International Structuring & Planning GroupPhilip Parr

© 2015 Moore Stephens LLP

Executive summary

• Develop best practice for cross border tax

• Develop products and opportunities

• BEPS compliance structures taking advantage of low rates and incentives

Bespoke tax planning

• Low rather than no tax.

• Avoid double taxation

• Irrecoverable withholding tax

• “Black List” punitive withholding taxes

• Countries with wealth taxes.

• Focus on basic tools

Bespoke tax planning

• No/low withholding taxes on

• Dividends

• Interest

• Royalties

• Effective capital gains planning

International Tax Planning

Objectives

General aim:

Reduction of the group’s tax burden

Mechanisms

Planning group structure Optimizing the tax baseMitigating a realization of

built-in gains

Ensuring a tax efficient group

structure

Income shift to more tax efficient

jurisdictions / expenses allocated to

potentially high taxed jurisdictions

Elimination or deferral of a

realization of capital gains upon

internal reorganisations

International Tax Planning

Instruments

• Planning group structure

• Instruments

- Utilization of tax rate spreads

- Minimization of WHT

- Eligibility for DTT benefits

- Utilization of tax subsidies

- Application of tax consolidation regimes

- Tax efficient exit/inheritance taxation

International Tax Planning

Instruments (Cont’d)

- Tax efficient cost deduction

- Mitigation of CFC issues

- Local holding companies/ regimes

- Specific legal (e.g. Dutch Coop) or tax regimes (e.g. “check-the-box”) and/or legal structures (corporate vs partnership investment)

International Tax Planning

Instruments

• Optimizing the tax base

• Instruments

- Leveraging/financing (e.g. debt push down, thin cap limitations

- Royalty payments

- Transfer pricing, e.g. allocation of functions and risks

- Loss utilization

International Tax Planning

Instruments

• Mitigating a realisation of built in gains

• Instruments

- Avoidance or deferral of a realisation of built in gains (e.g. use of domestic participation exemption regimes or roll-over reliefs)

Tax considerations▪ Realization of license

income in low tax

jurisdictions, e.g.

Ireland

Switzerland (IP box)

the Netherlands

(patent box)

Luxembourg (IP tax

regime)

Intellectual

property

International Tax Planning

General tax planning considerations

Financing Transfer pricing

Tax considerations▪ Low effective tax, e.g.

Ireland (12.5%)

Dutch interest box

Luxembourg

(taxation of interest

spread)

▪ Deferred income

realization (Ireland -

taxation on cash

proceeds rather than

accrual basis)

Tax considerations▪ Sales structures

Buy-and-sell

Commissionaire

Agent

▪ Production

Producer

Toll manufacturer

▪ Services

Business services

Management services

Service pool

Shared service centre

Warehousing

▪ Allocation of functions

and risks

▪ Determination of

appropriate TP

methodology

▪ Ownership: resident / non-resident taxation

▪ Target: asset deal vs share deal; majority vs minority share

▪ Group structure planning

▪ Funding (interest barrier rule/ debt push down) / tax planning

▪ Due Diligence / Valuation / tax modeling / SPA / Structuring

Acquisition

Investment Cycle

Areas of tax aspects

Holding/ Restructuring

Exit

▪ Ongoing corporate taxation

▪ VAT/CFC exposures

▪ Group (tax) structure/ business model optimization

▪ Cash flow and repatriation

▪ Add-on acquisitions

▪ Sale (asset vs share deal) / capital gains taxation

▪ Cash repatriation / mitigation of WHT leakage

Tax risk profile and

planning the group

structure

Mitigation of tax

leakages

Mitigation of tax

leakages

Is Ireland a bad APPLE?

European Commission’s (EC) State aid

investigation of Apple in Ireland

• EC concluded that two tax rulings issued by Ireland to Apple have substantially and artificially lowered the tax paid by Apple in Ireland since 1991.

• Deemed to be State aid.

• Ireland has been instructed to recover up to €13 billion plus interest from Apple covering a ten year period.

What Apple had to say…

“It’s total political crap”

Tim Cook, CEO Apple Inc., 2016

“Any ruling that is inconsistent with international tax standards…isinherently unfair and encroaches on US tax Jurisdiction.”

Orrin Hatch, Chairman, U.S. Senate Finance Committee, 2016

What the United States had to say…

What the former EU Competition

Commissioner had to say…

“This decision is fundamentally unfair . EU member states have a sovereign right to determine their own tax laws and State aid cannot be used to rewrite those rules .”

Neelie Krooes, Former EU Competition Commissioner, 2016

What Ireland has to say…

" The decision is bizarre and it's an exercise in politics by the Competition Commission”

Michael Noonan, Minister for Finance of Ireland, 2016

Despite the EC decision…

Why are Apple and Ireland appealing the

EC decision?

Corporate residency rules

• Ireland taxes companies based on where the company ismanaged and controlled.

• The United States taxes companies based on place ofincorporation.

