9th Annual U.S.-Latin America Tax Planning Strategies · 36452225 9th Annual U.S.-Latin America Tax...

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9th Annual U.S.-Latin America Tax Planning Strategies

June 9-10, 2016 Mandarin Oriental Hotel • Miami

Co-Chairs Marcio Calvet Neves Veirano Advogados

Rio de Janeiro, Brazil

Sam Kaywood Alston & Bird LLP Atlanta, GA, USA

Mergers & Acquisitions

Speakers Manuel Benites Peter Blessing Mariana Eguiarte Gustavo Lazo

Stephan Neidhardt Juan Guillermo Ruiz

Argentina

2

MANUEL M. BENITES [email protected]

T: +54 11 4114 3014 | F: +54 11 4114 3001 Pérez Alati, Grondona, Benites, Arntsen & Martínez de Hoz (h)

Suipacha 1111 - 18° - C1008AAW - Buenos Aires

Manuel M. Benites 16/05/2016

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Share Acquisition vs. Stock Acquisition Easier to implement

S.P.A. No transfer of Assests of Target.

Complex implementation Law 11,867 about Transfer of

Ongoing Business. Transfer of each individual

asset. Certainty of tax consequences.

Realization of stock. Complexity of tax consequences.

Realization of every asset/price allocation.

V.A.T. No sales taxes. V.A.T.

Price allocation.

Continuity of business activity by target.

Wind up of operations by target: need to file final tax returns.

Registration with Public Registry of Commerce.

Argentina


4

BUYER’S PERSPECTIVE Stock Acquistion vs. Asset Acquistion

No step-up in basis of target’s assets.

Step-up in tax basis of assets.

Tax atrributes of target remain. Tax attributes remain with Seller: do not move to Buyer.

No V.A.T. credits: non-taxable transaction.

Taxable transaction: V.A.T. credits to Buyer.

Issues about deductibility of interest of debt financing of acquisition.

Interest deduction allowed.

Use of foreign vehicle without P.E. in Argentina.

Use of local vehicle or foreign vehicle with a P.E. in Argentina.

No personal liability of Buyer for tax debts of Seller.

Personal liability for determined tax debts: limitation procedures.

Argentina


5

SELLER’S PERSPECTIVE Sale of shares vs. Sale of assets

Income tax on sale of shares. Income tax on sale of assets: 35%.

Local corporations 35% tax. V.A.T. on sale of movable assets.

Resident individuals 15% tax. Local taxes on sale of merchandise.

Non resident individuals or entities 15% tax.

Use of tax attributes.

Winding-up of operations: final tax returns and possible tax audits.

Argentina


6

SELLER´S MAJOR TAX ISSUES

SALE OF SHARES

- Taxation of gain/tax basis in pesos without adjustment for inflation.

- Reduction of price with a previous distribution of dividends.

- Reps / warranties and indemnities.

- How to manage tax claims after closing.

Argentina


7

BUYER’S MAIN ISSUES

- Investment vehicles and exit strategies.

- Tax attributes of target and profit and losses account.

- Reps & warranties and tax claims after closing, - Post closing reorganization of Target.

Argentina


8

GOODWILL AMORTIZATION

- Argentine Income Tax Law does not allow amortization of goodwill.

- No clear rules to allocate purchase price to goodwill: value in excess of the individual value of each asset.

- Goodwill may be recovered only: • In case of sale of the business in an asset transaction.

• As part of basis of stock in a share transaction.

Argentina

08/06/2016 Manuel M. Benites 9

STOCK FOR STOCK TRANSACTON ON A TAX FREE BASIS

MERGER (“B” absorbs “A”)

C D E

A

F G H

B

A

B

B

C D E + + = 80% of the capital of “A”

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STOCK FOR STOCK TRANSACTION ON A TAX FREE BASIS

Merger Spin-off C D E C D E F G H

A B

The value of the participation of the shareholders of the spun-off entity (C+D+E) in the capital of the absorbing entity (B), cannot be lower than 80% of the net assets of “A” transferred to “B”.

Argentina


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STOCK FOR STOCK TRANSACTION ON A TAX FREE BASIS Partial Merger

C D E

C D E

F

F

G

G

H

H

A B

I

+ + + +

The value of the participation of the shareholders (C+D+E+F+G+H) of “A” and “B” In the capital of I, cannote be lower ot 80% of the net assetes of “A” and “B” transferred to “I”.

Argentina



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TAX FREE REORGANIZATIONS: REQUIREMENTS AND TAX CONSEQUENCES

POST CLOSING REORGANIZATION OF ARGENTINE TARGET

– Argentine law allows Argentine Target to reorganize in different ways without gain recognition, and transfer of tax attributes:

(1) Transformation in another type of business entity: corporation to S.R.L.. This transaction does not entail any tax consequence because there is continuity in the legal personality of the entity.

(2) Merger of Argentine Target with another Argentine Subsidiary of Foreign Corporation: under tax free rules if requirements as to: active business, similar or related activities, continuity of activities, maintenance of interest in resulting corporation, are satisfied.

(3) Spin-off or division of Argentine Target into two or more entities: also as a tax free reorganization if same requirements are met.

(4) Transfer of all the assets and liabilities of Argentine Target to a Branch of Foreign Corporation: tax free if activities and interest in the business are maintained for two years.


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Argentina


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INTERNATIONAL REORGANIZATIONS Argentine tax reorganization rules

apply only to local entities or P.Es or foreign individuals or entities.

The issue is treated in three D.T.T.

of Argentina: The Netherlands. Spain. Chile.

Mere transfer of assets as a result

of a reorganization is not taxable (Spain and the Netherlands), or may be exempt according to the internal laws of each Contracting State (Chile).

Unclear: How to characterize an international reorganization.

Shareholders Shareholders

Foreign Co “A” Foreign Co “B”

Branch “A” Branch “B”

Merger

Transfer of

assets

ARGENTINA

Argentina

DEBT PUSH-DOWN


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Issue about deductibility of interest not settled : Universality of liabilites

Vs.

Link debt with transactions. Exception for debt in the form of Negotiable Obligations placed

through a public offering.

Down streem mergers: admitted by tax authorities but issue about deductibility of interest remains.

Purchase of Assets: Interest fully deductible.

Argentina

Brazil

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MARCIO CALVET NEVES [email protected]

T: +5521 38244770 | F: +5521 22624247 Veirano Advogados

Av. Presidente Wilson, 231 - 23º andar 20030-021 - Rio de Janeiro RJ - BRASIL

mailto:[email protected]

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Asset vs Stock

Stock: Purchaser’s perspective: (i) preserves tax

attributes of target (such as NOLs); (ii) easily implemented; (iii) no VAT; (iv) possible goodwill amortization; (v) full assumption of tax liabilities; (vi) nonresident purchaser responsible for collecting capital gains tax of nonresident seller.

