Cairo

European Regional Meeting 2009 – Cairo

European holding company regimes

Jeroen van der Linden

HLB Schippers – Amsterdam, the Netherlands

January 31, 2009

Program:

• Introduction;

• European holding regimes;

• How to make use of a holding company?

• End.

Country/Firm report:

• HLB Schippers, largest firm within Dutch federation;

• HLB Schippers has 5 office locations, including Amsterdam;

• 250 people, including 15 partners;

• Audit, tax and legal services;

• Seperate International Business Desk, focus Asia and trust offices.

• Turnover 2008 approx. € 23 million

Reasons for holding companies:

• desire to consolidate foreign subsidiaries;

• creation of platform for future acquisitions;

• vehicle for cash redeployment;

• enabling access to EC Directives and Tax Treaties

• in order to save tax.

Key requirements for holding company jurisdiction:

• exemption for dividend income and capital gains;

• no withholding tax on dividends, interest and royalty outflows;

• access to EC Directives and strong network of Tax Treaties;

• no CFC legislation or anti tax haven legislation;

• political and economic stability.

• no or low tax on capital contributions;

India

Italy

Example of benefits of proper holding structure 1/2

Dividend is taxed with 15% Italian

withholding tax (WHT)

India

EU

holdco

Italy

0% Italian WHT

0% WHT

Example of benefits of proper holding structure 2/2

How about tax havens?

• no treaty available to reduce withholding taxes paid to tax haven;

• EU Member states agreed to phase out tax havens;

• can be obstacle in obtaining rulings from tax authorities;

• “smell factor” / lack of transparency;

• nevertheless combination tax haven with EU jurisdiction can have

best result.

EU holding locations to be discussed:

• Cyprus

• Luxemburg

• The Netherlands

• Spain

• Ireland

• Belgium

• Denmark

Tax on capital contributions:

Parent

EU

holdco

Subs

Cash

Shares

Tax treatment of capital contributions

• Cyprus 0.6%, but exemptions may apply

• Luxemburg exempt

• The Netherlands exempt

• Spain 1%, but exemptions may apply

• Ireland exempt

• Belgium exempt

• Denmark exempt

Corporate Income Tax (“CIT) rates

• Cyprus 10%, (or 15% defense tax)

• Luxemburg 28.59% (combined)

• The Netherlands 20% - 25.5%

• Spain 30%

• Ireland 25% on passive income, 12.5%

only on trading income

• Belgium 24.98% - 33.99%

• Denmark 25%

India

EU

holdco

Italy

Dividend regime (participation exemption)

To what extent is dividend taxed in

EU holdco?

Dividend regime

• Full exemption

no minimum holding period

• Exemption denied if: >50% of activities of sub

(defence tax again) generate passive income and

are taxed less than 5%

• Requires: shareholding of 1% or more

Cyprus

Dividend regime

• No exemption, but credit for Dividend WHT and CIT of sub

• Requires shareholding of 5% or more

• To the extent the underlying tax in the participation is below 25%,

Irish tax will be payable.

Ireland

Dividend regime

• Full exemption

acquisition of at least Eur 1.2mio

minimum holding of 12 months

• Requires: shareholding of 10% or more, or

• Exemption denied if tax rate of sub is below 11%

(unless EU sub)

Luxemburg

Dividend regime

• Full exemption


• Exemption denied if: >50% of assets of sub generate

passive income and are taxed

less than 10%

• no minimum withholding period

the Netherlands

Dividend regime

• Full exemption

acquisition of at least Eur 6mio

• minimum holding of 12 months


• sub should be non-Spanish and

not from tax haven, subject to tax

• sub must have 85% operating

income

Spain

Dividend regime

• 95% exemption

acquisition of at least Eur 1.2mio

• minimum holding of 12 months


• Exemption denied if tax rate of sub is below 15%

(unless EU sub)

Belgium

• sub is “financial fixed asset”

Dividend regime

• 100% exemption

minimum holding of 12 months


• Exemption denied if shareholding company resides

outside EU and no tax treaty

exists with the resident country

(Denmark has app. 60 treaties

with countries outside EU)

Denmark

India

EU

holdco

Italy

To what extent are capital gains on

shares taxed in EU holdco?

Gains on shares (if participation exemption applies)


• Cyprus exempt

minimum holding period 1 year,

sub must be operating company,

• Ireland exempt, but

Other rules apply for gains on shares in companies owning

immovable property

and EU resident or Treaty

country.


• Cyprus exempt

• Luxemburg exempt

• The Netherlands exempt

• Spain exempt, but not to tax haven

• Ireland exempt, but

• Belgium exempt

• Denmark exempt, when held for 3 years

Interest payments relating to the acquisition of the Subs

Subs

Parent

EU

holdco

Loan

Interest on the loan deductible?

