Tax Flanning for International Mergers, Acquisitions, Joint … · IB] Merger 29 IC] Mergers of...

Tax Flanning for International Mergers,

Acquisitions, Joint Ventures and

Restructurings

Third Edition

Volume II

Edited by

Peter H. Blessing

Wolters Kluwer

Contents Volume II

Italy Riccardo Michelutti

I INTRODUCTION [A] Civil Law Background [B] Summary of Key Corporate Income Tax Principles [C] Taxation of Dividends [D] Anti-avoidance Rules and Rulings [E] Rüting Procedures

II TAXABLE ACQUISITIONS AND DISPOSITIONS [A] Tax on Capital Gains - General [B] Sale of Shares [C] Sale of a Business [D] Contribution of a Business [E] Acquisition of an Italian Target by a Foreign Acquiror

[ 1 ] Form of Transaction [2] Consideration Used [3] Tax Treatment of Foreign Acquiror

[a] Interest Deduction on Acquisition Debt [b] Tax Recognition of Goodwill [c] Interest Withholding Tax [d] Dividend Withholding Tax [e] Transfer Taxes and Responsibility for Assessments

[4] Tax Treatment of Domestic Target [5] Tax Treatment of Italian Resident Shareholders of

Domestic Target [F] Acquisition of Part of Domestic Target's Business by a Foreign

Acquiror [1] Asset Acquisition [2] Share Acquisition

[G] Acquisition by an Italian Resident Acquiror of Part or All of a Foreign Target

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10 11 11 12 14 14 16 16 17 17 17 19 20 20 22 24

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Contents Volume 11

111 Acquisitum of Sinnes of Foreign Target 26 lill 1 nx 1 reatment ot Domestic Acquiror 26 |b| lux 1 reatment ot 1 orcigu 1 arget Sliaielioldeis 26 |c| Post-acquisition Restruciuring 27 [d| VAT nnilTrunsfer Taxes 27

[2] Acijnisition ot Business Assets ol Foreign I arget 27 Ia| VA T and Transfer l axes 28

III TAX-FREE ACQUISIT10NS AND DISPOSITION 28 IA] Share-per-Share Exchange 28 IB] Merger 29 IC] Mergers of Equals 30

IV ATTRIBUTE RRESERVATION AND USACE 30 |A] Bosses of the Target Company or Target Business 30

V DUE D1LIGENCE AND CONTRACTUAE TAX PRO'I'EC'I ION 31 VI FINANCING AND DEBT RUS1IDOWN STRATECIES 32

[A] Deductibility of Interest Expenses 32 [B] Hybrid Debt 34 [C] Impact of EU Law 35

VII DEALING WITH COMPENSATION PLANS 37 [A] General 37 [B] Deductibility to Issuer 38

VIII GROUPING 38 [A] Domestic Tax Consolidation 38 [B] Consortium Relief 40 [C] Worldwide Tax Consolidation 41

IX FLANNING WITH INTANGIBLES 42 [A] Operations Aimed at Delocalizing the Flow of Royalties to

Another Tax Jurisdiction 43 [B] IP Repatriation into Italy 44 [C] IP Sub-licensing to Another Group Foreign Company 45

X INTERNAL RESTRUCTURING INVOLVING ITALIAN TARGET 45 XI TARGET BREAKUP OR OTHER DISPOSITION OF UNWANTED

ASSETS 46 [A] Like-Kind Exchanges 46 [B] Pre-acquisition Spinoff 47

XII TAX-FREE DEMERGERS/SPINOFF DISTRIBUTIONS 47 [A] Demerger 47

XIII SUBSIDIARY LIQUIDATION 48 [A] Domestic Treatment 48 [B] Special Concerns 48

XIV JOINT VENTURES 49 XV EQUITY AND DEBT RESTRUCTURING 49

[A] Equity Contributions 49 [B] Debt Restructuring 49

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Contents Volume II

[1] In General [2] Conversion into Equity [3] Debt Waiver [4] Assignment of Loan

XVI CORPORATE EXPATRIATIONS XVII BUSINESS RESTRUCTURING XVIII ITALIAN CORPORATION AS ACQUISITION VEHICLE FOR FOREIGN

TARGET [A] Treatment of Foreign Source Income: Foreign Tax Credit [B] Broadening of CFC Legislation

Japan Eric N. Roose & Takeo Mizutani

I INTRODUCTION [A] Overview of Japan [B] General Legal System [C] General Tax Environment

[ 1 ] Classification of Business Entities [2] Participation Exemption Regime [3] Controlled Foreign Corporation ('CFC') Regime [4] Foreign Tax Credit Regime