Seller’s perspective: (i) if nonresident, reduced capital gains taxation; (ii) possibility of selling foreign holdco and completely avoiding gain; (iii) if resident, no PIS/COFINS on disposition.

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Asset vs Stock

Asset: Purchaser’s perspective: (i) step-up in asset

basis and depreciation deductibility; (ii) may reduce assumption of tax liabilities, since liability of buyer of going concern is subsidiary if seller continues to explore the business (joint and several if seller does not continue to explore the business); (iii) no preservation of NOLs or goodwill amortization.

Seller’s perspective: (i) if under deemed profits system sale of inventory may be subject to very low taxation; (ii) VAT; (iii) but no PIS and COFINS on sale of permanent assets.

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Goodwill Amortization – “Old Rule”

Law 9.532/97: Premium was classified as either (i) difference between book value and market value of target’s assets; (ii) expectation of target’s future profits; (iii) other economic reasons. Deductible under (ii) if target was merged up or downstream with purchaser.

Analysis of recent court decisions on the “Old Rule”. The impact of the Zelotes corruption scandal on administrative tax courts and the precedents in favor of tax authorities.

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Goodwill Amortization – “Old Rule”

Case Analysis:

Goodwill recorded abroad;

Intercompany/internal goodwill;

Challenges to goodwill allocation; Goodwill recorded on SPV’s;

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Goodwill Amortization – “New Rule”

Law 12.973/2014, Normative Instruction 1515/2014

Premium classified as either: (i) difference between just value and book value; (ii) expectation of future profits (“goodwill”).

Premium in (i) is allocated on an asset by asset basis. Only residual amount is allocated to goodwill (example would be synergies between target and purchaser). Amount of deductible goodwill is much lower.

Allocation based on appraisal report registered with notary or IRS.

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Local Reorganizations

Transition rule: mergers that take place before end of 2017 may compute goodwill according to “old rule” if purchased happened before 2015.

New rule: goodwill is not deductible if not based on

the appraisal report registered with IRS or Notary. Tax Deferral on swaps: article 13 of Law 12.973/2014

defers the gain until asset is realized through depreciation, amortization, sale or write-off.

23

International Reorganizations

Possible tax free alternatives: (i) distribution of dividends by Dutch; (ii) French/Dutch merger; (iii) Dutch capital reduction.

French

Dutch

Brazilian

French

Brazilian

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Transition rule: mergers that take place before end of 2017 may compute goodwill according to “old rule” if purchased happened before 2015.

New rule: goodwill is not deductible if not based on

the appraisal report registered with IRS or Notary. Tax Deferral on swaps: article 13 of Law 12.973/2014

defers the gain until asset is realized through depreciation, amortization, sale or write-off.

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Article 16 also allows for subscription of capital using asset at market value without immediate taxation.

Spin-offs: tax losses carried forward lost on a pro-rata basis, according to the division of the net-worth of split-up company.

– Losses are lost if there is both a change in control and a change in the activity of target.

– In the case of a merger, only the surviving entity keeps its tax losses (cases of reverse merger tax planning – taxpayers council and STJ).

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Seller Issues – Capital Gains

Income tax levied on capital gains earned by foreign entities when selling assets located in Brazil (Article 26, Law 10,833/03)

The calculation of foreign capital gain taxation is still a matter of uncertainty for taxpayers and source of discussion in administrative and judicial courts;

The main issue relates to whether cost is defined in Real or foreign currency;

Normative Ruling nº 1,455/14: “capital gain is determined by the positive balance between the sale value in Reais and the acquisition cost of the good or right, in Reais.”

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Seller Issues – Capital Gains

Main criticism against the Normative Ruling:

No legal provision establishes calculation in Reais. Normative Rulings may not overrule Laws;

Provisional Measure nº 2,158-35/01 (Status of Law): capital gains on the sale of goods acquired with earnings in foreign currency is the difference between sale price and acquisition value in foreign currency;

If the acquisition value in Reais is considered, there may be taxation on currency exchange variation, which is not established by legal provision.

Issue will certainly surface on a disposition of shares, since purchaser is liable for taxes due by seller.

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Seller Issues – Capital Gains Applicable rate is currently 15%.

Future increase in tax rates, as follows:

- 15% of the amount of capital gains not exceeding R$ 1 million;

- 20% of the amount of capital gains exceeding R$ 1 million up to R$ 5 million;

- 25% of the amount of capital gains exceeding R$ 5 million up to R$ 20 million; and

- 30% of the amount of capital gains that exceed R$ 20 million.

- What happens with tax havens? 25%?

Interpretative Declaratory Act no. 03/16: rate increase effective January 1st, 2017.

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Contingent Considerations

Treatment of earnouts and escrow has become fundamental given 2017 tax increase.

Income or acquisition price? When are they taxable income?

In Solution to Consultation No. 58/2013 IRS states that “escrow only taxed when made available to seller”.

Solution to Consultation COSIT 3/2016 states that earnouts are part of purchase price and not income.

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Indirect Transfer of Stock

Sale of Spanish entity taxed in Brazil? So far, no, but aggressive tax planning (reorg before imminent sale) will be challenged.

Normative Instruction 1634/2016: demands ultimate beneficiary of shares to be declared. It is a question of time before Brazil starts to transfer indirect disposition.

.

French

Spanish

Brazilian

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Debt Push Down

Thin capitalization rules: 2/1 debt to equity ratio. 0.3/1 ratio if country located in tax haven.

Possible drop-down and double-dip of interest expense.

What else to consider: Interest on net equity, a hybrid form of remunerating the shareholder

Debt Push Down Structure

1) Investors in FIP capitalize Brazilian Opco to joint venture with ABC and acquire Target;

2) Opco raises debt to acquire target; 3) Target/Opco would be merged; 4) Surviving entity would deduct debt and goodwill.

Opco

50%

3rd Party Debt loan

ABC

Capital Increase

FIP

50%%

Opco 2

100%

1. Steps 2, 3, 4 and 5 to happen at closing almost simultaneously

Target

Acquisition by OPCO

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Possible Upcoming Issues

Institution of the tax planning declaration; Reopening the discussion on taxation of dividends; CFC legislation for offshores owned by individuals.

