PORTUGAL The Portuguese Parliament approves 2012 budget which implies changes to the Madeira Special Regime On track with the conditions set up by the so called ‘Troika’ (the EU, IMP and European Central Bank) regarding the economic and financial policies that Portugal must implement in order to qualify as a recipient of EU subsidies that will help them bail out of the current crisis, the Portuguese Parliament has just approved some changes to the Madeira special tax regime. Specifically, tax exemptions for dividend, interests and royalties payments are eliminated. As of January 1, 2012 the following withholdings will be applied to payments from Madeira to shareholders or third parties: Located within the European Union.  The holding-subsidiary EU directive and the 2003/49/CE directive applies; hence, no withholding applies for these cases.  Located outside the European Union but with a double taxation agreement with Portugal.  The withholding agreed in the treaty applies. Located outside the European Union and without a double taxation agreement.  A 25% withholding applies. Located in countries listed in the council  292/2011, published on 8 November, 2011 considered as ‘tax heavens’.  A 30% withholding applies. The IGMASA Management Group has alternative solutions available for shareholders of Madeira companies.   EUROPE The European Commission has proposed the unification of the corporate tax system On 16 March the European Commissioner for Taxation, Algirdas Semeta, proposed a system that would unify the method for calculating the corporate tax, based on 27 members of the European Union. It seeks to establish measures to harmonize legislation regarding income tax, focusing primarily on the elimination of deductions or bonus that may be available depending on the particular situation of each company.  Generally, this process would facilitate the management of companies with activities in several European Union countries, and hence would  not apply a different tax in each jurisdiction. At first sight, the proposed measures do not affect the tax rate each country applies to taxpayers. The authorities will be free to establish that rate in each jurisdiction, but this is important because unifies the criteria for applying this corporate tax. Although European officials have not addressed it explicitly, this amendment is the first step towards the harmonization of tax rates and elimination of tax competition of each member country.   ENGLAND Reduction of corporate tax in the UK British tax authorities approved the amendment of the corporate tax rate, reducing it from 28% to 26%. This measure will take into effect on April 2011. The reduction of one percentage point per year is also expected in the coming years; reaching a flat rate of 23% in 2014. This step was taken, as indicated by the tax authorities, to promote private sector business and economic activities, and thus, reduce unemployment.   BELGIUM Belgium legislation continues to attract foreign investment by means of attractive fiscal incentives  Tax regime for Patents: The law encourages technological innovation and promotes patent developments.  This law considers as Patents:  Internal Patents which the company has developed, totally or partially within its research and development centers, and holds title of it.  External Patents which the Belgium Company or its foreign subsidiaries have at their research and development centers.    The development or improvement of the patent may be sub-contracted to third parties (local or foreigners) that act on behalf the Belgium Company.  Income from copyrights, trademarks, and know-how is excluded from this deduction.  The deduction will be applied to income from license developments as well as royalties from sub-licenses. The above mentioned income benefits from an 80% deduction from the Belgium tax rate, resulting in an effective tax rate of 6,8%.    SPAIN Spain expands its double taxation treaties network Last year Spain signed the following treaties to avoid double taxation, all of them based on the OECD treaty model:  Costa-Rica:  This treaty was enforced on December 15, 2010.  It is relevant to highlight that its Protocol includes a most-favored nation clause which says that, in the event Costa Rica signs a tax treaty with a third party  where dividends, interests, or independent professional services have better terms, the same conditions will be applied to the treaty signed with Spain. Uruguay: The treaty was signed in October 2009 and will be enforced three months after its publication on the official bulletins of both countries.  It also follows the OECD model and it does not include Uruguayan special regime companies, such as SAFIS (for its initials in Spanish, Financial Corporation of Investments – ‘Sociedad Anónima Financiera de Inversión’) or IFES (for its initials in Spanish, Foreign Financial Institution – ‘Institución Financiera Externa’) Panama:  The treaty was signed on May 3, 2010 and at the moment is not yet enforced.  Panama leaves the Spanish list of tax heavens.  The treaty includes an information exchange clause. Spain’s international activities shows through the number of double taxation treaties signed which increases every year.  For example, other treaties that were enforced during 2009 and 2010 are: Serbia, Jamaica and El Salvador. Measures to ease and simplify the formation of companies El Real Decreto-ley 13/2010, de 3 de diciembre, regulates a new way of forming companies in Spain through internet.  