These residency rules were available to all companies and were usedby numerous companies for decades as part of global tax structuring.

State aid

• Aid granted by a State which gives an advantage to specific orselective taxpayers.

Sovereign right

• EU member states have a sovereign right to determine theirown tax laws.

Base Erosion and Profit Shifting (BEPS)

Key Aims

• Greater alignment of taxable profits and the location of economic substance, while preventing double taxation.

• Increasing the transparency of corporates’ tax affairs through Country-by-Country Reporting and the automatic exchange of information between tax authorities.

• Re-design of transfer pricing principles which will reform the way in which profits are allocated within corporate groups.

Base Erosion and Profit Shifting (BEPS)

• Re-design of preferential IP regimes to ensure that there is a direct link between the qualifying income and the location of the underlying R&D activities.

• Addressing tax relief on financing and interest payments.

How will Tax Reforms impact Companies?

• Operating models must ensure alignment between profits earned globally and the substance or activities creating those profits.

• Required to disclose key business information on a country-by-country basis which will be shared between tax authorities across the world.

• Re-design of the transfer pricing principles will require a closer alignment of profits with the location of economic value creation. Scope of transfer pricing documentation has also been broadened.

• Income from intangibles will be determined based on where the development, enhancement, maintenance, protection and exploitation functions are carried out.

How will Tax Reforms impact Companies?

• New Modified Nexus Approach for patent / innovation boxes means that companies wishing to avail of these preferential IP regimes need to review the way in which a company’s R&D is performed, who performs it and where the resulting IP is held and managed.

• Lower thresholds will now apply to PEs and it is more likely that some activities carried on in a country will create a tax presence in that country.

PLUS

What‘s left to play with...?

• Utilization of domestic tax rates

• Favorable repatriation of profits

• Tax efficient supply chainmanagement

• Tax deferral techniques

• Leveraging entities

• Tax exempt step up

Utilization of Domestic Tax Rates

Basic Structure

Low tax

country

High tax

country

Customers

Customers

25

Favourable Repatriation of Profits

Basic Structure

MNE

(EU) HoldCo*

26

Dividends

Subsidiary

DividendsRoyalties

Royalties

* (EU) HoldCo must have substance

Tax Efficient Supply Chain Management

Basic Structure

27

MNE

R&D

Strategy &

Key-Function

Operating

R&D

Entity

Substance

(no letter box)

low tax

R&D

ServicesCost +

High Tax

BEPS compliant location of IP in low tax countries

MNE

SSC-type

e.g. purchasing and

accounting

Subsidiary 1

Substance

(business)low tax /

low wage

Shifting functions

BEPS compliant supply chain optimization by centralizing

functions in low tax / low wage countries

Subsidiary 2

high tax /

high wage

Cost + Services

Tax Deferral Techniques

Basic Structure

Impact of BEPS?

> A-Co (residing in Country A)

gives a loan to its wholly owned

corporate subsidiary B-Co

(residing in Country B).

> Country A uses cash receipt

based tax rules.

> Country B operates on an

accruals basis.

> Any interest triggered but not

paid until maturity result in an

expense in Country B but no

taxation in Country A (taxation

in Country B at the time of the

receipt of the payment.

A-Co

B-Co

Interest

28

loan

0

-

Leveraging Entities

Basic Structure

Thin-cap rules to be monitored

Impact of BEPS?

Low tax

country

High tax

country

29

Interest

+

-

Tax Exempt Step Up

Basic Structure

Impact of BEPS?

> A-Co (residing in Country A)

transfers an asset at book value

to B-Co (residing in Country B).

> Country A applies the book

value to the asset transferred.

> Country B’s rules allow the

capitalization of the asset

received at fair market value.

A-Co

B-Co

30

Transfer of

asset

Tax Advantages - Unique Selling Points (USPs)

Standing out from the crowd

Germany USPs

• Tax-consolidated groups are permitted if the controlling company has the majority of voting rights in the controlled company and if a profit transfer agreement has been concluded for at least 5 years (offset profits/losses).

• In Principle, reorganizations can be realized tax neutral on the basis of a special Tax Act.

• Interest costs are fully deductible only up to the amount of the interest income. Interest costs exceeding the interest income can only be deducted in the amount of 30 per cent of the fiscal EBITDA.

Netherlands USPs

• Extensive investment treaty network.

• No withholding tax on interest and royalties.

• Innovation box: Income allocated to intangible assets is taxed at an effective tax rate of 5% but may not be as broad as the R&D-regimes of other countries.

• Long standing ruling practice: i.e. Advance Tax Rulings and Advance Pricing Agreements.

Belgium USPs

• Patent income deduction (currently: 80%): This was abolished from 30 June 2016 but provides for a grandfathering period until 30 June 2021.

• Advance Rulings. An advance decision that is issued within 3 months and is legally binding for up to 5 years.

• No capital duty.

• No net wealth tax.

• Flexible thin cap rules.