Columbia

JUAN GUILLERMO RUIZ [email protected]

T: +571 3120207 – 3257328 | F: +571 3120207 Posse Herrera Ruiz

Carrera 7 No 71-52 Torre A Piso 5 / Bogotá – Colombia


Discussion Topics

• Stock Acquisition Vs. Asset Acquisition 1

• Good will amortization 2

• Local Reorganizations 3

• Cross Border Reorganizations 4

• Seller Issues 5

• Contingent considerations (earn-outs) 6

• Indirect Transfer of Stock 7

• Debt Push-Down 8

• Upcoming Fundamental Tax Reform 9

1. Stock Acquisition vs. Asset Acquisition

Asset Acquisition Pros:

• Amortization of Goodwill

• Depreciation of assets

• No contingent tax liabilities

Asset Acquisition Cons:

• No Net Operating Losses (carry forward)

• Loss of other tax shields (amortization base of

minimum tax)

• VAT applies over inventories

• WHT applies on gross value

Stock Acquisition Cons:

• No amortization of Goodwill

• No depreciation of tax basis

• Assumption of tax contingent liabilities

Stock Acquisition Pros:

• Use of tax losses

• Use of other tax shields

• No VAT

• WHT applies when foreign seller and local buyer

2. Goodwill Amortization

• Fully allowable in the acquisition of ongoing business, or the acquisition of assets

• Fully allowable for shares acquired until the 31st of December, 2012

• Fully allowable for Financial Entities subject to the surveillance of the

Financial Superintendence

• Straight-line and declining balance methods allowed • Shares of non-financial entities acquired after January 1st 2013, not

allowed in practice

3. Local Reorganizations

Tax free Mergers (statutory requirements)

Minimum participation

Minimum consideration

Minimum holding period

3. Local Reorganizations

Tax free Spin-Off’s

Same requirements for tax-free local mergers

Business Units

• Tax free spin-off’s are not normally used for the transfer of unwanted assets in the sale of a business

Tax free international spin-off’s

4. International Reorganizations

OldCo NewCo

Parent Company

Consolidated assets of the economic group

Assets of the economic group located In Colombia

(less or equal to 20% of

the consolidated booked assets of the

group) Colombian assets

Seller Taxation

5. Foreign Seller Issues

• 10% or 40%, over net capital gains • Foreign seller must file and pay income tax return in Colombia,

within 1 month after sale Holding period

is critical

• 14% on the whole price

Withholding applies if the buyer is a

Colombian entity

• Profit derived from the sale (difference between price of sale, and tax

basis of the shares in pesos adjusted by inflation) Tax Basis

• Article 13 Double Taxation

Agreements

Seller may be eligible to claim a tax refund

They are subject to the same tax treatment as the initial consideration

Income Accrual

6. Contingent Considerations (Earn-Outs)

Capital gains shall be declared by the seller in

the respective tax period in which it

received the earn-out

Seller should amend its initial tax return, which

would generate tax penalties and delay

interests

7. Indirect Transfer of Stock

Under current law it is not a taxable event

Tax authority may apply GAAR subject to certain conditions

Tax considerations

8. Debt Push-Down

Interests are not be deductible , there are judicial precedents

No specific tax provisions limiting debt push-down structures

TargetCo

SPV

BuyerCo

Lending Institution

Interests

Merger

Main topics

9. Upcoming Fundamental Tax Reform

Reduction of corporate income tax rate

Dividend withholding expected

Elimination of capital gains regimen for companies

COLGAAP to IFRS

Single tax over business profits (IUE) and elimination of CIT and CREE

Increase in VAT rate

Adjustments in the base of presumptive minimum tax

México MARIANA EGUIARTE MORETT

[email protected] T: (+52 55) 5029-8500 x.8523 | F: (+52 55) 5029-8500

Sánchez Devanny Eseverri S.C. Paseo de las Palmas 525 Piso 6, Col. Lomas de Chapultepec,

México, D.F. 11000, México.


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Share Deal vs. Asset Deal Share deal Asset deal

Realization of capital gains on transfer of shares Realization of capital gains on transfer of assets (per asset)

No VAT VAT

Purchase price allocation is less complex • Attribute value on shares • Difference is goodwill

Complexities on purchase price allocation • Attribute a value per asset • Issue an invoice per asset • Difference is goodwill

Goodwill is not deductible for buyer Goodwill is not deductible for buyer

No step-up in basis of target’s assets Step-up in basis of assets

Issues on deductibility of interest to finance acquisition

Deductibility of interest on debt to finance acquisition

Tax liabilities of Target are acquired with the shares

Tax liabilities of Target are not transferred, unless transfer is deemed a transfer of an on-going business concern

Cost basis of shares for buyer Depreciation of purchased assets

NOLs in Target can be used Not applicable

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• Purchase price allocation • Goodwill

• Non deductible expense • Non-compete to reduce goodwill effect • Part of the cost basis of shares

• Non-compete payment • Deductible expense • Qualification

• General expense (fully deductible in the same fiscal year); or • Deferred expense (15% amortizable per year)

• Subject to VAT • Rendering of professional services (negative covenant) • Input VAT for purchaser

• Formal obligations to deduct payment and consider input VAT

Acquisition of Shares (1)

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• Acquisition structures • Debt to finance acquisition of shares

• Inflationary/exchange gain/loss, can result in taxable income or deductions

• Related party debt: • If interest is not arm’s length, not deductible & re-

characterized as dividend. • Thin capitalization rule – 3:1 debt to equity ratio

limitation • Back-to-back re-characterization risk

• Debt push down acquisition structure / Leveraged Buy Outs • Actively challenged by tax authority • Interest deductibility requirements:

• Allocation requirement • Strictly necessary requirement

• Upstream merger vis-à-vis downstream merger • Compliance requirements

• Merger notice • Information tax return


Creditor

Mex Target

Mex Opco / Debtor /

Buyer

Mex Target

Mex SPV / Debtor

Forco / Buyer

Creditor

Downstream

Upstream

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• Appropriate investment vehicles & exit strategies • Dividends – Treaty withholding examples


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• Capital gains on the sale of shares or equity quotas of Mexican tax resident entities:

• 25% of gross income

• 35% of net income

• Capital gains from sale of shares in the stock market subject to a 10% rate on gains, amortization of losses is permitted. Financial intermediary must withhold and pay the tax.

• The disposition of foreign entities shares or equity quotas which asset book value is comprised (directly or indirectly) more than 50% by real estate located in Mexico (“real estate shares”), is taxable in Mexico.

• Indirect dispositions not taxed in Mexico, unless real estate shares.

