian companies could hold IPOs for a total of $15 billion—$20 billion, he said. “This means, taking into account new Federal Financial Markets Service (FFMS) regulations, that $4 billion—$6 billion could be placed in Russia,“ Rybnikov said.

The Justice Ministry registered a FFMS resolution in the middle of February according to which at least 30% of the proposed IPOs should be placed in Russia.

New amendments remove inaccuracy occurred from the moment of introduction of amendments to the Tax Code pursuant to adoption of the Federal Law on the special economic zones of the Russian Federation. According to the amendments, from January 1, 2006, the list of documents necessary for the confirmation of the reasons of application of the 0% VAT rate must be extended to include those confirming the fact of supplies of commodities to the resident of the special economic zone. This list includes, in particular, the contract with the resident of the special economic zone, payment documents for the commodities, copy of the certificate of registration of the entity as a resident of the special economic zone and other. The presence of such provision did not permit taxpayers to apply the VAT exemption.

The Federal Law specifies that the mentioned documents must be presented only if placing the commodities under the customs regime of the free customs zone.

Besides, the Law refines the procedure of application of the VAT exemption for capital construction for objects where construction began before January 1, 2006. The given rectification provides for opportunity of application of the mentioned exemption only in case of an actual payment of the value added tax, preventing from unmotivated reimbursement of VAT amounts in 2006.

The Federal Law is entered into force no sooner than one month after the day of publication and no sooner than the 1st of the subsequent tax period for the value added tax. The mentioned amendments apply to legal relations emerging from January 1, 2006.

Foreign investment in the Russian metals industry came to $3.42 billion in 2005, the Federal State Statistics Service said. This included $173 million in direct investment, $8 million in portfolio investment and $3.239 billion in other investments.

Britain invested $650 million, the Netherlands $450 million, France $399 million and Cyprus $348 million. Foreign investment in Russia's economy as a whole last year came to $53.651 billion.