• Cyprus yes

• Ireland in principle yes

• Luxemburg yes

• The Netherlands in principle yes

• Spain in principle yes

• Belgium yes

• Denmark more or less

Interest payments to non-EU shareholder

Subs

Parent

EU

holdco

Loan

WHT on interest on shareholder’s loan?

• Cyprus 0%

• Ireland 15% - 0%

• Luxemburg 0% (Soparfi)

• The Netherlands 0%

• Spain 18% - 0%

• Belgium 15% - 0%

• Denmark 30% - 0%

Certainty in advance for the applicability of the participation

exemption?

• Cyprus clearance upon request

• Luxemburg clearance likely upon request

• The Netherlands advance tax rulings available

• Spain advance tax rulings available

• Ireland non-binding opinions

• Belgium advance tax rulings available

• Denmark advance tax rulings available

Withholding taxes payable on dividends paid by the holding

company?

Parent

EU

holdco

Subs

• Cyprus 0%

• Luxemburg 15% - 0%

• The Netherlands 15% - 0% (BV) or 0% (Coop)

• Ireland 15% - 0%

• Spain 18% - 0%

• Belgium 25% - 0%

• Denmark 28% - 0%

Number of Tax Treaties in force (per 1 jan 2008)

• Cyprus 42

• Luxemburg 51

• The Netherlands 86

• Spain 68

• Ireland 46

• Belgium 88

• Denmark 85

Concluding remarks

Although the Netherlands seem the best location for a holding company

it always depends on the case at hand….

And the winner is ……………………………….

How to make use of a holding company?

1. For which types of clients or potential clients?

2. What are the advantages for you?

3. Create an international client team;

4. Some examples.

1. For which types of companies?

• Companies that sell products internationally;

• Companies with foreign subsidiaries;

• Companies with foreign branches;

• Companies with intellectual property (royalty);

• Companies with (intragroup) financing activities.


• You can make your client happy (lower effective tax rate);


• You can make your client happy (lower effective tax rate);

• Show the strengths of our international network to your client;

• Opens the door for future international tax projects (e.g. transfer

pricing, supply chain management services, reorgs, etc);

• Use the succes as a showcase for attracting new clients.

3. Create an international client team

• Representatives from key countries where the company is active;

• Share client information within the team (e.g. group structure);

• Set up a conference call to discuss the opportunities;

• Define the communication strategy;

• Share examples with the client / target in order to build trust.

4. Some examples

a) New clients;

b) Existing clients.

Targeting new clients

• Creation of cross border target team

Example 1: End 2007 HLB Schippers and

HLB Ler Lum have jointly targeted a large

Malaysian palm oil company with

various plants in the Netherlands


•NL 2 BVs

NL BV

Egypt

Malaysia

Potential client wishes to

move:

1) EU HQ functions

and

2) Non Dutch subsidiaries to

a country outside Malaysia

Problem:

Is there a treaty between

third country (for instance

Singapore) and

Netherlands/ROW

ROW


•NL 2 BVs

NL BV

Egypt

Malaysia

???

Proposal 1:

In case Singapore will be

the new HQ:

Egypt should be held by

NL BV, to avoid 15% WHT

between Egypt and

Singapore.

ROW


•NL 2 BVs

Coop

Egypt

Malaysia

???

Proposal 2:

To avoid dividend tax from

Netherlands to ???

(perhaps no 0% treaty

rate), the use of a Dutch

cooperative was

proposed.

HQ will be moved while

holding function remains

in Europe.

ROW


UK ltd

Coop

US LLC

Dutch BVCyprus Ltd


Latvia

Cyprus

Private

indiv.

To existing clients

• Example 1: Analysis of international legal structure

HLB Schippers will perform an initial quick scan of your client’s

existing structure and provide advice how to optimise the

structure (i.e. create cash savings for your client). We are

currently doing the follow-up on a quick scan for a client of HLB

Australia.

To existing clients

Fiji comp

Coop

Private

individual (Fiji)

NA NV

Proposal:

International holding

structure that lowered the

effective tax burden.

Dividend tax from Fiji

+ eventually from NA

To existing clients

• Example 2: Entry into Europe

Your client is considering an entry into Europe for doing

business. This could be a natural moment to consider a

European holding structure. We have done this recently for a

large Russian investor which was referred to us by Vantis UK.

To existing clients

•NL 2 BVs

BV

Jersey

Austria

BVI

Coop

Proposal:

Acquisition vehicle that

could set of its finance

costs with profits of the

Dutch target.

BV had enough substance

for Austrian tax purposes.

Questions?

• Jeroen van der Linden (tax);

[email protected];

• Pascal Belfroid (audit)

[email protected].

Cairo

Documents

Transcript of Cairo