Transfer of Shares (1)

FORCO

FORCO

MEXCO

real estate

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• Tax treaty context

• Tax treaty exemption for portfolio investments (less than 25% / 12-month holding period)

• Tax treaty cap on tax rate of net income (Dutch and Swiss 10% rate without portfolio exemption)

• Real estate shares

• Dutch-MX Tax Treaty:

• Direct dispositions (Dutch-MX)

• Exclude as real estate shares if used by owner in its business activities

• 10% rate of net income also applies to real estate shares

• Indirect dispositions (Dutch-Foreign-MX)

• Mexico relinquishes its right to tax at source if issuer of shares is a non-Mexican tax resident

• 10% capital gains tax on publicly traded shares does not apply if recipient is resident of a tax treaty jurisdiction.

Transfer of Shares (2)

FORCO

DUTCH CO / SWISS CO

MEXCO

real estate

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• Investment vehicles and exit strategies • Capital reimbursement or dividend distribution from Target prior to sale

• Capital reimbursement • Portion exceeding the Capital Contribution Account (CUCA) is deemed as a dividend. • Deemed dividend exceeding the Net After Tax Profits Account (CUFIN) is profit that has not

been subject to corporate tax. • Dividend

• Dividend distribution exceeding CUFIN is profit that has not been subject to corporate tax. • Regarding distributions (capital reimbursement or dividends) exceeding CUFIN, anticipate corporate

tax on grossed up amount (as if such profit was already subject to corporate tax) <equalization tax> • This occurs when differences between accounting profits and taxable profits exist. • Year of capital reimbursement and 2 subsequent years to credit the equalization tax with the

corporate tax. • Enough taxable profits must be generated in such period that will trigger a corporate tax equal

to the equalization tax. Otherwise, corporate profits subject to tax twice. • Protection clause from undesirable equalization tax effects

• Seller must indemnify Buyer if equalization tax was paid upon such capital reimbursement or dividend distribution and it cannot be offset in the year of acquisition or the 2 next years.

Buyer’s Main Tax Issues (1)

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• Potential joint and several responsibility on omitted taxes for Target • Transfer between non-Mexican tax residents

• Sale taxed at 25% of gross – Elements to argue no responsibility for Target • Sale taxed at 35% of net – Elements to argue no responsibility for Target / Tax representative

required (he is liable) • Tax treaty benefit – Elements to argue no responsibility for Target / Tax representative

required (he is liable) • Seller is a non-Mexican tax resident and Buyer is a Mexican tax resident

• Sale taxed at 25% of gross – Liability for Target, unless it proves that the tax was paid • Sale taxed at 35% of net – Liability for Target, unless it proves that the tax was paid or no tax

was triggered (with certified statement from authorized accountant) / Tax representative required (he is liable)

• Tax treaty benefit – Liability for Target, unless it proves that treaty benefit was applied or no tax was triggered (with certified statement from authorized accountant) / Tax representative required (he is liable)

• Seller is a Mexican tax resident individual • 35% of net or 20% as provisional payment and 35% of net by April 30 of next year • Liability for Target, unless it proves that the tax was paid or no tax was triggered (with certified

statement from authorized accountant) • Seller is a Mexican tax resident entity

• Liability for Target, unless it proves that the tax was paid


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• Tax compliance from Seller • Payment of taxes on sale; and/or • Comply with formal requirements not to pay (e.g., by tax treaty benefits, or losses realized on the

sale) • E.g., Appointment of Tax Representative, Certified Statement from Authorized Accountant

• Indemnity provisions regarding tax arising from transfer of shares • Other indemnity provisions regarding contingencies found on due diligence • Representations and Guarantees from Seller

• Make sure these include: (i) Target is in full compliance with its tax obligations; (ii) There are no taxes pending to be paid or adjusted; (iii) There are no on-going audits; (iv) it has properly withheld and paid taxes when applicable; and (v) it has complied with arm’s length principles on intercompany transactions.


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• Taxation of capital gains • Capital gains = Price less cost basis of shares • Price is a fair market value.

• Reduce price with a capital reimbursement or dividend distribution prior to sale; • Partial disinvestment from Target through capital redemptions using resources financed

by Buyer. • Cost basis of shares has generally the next elements:

• Acquisition cost: (i) capital contributions; and/or (ii) purchase price; and/or (iii) transferred basis if donation or inheritance.

• PLUS Positive difference between CUFIN balance at transfer and CUFIN balance at acquisition (This shows the increase of CUFIN balance during the period between acquisition and transfer)

• LESS NOLs pending to be amortized triggered while holding the shares. • PLUS NOLs generated prior to acquiring the shares and amortized while holding the

shares. • Increase cost basis of shares through tax optimization strategies prior to sale:

• Step-up in basis through merger/spin-off procedures of affiliated entities or newly incorporated entities.

Seller’s Main Tax Issues (1)

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• Examples of tax optimization strategies Increase Cost basis by increasing CUFIN balance

• Seller wants to consider SubCo’s CUFIN balance to calculate its cost basis of shares in Holding.

• Rules:

• CUFIN balance of merged company and surviving company are added ($100+$150).

• An element in the cost basis of shares is the positive difference between CUFIN at transfer and CUFIN at acquisition.

• In a downstream merger, an exchange of shares occurs.

• Date of acquisition of the exchanged shares is the date of merger.

• CUFIN at acquisition is the same as CUFIN at transfer (namely, $100+$150).

• In an upstream merger, there is no exchange of shares.

• Date of acquisition is not modified by the merger.

• CUFIN at acquisition is not modified by the merger.

• CUFIN at acquisition is $0 while CUFIN at transfer is $250.

Holding

Seller

SubCo

CUFIN: $100

CUFIN: $150

Acquisition cost: $3,000 capital contribution

Upstream merger Downstream merger

Acquisition cost: $3,000 Acquisition cost: $3,000

CUFIN difference: $250 - $0 = $250

CUFIN difference: $250 - $250 = $0

Cost basis: $3,250 Cost basis: $3,000


58

• Examples of tax optimization strategies

Increase Cost basis by eliminating negative effect of NOLs

• Seller wants to disregard NOLs in Holding that reduce its cost basis.

• Rules:

• NOLs pending to be amortized reduce the cost basis of shares.

• NOLs pending to be amortized in a merged entity are not transferred upon a merger to the surviving entity.

• In a downstream merger, the $1,000 NOLs would be cancelled.

• In an upstream merger, NOLs would remain and still reduce Seller’s cost basis.