• Notional interest deduction on equity (rate: 1.131 for 2016 – 1.631 for SMEs) - allows companies to deduct a specific percentage of their “adjusted” equity capital from taxable profits.

United Kingdom USPs

• Competitive corporate tax rate: currently 20%, falling to 19% from 1 April 2017 and 17% from 1 April 2020.

• Extensive double tax treaty network, (over 130 countries).

• Generous exemption rules for dividendincome.

• No UK withholding tax on dividend payments to shareholders.

• No tax on disposal of shares in trading companies, (minimum 10% interest held for more than 12 months).

Ireland USPs

• 6.25% corporate tax rate on Knowledge Box Activities (already fully BEPS compliant).

• 12.5% corporate tax rate and possible corporation tax exemption for the first 3 years.

• No tax when an Irish holding company disposes of shares in a trading subsidiary company resident in the EU or a tax treaty country.

• Significant tax reliefs for Intellectual Property.

• Potentially no withholding tax on patent royalty payments to non treaty countries.

• 25% corporate tax credit for Research and Development in addition to 12.5% trading deduction.

• No withholding tax when distributing profits out of Ireland to EU or DTA countries.

• No tax on dividend income - credits / underlying tax credits relief.

• No CFC rules, no Thin Cap rules.

Contact Details

Eoghan Bracken

International Tax and FDI

Tax Group

Moore Stephens

T +353 (0)1 8881004

E eoghan.bracken@moorestephens.ie

Ulysses House | Foley Street | Dublin 1 | Ireland

Investment in German Real EstateSupporting presentation title

© 2015 Moore Stephens LLP

September 2016, Warsaw

Wolfgang Löhr

Tax parameters and criteria for

structuring the investment (1)

• The German tax burden is in certain aspects depending on the classification of the investor for tax purposes (no tax neutrality of the legal form – separate taxpayers vs. tax transparent entities)

• Importance of existing double tax treaty for tax planning

Tax parameters and criteria for

structuring the investment (2)

• Relevant taxes

– Taxes on income

– Personal income tax (progressive rates 14 – 45 %)

– Church tax (8 – 9 % on the personal income tax)

– Corporate income tax (flat rate 15 %)

– Solidarity surcharge (5.5 % on personal or corporate income tax)

– Municipal trade tax on income (13 – 17.5 % depending on municipality)

– Real estate transfer tax: 3.5 % up to 6.5 % of the price or value of a transaction; can be optimized under certain requirements by selling shares instead of real estate properties

Tax parameters and criteria for

structuring the investment (3)

• Special issues of municipal trade tax on income:

– Applicable tax rate depends on municipality (13 – 17.5 %)

– Trade tax is not applicable for foreign entities as long as a place of management or a permanent establishment in Germany can be avoided

– Fundamental exemption from tax for the real estate business:

– Taxpayers who exclusively receive income (rent and capital gains) from the pure administration and use of their own real property and/or their own capital investments are exempt from trade tax on income

– No renting out of operating facilities or movables besides real properties

– No rendering of commercial services and no commercial real estate trading

– The above will in many cases give rise to an “isolation” of preferential income in special purpose entities (separation of business and investment income)

– The exemption is not applicable where the real property is used for the business of a shareholder

Typical investment structures used by

foreign investors (1)

Individual(s) Corporate Investors

Luxembourg SARL

(“economic substance”)place of effective management

country of residence for tax purposes

unlimited tax liability

all local functions outsourced

source country for tax purposes

limited tax liabilityReal Estate

tax burden: real estate transfer tax: 3.5 – 6.5 %

rental income/capital gains: 15.825 %

restrictions on debt financing: 30 % EBITDA

(threshold EUR 3.0 million)

no trade tax on income if properly structured

and/oror

real estate ownership: 100 %

Typical investment structures used by

foreign investors (2)

Individual(s) Corporate Investors

Luxembourg SARL

(“less economic

substance”)place of effective management

country of residence for tax purposes

unlimited tax liability

all local functions outsourced

source country for tax purposes

limited tax liability (KG)

Unlimited tax liability (GmbH) Real Estate

tax burden: real estate transfer tax: 3.5 – 6.5 % or 0 %

rental income (GmbH): 15.825 %

dividends (KG): 1.5 %

restrictions on debt financing: 30 % EBITDA

(threshold EUR 3.0 million)

no trade tax on income if properly structured

and/oror

limited partner 100 %

Property Holding

GmbH & Co. KG

German Property

GmbH

Typical investment structures used by

foreign investors (3)

Individual(s) Corporate Investors

Luxembourg SARL

(“economic substance”)place of effective management

residence for tax purposes

unlimited tax liability

place of effective management

resident for tax purposes

unlimited tax liability

Real Estate

tax burden: real estate transfer tax: 3.5 – 6.5 % or 0 %

rental income/capital gains: 15.825 %

restrictions on debt financing: 30 % EBITDA

(threshold EUR 3.0 million)

no trade tax on income if properly structured

and/oror

100 %

German Property

Holding GmbH

dividends