handbook-tb

Tax incentives: protecting the tax baseis not determined by the amount of the investment. It consequentlydoes not provide a preference to capital-intensive investments.2.2.2 Implementation issues2.2.2.1 Initial compliance with qualifying conditionsThe first administrative issue is determining whether an investormeets the qualifying conditions. Some incentive provisions requireinitial approval or some other positive decision. For example, officialsmay need to determine that the investment is in a priority sector orthat prescribed employment or export targets will be met, or thatenvironmental requirements will be complied with. Generally, taxauthorities will require some form of written certification of qualification.A second type of qualifying condition requires what is essentiallya factual determination: for example, that the foreign participation ina joint venture exceeds a stipulated percentage, that a certain numberof new jobs have been created, that a particular capital investmentfalls within a category qualifying for accelerated depreciation, or thatimported equipment can be classified as “advanced technology.” Taxauthorities sometimes carry out this verification: otherwise, they canbe expected to require written confirmation from the appropriateauthority or department. A third type of condition requires a valuationof assets. For example, investors may be required to establish thatthe amount invested exceeds the minimum stipulated amount neededto qualify for a tax holiday, or that an investment qualifies for a taxcredit of a given amount.2.2.2.2 Reporting and monitoring continuing complianceConditions are sometimes attached to incentives that are relatedto ongoing performance — for example, requirements that a givennumber of jobs are maintained, or that a certain percentage of productionis exported, throughout the tax holiday period. Incentivesof this type require continual monitoring. Although this imposes anadditional administrative burden on authorities, it does have the meritof providing the host government with a reasonably accurate ideaof how an investment is performing. Without a formal monitoring475