Upstream merger Downstream merger

Acquisition cost: $3,000 Acquisition cost: $3,000

NOLs: $1,000 NOLs: $0

Cost basis: $2,000 Cost basis: $3,000

Holding

Seller

SubCo

NOLs: $1000

Acquisition cost: $3,000 capital contribution


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• Examples of tax optimization strategies Seller’s Main Tax Issues (4)

Target

Seller

Buyer

Capital redemption: Down Up Transaction • Seller disinvests from Target through a capital

redemption paid with resources financed by Buyer. • Rules:

• A capital redemption conducted within a 2 year period following a paid capital contribution will be deemed as a transfer of shares for tax purposes where price paid is the amount of capital redemption.

• If capital redemption is agreed first (“down”) and capital contribution is paid afterwards (“up”), this rule does not apply.

• Capital redemption tax effects in Holding • CUCA balance vis-à-vis capital reimbursement =

Deemed dividend • Deemed dividend vis-à-vis CUFIN balance = Untaxed

corporate profits • Taxation of untaxed corporate profits

2) Capital contribution

1) Capital redemption

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• Examples of tax optimization strategies


Target

Seller

Buyer (Related

party)

Capital redemption: Up Down Transaction

• Seller disinvests from Target through a capital redemption paid with resources financed by Buyer.

• Rules:

• A capital redemption conducted within a 2 year period following a paid capital contribution will be deemed as a transfer of shares for tax purposes where price paid is the amount of capital redemption.

• Capital contribution will increase CUCA balance.

• There are no rules regarding the determination of the amount of the capital redemption. Arguably no transfer pricing rules apply and, therefore, any capital redemption amount can be agreed. It has to be reasonable!

• Helpful to reorganize groups with minor or null tax effects if certain conditions exist.

1) Capital contribution

2) Capital redemption

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• Vendor’s due diligence prior to sale to ameliorate contingencies and avoid price reduction

• Restructuring alternatives for carrying on sale more efficiently

• Tax compliance upon sale

• Indemnities, representations and guarantees


62

• Mergers & Spin-offs • National: Exempt / Transfer of tax attributes, except NOLs of merged entity

• Spin-offs 51% continued equity interest holding from one year before and two years after the spin off.

• Merger occurring less than 5 years after spin-off or another merger. • Foreign & cross border, deemed taxable disposition of Mexican stock.

• Stock-for-stock transactions <only where same group> • Local (inherit cost basis if local requirements are met) • International (tax deferral – TIEA required) • Tax treaty reorgs (inherit cost basis if treaty requirements are met)

• Hong Kong • Ireland • Lithonia • Luxembourg • Netherlands • Spain • Switzerland • United States

Reorganizations (1)

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• Other capital contributions • In-kind contributions subject to tax (on capital gains) if transferor is a Mexican

tax resident • Capital contribution received by a Mexican tax resident entity is not taxable

income • Capital redemption

• Subject to corporate tax if: • Reimbursement is higher than capital contributed per share and/or • If reimbursement is lower than the positive difference between accounting

capital and capital contributions. • Reimbursement exceeding capital contributions deemed as a dividend and

subject to dividend tax (potentially reduced with Tax Treaty). • Deemed transfer of shares (amount of reimbursement deemed as sales price) if

capital contribution occurs less than 2 years before capital redemption. • Liquidation

• Treated as capital redemption • Re-domiciliation

• Deemed liquidation / Exit tax

Reorganizations (2)

PERU

GUSTAVO LAZO [email protected]

T: +51(1) 219-0400 x305 F: +51(1) 219-0420 Estudio Olaechea

Bernardo Monteagudo 201 San Isidro, Lima 27, Peru


M&A Environment • 2015 : major slow down compared to 2014

• 1Q 2016 : more active than 1Q 2015.

• 2016 is expected to be a more interesting year for Peru M&A:

• Presidential election between most “liberal” candidates. Their proposed policies are expected to boost delayed infrastructure projects and to revert the economic deacceleration process.

• Several Brazilian firms have decided to sell important assets (large infrastructure and energy projects) due to regional or global decisions. (Odebrecht, OAS/Invepar, etc.)

• Sale of shares is more common than sale of assets both in terms of volume of transactions (deal counts) and value.

• The M&A market is diverse. In terms of deal value, the main industries in 2015: food&beverage, infrastructure, energy, financial, mining, services.

• In terms of deal value, the main investors in 2015: MEX, PER, CHL, BRA, SPA, USA.

1. ASSET VS STOCK DEAL Issue Asset deal

X

Stock deal Tax

succession Joint tax liability

Full tax liability

Imposition of indirect taxes

Taxation by indirect taxes which may be mitigated by tax credits

Not applicable

Capital gains taxation to

Seller

Taxable income for Peruvian corporate seller 28%, WHT at 30% for non-resident Seller.

Taxable income for Peruvian corporate seller 28%, WHT at 30% for non-resident seller. Sale through Lima Stock Exchange 0%.

Tax amortization of Goodwill

Not possible

Not possible

Depreciation Depreciation of assets No depreciation of tax basis of stock (i.e. cost)

Use of NOLs No Net Operating losses Use of tax losses in

2. GOODWILL + Contingent Payments • Its amortization is disallowed for income tax purposes (i.e.

unlimited life-time). May create a permanent difference with accounting basis.

• Intangible assets with limited life-time received as contribution may not be amortized.

• Price paid for intangible assets with limited life-time may be amortized. E.g. non-compete clauses.

• Value Added Tax charged on goodwill (i.e. purchase of assets) may be offset as a VAT credit.

• Deferred contingent payments such as earn-outs reliable on buyer’s future activity, normally taxed according to accrual principle (i.e. when all events have occurred which fix the right to receive such income and the amount thereof can be determined with reasonable accuracy). Escrows taxed similarly.

• All payments by buyer should be channelized through Peruvian banking system.

3. LOCAL REORGANIZATIONS

• Tax neutrality principle (i.e. VAT and income tax - free).

• Exceptions:

• parties may opt to appraise buyer’s and transferred assets. Consequences: difference between basis and market value of assets is taxable income, though parties’ NOLs cannot be used against it. Assets basis step-up.

• Initially tax-neutral spin-offs where more than 50% of shares issued by the recipient company in exchange of the assets and liabilities received are transferred or cancelled before the end of the year following that in which the reorganization came into effect. Consequences: difference between basis and market value of assets is taxable income. Sanctions: No assets basis step-up + Taxable income is also triggered from the sale of shares. (see next slide)

• Stock-for-stock transactions are generally carried out on a tax-free basis (within local reorganizations).

• Tax to the transfer of real estate property is applicable (within local reorganizations).

