Post on 18-Jul-2015
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Key Factors in Structuring Cross-Border
Corporate Acquisitions
A review of 2014 and a foretaste of 2015Roy Saunders, IFS Consultants
December 10 12:00 – 12:45 GMT
The dramatic changes in 2014
• BEPS
– Issue of double non-taxation is targeted
– Treaty network built on the assumption that profits are taxed in one country
– Concentration on Deliverables.
– Certain financing structures will cease to be effective (hybrid financing).
– Transfer Pricing, CbC Reporting.
• US Corporate Inversions.– Greatest number ever.
– US worldwide approach vs Territorial approach of UK and Ireland
• State Aid attacks by the EC– Luxembourg whistle blower.
– Apple, Amazon, Starbucks and Fiat challenged
• But - developing nations will go their own way.– More source taxation, or something close to it
– The management of double taxation?
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BEPS and the OECD approach
• First Seven Deliverables—September 16, 2014
– Digital Economy Report
– Hybrid Mismatch Arrangements
– Review of Harmful Tax Practice Regimes
– Preventing Treaty Abuse
– Addressing TP aspects of Intangibles (Phase 1)
– Addressing TP documentation
– Multilateral Instrument Report
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State Aid Investigations
• State aid:– Any aid granted by a MS / through State resources– Which distorts / threatens to distort competition– By favouring certain undertakings / goods
• Recent Investigations– Gibraltar: Rulings– Ireland: Alleged help to Apple– Luxembourg: Alleged help to Fiat– Luxembourg: Amazon– Netherlands: Starbucks
• Effect:– States might withdraw past tax concessions and seek repayment of tax– Advice to clients: risk of the attack if a regime is too good to be true
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TARGET MERGER
COMPANY
SHAREOLDERS
UK
TARGET MERGER
COMPANY
UK
EXISTING
PARENT
COMPANY
US
EXISTING
SUBSIDIARY
COMPANIES
NON-US
Inter-group transfer
Share-for- share exchange
EXISTING
SHAREHOLDERS
US
CREATION OF NEW
HOLDING
COMPANY
UK
Share-for- share exchange
Resulting share ownership less than
80% US
UK tax free receipt of dividends
US Corporate Inversions: Example
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Inversions: key tax issues
• Low corporate tax rate
• Accessing a territorial/exemption system
• Withholding on dividends
• Treaty network/EU Directives
• IP patent box
• Managing tax residence
• Stamp duty/SDRT
• Impact of recent proposals to change US tax law
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Vodafone case - India
HTIL (Cayman)Vodafone
(Netherlands)
BVI Cos
CGP (Cayman)
Mauritius and
Indian cos
OperatingCo
(India)
Sale of shares
NON-INDIAN SOURCE
INDIAN SOURCE
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Issues in Developing Countries
• Ensure tax indemnities exist and that any capital gains tax risk is clearly for the vendor
• Arrange escrow accounts wherever possible
• Utilise bilateral investment agreements as well as double tax treaties by investing from entities in relevant jurisdictions
• Treaty shopping may be challenged so ensure entities chosen have relevant substance
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The impact of reform in 2015 and beyond
• BEPS
– Substance will be king.
– Multilateral Instrument to implement BEPS
– Treaty access denial
– TP Manuals to reflect location of profits, sales, employees and assets
• US Tax Reform.
– Eventually fewer incentives, balanced by lower rates.
• The shape of the future
– Less opportunities for structuring, but competition between countries remains.
– Fewer very low tax structures, but generally lower tax rates?
• Automatic Exchange of Information (AEOI)
– Common Reporting Standard
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Reputation
• The reputational risk is far greater than tax savings through aggressive structuring
• Coordinated internal procedures need to be adopted when questions are asked in place that have been tested
• There needs to be a global response to local issues
• It takes 20 years to build a reputation and 5 minutes to lose it
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Avoiding falling into Treaty Shopping problems
• Title of Double Tax Treaties
– for the avoidance of double taxation
– and the prevention of fiscal evasion
• Limitation on benefits provisions (second line of defence)
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Beneficial Ownership and Substance
• Case law does not give conclusive definition
– Indofoods v JP Morgan, Prévost Car, MIL Investments, Velcro Canada Inc:
• Possession
• Use
• Risk
• Control
• Conduit companies must have proper degree of SUBSTANCE
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Ensuring corporate management and control is where you want it
• Article 4 OECD MTC — “place of effective management” (POEM)
• National treatment — the incorporation theory
– The UK, the US, Ireland, Switzerland, the Netherlands
– Mobile POEM
• National treatment — the real seat theory (siège social, siège réel)
– France, Germany, Luxembourg
– Change of POEM leads to dissolution of the company
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Development of Corporate Migration
• Business continuity
• A migrating company may remain intact with unbroken corporate history
• Shareholders do not need to crystallise gains and reinvest in assets
• Streamlining corporate structure and operations
• Planning for changes in laws and tax treaties
– Protection of foreign investors
– Corporate law regime
– Tax law: CFC, WHT, participation exemption, thin capitalisation
– Better treaty network and international agreements (including the EU Directives and ECJ case law)
• Joining substance and the shell to gain treaty benefits
• Improving image (e.g. in preparation for an IPO; anti-avoidance)
• Personal reasons (esp. owner-managed companies)
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Methods of Migration
• Winding up and reincorporation• Transfer of legal domicile• Transfer of place of effective management • Share for share exchange• Merger migration under EU law• Societas Europaea
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Summary of key tax issues on
Corporate Acquisitions & Mergers
Corporate level issues
• Tax residence
• Tax loss preservation
• Tax clawbacks
• Transfer taxes/capital
duty
• VAT issues
• EU cross border merger
tax rules
• On-going tax efficiency
Shareholder level issues
• Capital gains rollover
• EU cross border merger
tax rules
• Withholding on dividends
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Summary of key intellectual property
issues on Corporate Acquisitions & Mergers
• Identifying valuable IP and ensuring it is properly registered where possible
– Copyrights
– Patents
– Trade Marks
– Design rights
– Know how/confidential information
– Databases
• Transferring IP into the appropriate group entity and keep an internal register of all IP
• Valuing IP for Balance Sheet purposes and using IP to finance future development
• Ensuring the company has ‘Freedom to Operate’
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What is the IBSA
The International Business Structuring Association is the worldwide community for
practitioners dealing with international business structuring and regulatory compliance.
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Vision of the IBSA
• Create a multi-disciplinary multi-jurisdictional association
of best practice professional advisers
• Promote transparency and integrity
• Develop greater knowledge and international contacts
• Enhance profile of younger advisers
• Reach out to the entrepreneurial community
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Principles of the IBSA
• Commerciality
• Substance
• Transparency
• Integrity
• Knowledge
• Imagination
• Anticipation
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Discussion Groups
• Transparency of International Business Structures –
issues relating to the OECD BEPS initiative
• Intellectual Property as a Value Proposition
• International Business Structures and Fiduciary
Relationships
• Corporate Finance: Public vs Private Equity
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Who should join the IBSA
IBSA Members must meet qualification standards and be approved by IBSA members in good standing
International Business Structure Planning
Transfer Pricing
IP Valuation
and Structuring
Tax
Family Business
Structuring and
Planning
Mergers, Acquisitions
and Divestments
Market Exit
Strategies
Corporate Migration
Special Purpose Vehicles
Corporate Foundation and Agency
Services
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To join the IBSA or find out more:
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