This way, in a timeframe of 3 days, anyone may get a duly registered Spanish company. A reduction of these deadlines is expected for companies that choose standard articles of incorporation, previously approved by the Ministry of Justice, and given that the minimal share capital will be subscribed by the shareholders, and that the name of the company was also previously qualified as available, by the correspondent Registrar. The Spanish Official Bulletin publishes Real Decreto- Ley 13/2010, of December 3, regarding tax, payroll, and procedures to encourage investment and job creation   Among these measures, we highlight the following:  Amendment of article 108 of the Corporate Tax law Companies that do not exceed 10M Euros of turnover are now considered small companies, and qualify to all the tax incentives that up to now were limited to companies with less than 8 M Euros annually.  Equally important is the amendment foreseen to article 114 which sets in 300.000 Euros the maximum amount for applying for a reduced flat rate of 25% (before, it was 120.000). Amendment of ‘micro companies’ taxation  Companies that do not exceed 5 million Euros of profits with an average payroll of less than 25 employees, may benefit from a reduce tax rate of 20% up to  300.000 Euros of profit and 25% for the remainder of its taxable base.  Amendment of Capital Transfer tax All operations targeted to the formation, capitalization and company maintenance are exempted from the company operations tax, meaning: Company formation. Capital increases. Shareholders contributions which do not imply capital increases. Move the effective management or corporate domicile of company to Spain when none was previously located in a EU member country. The Council of Ministers approved Real Decreto-ley 6/2010, of April 9, which promotes economic recovery  and employment Among other measures, the Council agreed to decrease the VAT applicable to remodeling and improvements to first homes or its building. The good news is that this amendment applies also to companies or entrepreneurs that provide plumbing, carpentry, brick layering or related professional services.  The work or renovation must be done in buildings with more than two years old and the cost of the materials used can not exceed 33% of the total value of reform. In all these cases, the applicable VAT rate is 8%. This measure will be kept between July 2010 and December 31, 2012. As for the amendment of the Income Tax of Individuals taxpayers whose tax base is less than 53,007.20 per year, may deduct 10% of the amounts paid up to December 31, 2012 for works and improvements done during the period in its usual residence or building. The basis of this deduction is only applicable on the amounts paid by credit card, transfer, check or direct bank deposit to the professional entities carrying out the works. The maximum bases of this deduction will be: a) When the tax base is equal to or less than € 33,007.20 per year = 4,000 per year. b) When the tax base is between 33,007.20 and € 53,007.20 per year = € 4,000 less the result of multiplying by 0.2 the difference between taxable income and 33.007.20 per year. Other measures to reduce public deficit have been the establishment of a VAT increase in other cases not covered above. The law 26/2009 amends the VAT Act and provides a VAT increase of two points being 18% instead 16% the overall rate. For the general food, alcoholic drinks, hotels and restaurants the increase is of one point, from 7% to 8%. Staples such as rice, eggs, bread, fruits and vegetables are not affected by this measure.   URUGUAY Uruguay guarantees its exit from the OCDE Black list in 2011 In order to comply with its 2009 commitment with the OCDE, during 2010 the Uruguayan government have signed several agreements to take Uruguay out of the OCDE tax heaven black list. These agreements must include a tax information exchange clause, so that the OCDE would approve them. Following this line, Uruguay has signed double taxation agreements (DTAs) which include the information exchange clause with: Germany, Spain, Portugal, México, South Korea, Finland, Belgium, India, Luxembourg, Malta, Switzerland and  Liechtenstein; even though, not all of them are in forced as of today. Additionally, Uruguay also signed a tax information exchange agreement with France, which has also been recognized by the OECD, as well as the DTA signed with Hungary in 1988, but it does not include an information exchange clause. Changes to the Uruguayan tax reform approved on December 28, 2010 Law number 18,718, published on January 3, 2011, introduced some changes to the regime applicable to the individuals income tax. While Uruguay will continue applying the tax criteria according to the principle of territoriality or source, the new individual's income tax regulation is an exception to this criteria. It should be emphasized that the modification does not affect non-residents in Uruguay, who are not subject to this tax; but instead are subject to the Non-Resident Income Tax (IRNR) which has remained unchanged since the 2007 tax reform. It is worth noting Uruguayan law considers that a resident is anyone who stays in Uruguayan territory for more than 183 days annually or has his center of vital or economic interests in Uruguay. Previously, the individuals income tax affected income from Uruguayan sources only; meaning, income generated by activities, goods located or economic rights conducted in Uruguay.  At the beginning of 2011, with the enforcement of the new regulation, the income from deposits, loans, and generally any equity or credit position coming from non-resident entities will also be taxed, when caused by individuals resident in Uruguay.  The rate applicable to the income from foreign sources will be 12%.