Spin-off subject to income tax

B A

Buyer

B

B

Spin-off

Shares

>50% Shares

Parent Parent

Parent = taxable income 28% (sale of shares) B = 28% (“sale of assets”) ; Parent and B are jointly liable. A = not subject to tax


Until the end of the year following that in which the reorganization came into effect

3. LOCAL REORGANIZATIONS Possible recharacterization example

• Potential buyer intends to acquire specific assets from OpCo and proposes to buy shares instead of assets.

Parent Co

Potential buyer

OpCo

Peru

Abroad

3. LOCAL REORGANIZATIONS Possible recharacterization example (cont.)

Buyer proposal:

1: OpCo tax-free spin-off, (transfer of targeted assets into NewCo). In this special kind of spin-off, NewCo’s shares issued to OpCo (i.e. not to Parent Co).

2: Potential buyer purchases shares of NewCo from OpCo.

Goals:Potential buyer purchase of NewCo shares not subject to VAT (18%).

OpCo may apply expenses against taxable income and/or NOLs against net income, derived from such transaction.

Risks: Been deemed as VAT-driven structure and recharacterization of sale of shares as a direct sale of assets.

Conclusion: OpCo may be encouraged to perform direct sale of assets instead.

Risk mitigation: business purpose, substance; transfer of business unit, of assets and liabilities to NewCo (i.e. Not just assets).

Parent Co

Potential buyer

OpCo

NewCo

Ne 1

2

NewCo

Peru

Abroad


NET OPERATING LOSSES

• Within a reorganization, the entity transferring assets cannot transfer its NOLs (though it can transfer any other tax attributes (tax rights and obligations): credits, deductions, refunds, payments in advance, positive balances, etc).

• However, the acquirer’s NOLs can be offset

with the taxable income generated post-reorganization, up to the acquirer’s fixed assets value prior to the reorganization.


A’s NOLs cannot be transferred to B within the reorganization

NET OPERATING LOSSES (CONT.)

B’s net income may be offset against A’s NOLs up to A’s pre-closing fixed assets basis.

A B assets

A B assets

4. INTERNATIONAL REORGANIZATIONS

• International reorganizations that imply the direct or indirect transfer of Peruvian-issued shares may be taxed (not tax-neutral, bill of law).

• The domestic tax regime only applies to reorganizations among Peruvian resident entities.

• Branches of foreign entities may merge and apply the domestic tax regime, provided their parent companies have previously merged.

• Re-domiciliation not subject to tax.

• No specific exit taxes, liquidation taxable at current rate.

• International reorganization is only dealt with in DTAs with Canada (tax deferral may be granted by Peruvian IRS at will) and South Korea (most favored nation clause).

e.g., upstream mergers Example 1 : Parent absorbs HoldCo 1. • This may trigger the indirect sale of Subsidiary’s

shares Example 2: HoldCo 1 absorbs HoldCo 2 • This triggers the direct sale of Subsidiary’s

shares Revenue Opinion No. 229-2005-SUNAT/2B0000 states: “if a non-resident entity holding shares of a

domestic company, merges with another non-resident entity (merger), such reorganization implies the sale of shares and the generation of Peruvian source income according to article 9. h) of the Tax Code”.

Parent

HoldCo 2

Subsidiary

Peru

Abroad

HoldCo 1

4. INTERNATIONAL REORGANIZATIONS

5. FOREIGN SELLER ISSUES

• Direct and indirect sales of Peruvian-issued stock may be subject to tax.

• Indirect sales of immovable property not subject to tax.

• Foreign sellers of Peruvian-issued stock must follow a procedure with the tax Authority in order to obtain a certification of their acquisition cost. Otherwise, a 30% tax will be imposed on a gross-basis. Exception: sales through Lima Stock Exchange.

• The Peruvian entity that issued the stock is jointly liable with seller.

6. INDIRECT AND DIRECT TRANSFER OF STOCK

Seller

Company

PeruCo

Onshore

Offshore

Scenario (1): Seller sells Company’s shares

Indirect sale if in previous 12 months:

(i) PeruCo’s shares >,= 50% FMV of Company’s shares and

(ii) 10% or > of Company’s shares have been sold.

Effects:

• 30% tax on capital gain

• Cost certification procedure

• PeruCo is held jointly liable with Seller for unpaid taxes

• DTAs

Scenario (2): Company sells PeruCo’s shares

• Direct sale, 30% WHT on capital gain

• Cost certification procedure

• PeruCo is held jointly liable with Company for unpaid taxes.

• DTAs

(1)

(2)

6. INDIRECT TRANSFER OF STOCK

• are sold. Canada Seller

DutchCo

PeruCo

1

1 Canada Seller sells DutchCo’s shares Indirect sale not subject to tax in Peru Art. 13°.6 DTA Peru-Canada, “other” gains only taxed on State of residence (i.e. Canada). Exception: indirect sale subject to tax in Peru if value of PeruCo’s shares derives principally from immovable property in which the business is not carried on. Art 13°.4.a) Peru

Abroad

6. INDIRECT TRANSFER OF STOCK

Double Tax Agreements (DTAs):

• Chile and Canada (2004): capital gains are exempt in most cases.

• Brazil (2010), Mexico (2015): capital gains are subject to tax.

• Switzerland, Portugal and South Korea (2015): capital gains are subject to tax under certain conditions.

Colombia, Ecuador and Bolivia (Decision 578, 2005):

capital gains are exempt provided the issuer of shares is

resident in any of these countries.

6. INDIRECT TRANSFER OF REAL ESTATE PROPERTY

• Not subject to Peruvian taxes.

• HoldCo owns directly real estate property in Peru.

• The sale of HoldCo’s shares does not trigger Peruvian taxes.

• The sale of the Peruvian real estate property is subject to capital gains W/H tax and local taxes (and VAT in some cases).

Parent

HoldCo

Real

Estate

Peru

Abroad

7. DEBT PUSH-DOWN

• According to Peruvian jurisprudence, deductibility of interest generated on loans used to acquire shares must be evaluated on a case-by-case basis. E.g. if the aim is only to receive dividends (not subject to tax), interest is non-deductible.

• Limits on interest deduction for corporate income tax: transfer pricing, thin capitalization rules. Interest is subject to a 4,99% WHT, and to a 30% WHT if the loan is granted by a non-resident related entity (could be reduced to 15% if it resides in a treaty country).

• No specific tax provision limiting debt push-down structures.

• It is debatable whether the Tax Authority may apply GAAR in order to challenge these structures.

7. DEBT PUSH-DOWN

Tax Court resolution No.010577-8-2010: • “In case an entity receives a loan to acquire

shares of an operating company and then absorbs it within a merger process, the interests derived from the loan are deductible for Income Tax purposes, since the real goal of the loan was the acquisition of the business and the exploitation of the activity carried on by the acquired company”.

36410964

United States PETER H. BLESSING [email protected] T: +1 (203) 406-8052 | F: +1 (203) 286-1926 KPMG LLP, 3001 Summer Street, Stamford, CT 06905


84

US Anti-Inversion Regulations §7874 inversion rules must be considered whenever any stock

or options of Forco issued in transaction with USCo to former USCo shareholders or optionholders

Temporary regulations issued 4/4/16

Mostly implemented rules contained in Notice 2014-52 and Notice 2015-79

E.g., anti-skinny down rule: required addback of shares of USCo to numerator of §7874 60%/80% fraction to test inversion

Addback is to extent USCo made non-ordinary course distributions in 36 mo. base period or with if “a principal purpose” of avoiding inversion rules (by decreasing size)

85

US Anti-Inversion Regulations (Cont.)

Most important addition: 36 month serial acquisition rule

Designed to prevent a Forco that has grown by US acquisitions form relying on such growth for the §7874 60%/80% inversion threshold test

Requires subtraction of shares of Forco from denominator of §7874 fraction to extent issued in such acquisitions (adjusted for splits, etc.)

Reverses existing rule in Reg. §1.7874-2(e), which required plan.

Second anti-fatten up rule still remains:

Stock issued in a “related” transaction by Forco for liquid assets, or even other assets if “a principal purpose” of avoiding inversion rule (by increasing size)

Such shares must be subtracted from denominator of fraction.

Third Country Holding Company Reg Impact on Business Combination of US Co and LatAm Co

Assume share for share exchange into new UK Holdco. Consider inversion rule consequences if US Co shareholders roll over 60% or more vs less than 60% (must take into account anti-skinny down rules for USCo and anti-fatten up rules for LatAmCo).

LatAmCo USCo

CFCs

US Newco (new; optional)

Finance BV (new; optional)

Intercompany Debt

UK Holdco (new)

NL Holdco (new; optional)

Non-US

Impact of Inversion Regs on Private Equity Acquisition for Cash and Management Rollover

Target US

Target US Sub

US Holdco

CaymanPS

Forco

CFCs

MGMT

[x]% + Profits Interest

Fund Fund

[y%] [z]%

Assume all cash acq of Target, except Mgmt had certain equity interests in Target and is to have some equity participation. To avoid treatment of Forco as US for US tax purposes under inversion regs, must keep Mgmt under the 5% de minimis exception (§1.7874-4T(d))

Proposed Section 385 Regulations - Overview Proposed Regulations under IRC § 385 to treat certain claimed debt

as stock or debt for US tax law

The Proposed Regs would be the first Regs under Sec 385 (enacted in 1969) since 1980 Regs were withdrawn in 1983.

3 overall approaches

1. Implement 1989 grant of reg authority to bifurcate certain intragroup instruments

2. Impose strict formal documentation conditions on intragroup debt

3. Target intragroup note distributions and 2 economically similar transactions as well as 3 broadly defined substitute transactions, by recasting debt in such circumstances as equity (“Recast Rule”)

88

What Is Not in Scope

The Proposed Regulations are not applicable to:

External (i.e., non-Group) borrowings or debt instruments otherwise issued externally, regardless of purpose

“Group” for this purpose generally means an 80% vote or value test, but for one portion of the Proposed Regulations means a 50% vote or value test.

Debt between members of a consolidated group (members of a U.S. consolidated group are treated as a single entity)

Debt issued prior to April 4, 2016 (unless by post-date CTB election) provided no deemed reissuance thereafter)

89

Prop. Regs: Overview + Effective Dates

Where applicable, the Proposed Regulations include rules that

(i) Provide the IRS with the ability to bifurcate an instrument as part debt and part stock

Generally applicable to debt instruments issued on or after date Regs are finalized (all effective dates have adjustments to cover CTB elections)

(ii) Set forth documentation and maintenance requirements that must be satisfied for a related-party instrument to be characterized as debt for U.S. tax purposes

Generally applicable to debt instruments issued on or after date Regs are finalized

90

Prop. Regs: Overview + Effective Dates (Cont.)

(iii) Subject to certain exceptions, re-characterize related-party debt instruments as stock for all U.S. tax purposes, if issued:

(a) as a distribution,

(b) in exchange for related-party stock (e.g., section 304 sale),

(c) as consideration in an internal asset reorganization (e.g., a boot D reorganization), or

(d) issued for property to fund any of 3 types of defunding transactions by the issuer: a distribution, an acquisition of related-party stock, or boot in an internal asset reorganization (per se 72-month rule regardless of business purpose)

Generally applicable to debt instruments issued on or after April 4, 2016, though re-characterization under this rule only occurs 90 days after the date final Regs are issued.

(iv) For purposes of the re-characterization rule for distributions, etc. in (iii), address consequences when related-party debt comes into or leaves a U.S. consolidated group

91

Debt (Note) Distributed to Create US Interest Deductions

Pre-Prop. Regs. USCo issues USCo Note, which has a

value of $100x, to FP in a distribution (generally to create interest deductions).

Prop. Regs USCo Note = stock for US tax (to extent >

CYEP (but prior cash distribution in same year would erode CYEP—FIFO rule).

And repayment is dividend transaction to extent of E&P.

Borrowing from bank to distribute cash is not affected (but could affect a separate borrowing by USCo w/i 36 mo. before/after.)

Foreign Parent

(FP)

USCo

USCo Note USCo Stock

Prop. Treas. Reg. § 1.385-3(b)(2)(i)

92

Dividend

US1 Note

Pre-Prop. Regs: 1. Date A, Year 1: US1 distributes a

note to FP: no E&P so no WHT.

2. Date B, Year 2: US2 pays a dividend to US1: w/i US group.

3. Date C, Year 3: US1 repays its note held by FP: no WHT.

Prop. Regs: US1 Note = stock for US tax (to extent > CYEP. And repayment is dividend transaction to extent of E&P.

Note Distribution to Avoid WHT

Year 1 – lots of E&P

Year 1 – no E&P

FP

US1

US2

Repayment of Note

1

2

3

93

Debt (Note) Issued to Purchase Affiliate Stock to Deliver for Acquisition

USS

FP

FP Stock

USS Note Stock

1

UST (US)

S/H

FP Stock

UST Stock

2

Pre-Prop. Regs: UST is a publicly traded domestic corporation. 1. Date A, Year 1: USS issues USS Note to

FP in exchange for FP stock. 2. Date B, Year 1: USS transfers the FP

stock to UST's shareholders in exchange for all of the stock of UST.

3. Used as means to repatriate cash (w/o WHT if to FP or (subject to skirting “Killer B rules) w/o US CIT if to USP)

Prop. Regs: USS Note = stock for US tax (to extent > CYEP. And repayment is dividend transaction to extent of E&P. Can still be done using USS cash.

* See Prop. Treas. Reg. §§ 1.385-3(b)(2)(ii); 1.385-3(g)(3), Example 2

94

Debt (Note) Issued to Purchase Stock of Group Member

Pre-Prop. Regs: 1.Date A, Year 1: CFC2 issues

Note to CFC1 in exchange for CFC3 stock owned by CFC1.

2.Treated as §304 purchase Prop. Regs: • CFC2 Note is stock so not

a §304 purchase per §317(a), rather §1001 sale b/c § 351(g) “nonqualified preferred stock.”

• See Prop. Treas. Reg. §1.385-3(b)(2)(ii).

CFC1

USP (US)

CFC2 Acquiring

CFC3 Target

CFC2 Note Stock

CFC3 Stock

CFC3 Target

95

Funding Rule: Dividend Matched with Issuance of I/C Note to Recast Note as Stock

1) $500 dividend

2) $500/$0 loan

2) $500/$1000 loan

3) Asset Purchase

FP

US1

Subs

Bank

In Year 1 US1 distributes $500 of excess cash to FP. In Year 3, an unexpected opportunity arises and US1 decides to expand its business by purchasing $1,000 of assets. Assume $100 CYEP. US1 borrows $1000 from FP (or $500

FP and $500 from Bank on identical terms) to fund the acquisition: Under Prop. Regs, 400 of the $500 loan from FP recharacterized as stock of US1

If instead US1 borrows the entire $1,000 from Bank, no recast.

96

USS

FP

loan for USS Note

Y

X

Bank loan

cash for Y stock

Y

Alt. A: FP borrows $500 from bank; FP lends the $500 to USS in exchange for a note (“USS Note”); USS uses the loan proceeds to purchase the stock of Y from unrelated X. USS Note respected as debt (but may be recast as equity under Funding Rule if distribution by USS w/i 36 mo. before or after) Alt B: If instead FP uses the cash borrowed from bank to purchase the stock of Y from X, then transfers the Y stock to USS for USS Note: USS Note is recast as stock currently under the General Rule of the Prop. Regs. to extent > CYEP (but concededly would be unusual structure) • Consequence of rule to prevent creation of

debt by trafficking in affiliate stock. Alt C: If instead USS borrows from bank with FP guarantee to buy Y stock: No issues.

Importance of Structuring Transactions to Minimize Issues

1

2 3

97

v

Out from Under Transfer of Mexican Sub of US Target (“Down Up” Transaction) • US Target purchased with § 338(h)(10)

election (§ 338(g) election for MexCo).

• Following shareholder approval, US Sub reduces its capital in MexCo to 1 share through a note distribution (“down”); other shares cancelled

• Mexican tax considerations

• US Sub distributes the note to US Target which distributes it to Foreign Purchaser (commitment to recontribute)

• Foreign Purchaser contributes the note to MexCo (“up”) and note canceled

• New shares issued by MexCo to Foreign Purchaser; remaining share to 2nd holder.

• Corporate formalities • For US: ignore note, so §1248, not div.?

Mx

US Target

US Sub

Foreign Purchaser

MexCo

98

Foreign Purchaser

Switzerland STEPHAN NEIDHARDT [email protected] T: +41 58 658 55 70 | Fax: +41 58 658 59 59 Walder Wyss Ltd. Seefeldstrasse 123, P.O. Box, 8034 Zurich, Switzerland


Taxation of Swiss Holding Companies

• Holding privilege (completely income tax free on cantonal / communal level) (i.e. no income tax on interest and / or royalties etc.)

• Participation exemption (on dividend income on federal level, shareholding > 10%)

• Reduced annual capital tax (e.g. 0,001% on the equity at book values in the canton of Obwalden, or even less)

• No stamp duty (1%) upon incorporation by means of a reorganization / capital increase upon contribution of shares (share for share deal)

• Participation exemption on capital gains upon sale of shareholdings > 10% (holding period of one year)

Switzerland as a Holding Jurisdiction

100

Today Future (after CTR III)

Yes

Yes

Yes

Yes

Yes

No, but

Yes

Yes

Yes

Yes

With LATAM-countries

− Argentina (since 2015) − Chile (since 2008) − Ecuador (since 1994) − Colombia (since 2007) − Mexico (since 1993/2009) − Peru (since 2012) − Uruguay (since 2010) − Venezuela (since 1996)


101

Dividend w/h taxes general Subsidiaries

15% 10% 15% 15% 15% 15% 15% 0% 15% 0% 15% 10% 15% 5% 10% 0%

o Switzerland has a very good double taxation treaty network

Not yet: Brazil (but in negotiation)

o Corporate Tax Reform III (“CTR”)

− Low taxed so called domiciliary and mixed companies shall disappear

− Holding companies: income tax exemption on cantonal / communal level shall disappear: But: Participation Exemption shall be available, taxation very low, if only dividend income from subs And: More tax credit available on incoming dividends from countries with w/h taxes on dividends (now limited to 1/3, in future full credit)

− New: Swiss Patent Box Companies shall be available

− Only for patents and the like

− R&D for patents in CH (or eventually abroad)

− Income taxation on royalty income in the range of 12-15% total


102

Structure 1: LATAM – CH – Europe / LATAM


103

Colombia Co

Swiss Hold Co

CH Patent Box Co

Others Mexico

Co France

Co Italy Co

German Co

0% dividend w/h tax

with substance!

all with 0% dividend w/h tax

with substance!


104

Foreign Co

Swiss Hold Co

CH Patent Box Co

Others Mexico

Co Argentina

Co Peru Co

Colombia Co

Assumed: 0% dividend w/h tax

Dividend w/h taxes

Structure 2: Foreign – CH – LATAM / Others

Brazil Co

10% 0%

0% 0% ?% 10%

with substance!

with substance!

0%

36410964

MARCIO CALVET NEVES [email protected] T: +5521 38244770 | F: +5521 22624247

Veirano Advogados Av. Presidente Wilson, 231 - 23º andar 20030-021 - Rio de Janeiro RJ - BRASIL

SAM KAYWOOD [email protected]

T: +1 (404) 881-7481 | F: +1 (404) 881-7777 Alston & Bird LLP

1201 West Peachtree Street, Atlanta, GA, USA

Thank You!



9th Annual U.S.-Latin America Tax Planning Strategies · 36452225 9th Annual U.S.-Latin America Tax...

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