[D] Characteristics Unique to Japan [1] Donation Income and Expense

II TAXABLE ACQUISITIONS AND DISPOSITIONS [A] Treatment of Seiler and of Target Entity

[ 1 ] Consequences for Selling Stockholders [2] Japanese Real Property Interests Disposed of by Foreign

Corporations or Non-residents [3] Consequences for Acquirer [4] Consequences for Target

[B] Sales and Purchase of Shares and Assets [ 1 ] Consequences for Seiler [2] Consequences of Asset Sale to Buyer [3] Asset Sales between Group Companies

[C] Treatment of Contingent Purchase Price/Contingent Liabilities [D] Allocation of Purchase Price [E] VAT and Other Transfer Taxes

[ 1 ] Consumption Tax (VAT - Shouhi zei) [2] Indirect Taxes: Transfer (Conveyance) Taxes

[a] Real Property Acquisition Tax (Fudousanshutoku zei)

[b] Registration Tax (Tourokumenkyo zei) [3] Stamp Tax (Inshi zei)

49 SO 50 51 51 53

53 53 54

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7 8 8 8 8 9 9 9 9

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Contents Volume II

[I'l Target Breakup or Other Disposition of Unwauted Asseis n III TAX-FRKK ACQUISITIONS AND DISPOSII IONS 1 i

[A| Types and Requiroments U 111 Contribution In-Kind (C.cmlmisu Sliusslu) 11

Ia] 100% Sharehokling Relaiionship 11 |b] More than 50% Shareholding Relaiionship 11 |c| Joint Business 12

[2] Mergers (Gappci) 13 |a| General 13 [b| 100% Sharehokling Relaiionship 13 |c| More than 50% Shareholding Relaiionship 14 |d| Joint Business 14 [e] Triangulär Mergers (Saakaku C.appci) 15

[3] Share-for-Share Exchange (Kalmahiki Kakau) and Share Transfer (Kabushiki Iren) 15 [a] General 15 [b] Tax-Qualified Sbare kxchange 16

[4] Change of Corporate Form 18 [a] Types of kntities under Ihe Company l.aw

(Kaisha Hoa) 18 [b] Conversions front One Type of kntity to Airol her 19

[B] General Consequences and Objectives 19 [C] Cross-Border Transfers 19

[1] Issuance of Foreign Parent Company Shares to Non-resident Shareholders 19

[2] Issuance of Shares in a Tax Häven Company 19 [D] Transfer Taxes 20

[1] Real Property Acquisition Tax (Fudousanshutoku zei) 20 [2] Registration Tax (Tourokumenkyo zei) 21 [3] Stamp Tax (Inshi zei) 21 [4] Consumption Tax (VAT - Shouhi zei) 21

IV ATTRIBUTE PRESERVATION AND USAGE 22 [A] Change in Ownership in Impact on Tax Assets 22

[1] Net Operating and Built-In Bosses Following a More than 50% Ownership Change 22

[2] Limitation on Utilization of Net Operating Bosses and Built-In Bosses upon Merger 22

[B] Allocation of Compensatio:! and Other Deductions between Pre- and Post-closing Periods 24

[C] Any Other Issties of Special Concern in Japan 24 V DUE DILIGENCE AND CONTRACTUAL TAX PROTECTION 24

[A] Due Diligence 24 [B] Tax Indemnifications and Other Contractual Provisions 25

VI FINANCING AND DEBT PUSHDOWN STRATEGIES 25

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Contents Volume II

[A] Leveraging the Taxable Acquisition, Including Cross-Border Aspects 25 [1] General Thin Capitalization Rules and Other Limitations

on the Deductibility of Interest 25 [2] Arm s Length Interest Rate 27 [3] Withholding Tax 27 [4] Hybrid Financings (Double Dip Flanning] 27

[B] Debt Pushdown Strategies 27 [C] Other Ways of Maximizing Tax Deductibility of Interest and

Acquisition Expenses 28 VII DBABING WITH COMPENSATION PLANS 28

[A] Treatment and Issues in M&A Context 28 [B] Any Other Issues of Special Concern in Japan 29

[1] Transfer of Retirement Plan Obligations 29 VIII GROUPING 29

[A] Requirements 29 [1] Consolidated Tax Return Filing 29 [2] Non-consolidated Wholly Owned Group (Group

Companies) 29 [B] Consequences and Advantages 30

[1] Consolidated Tax Return Filing 30 [2] Group Companies: Deferral of Gains or Bosses from the

Transfer of Certain Assets 30 [3] Group Companies: Donations 30 [4] Group Companies: Dividends In-Kind 31 [5] Group Companies: Reduction of Dividend Received

Deduction by Allocable Interest Expense 31 [C] Departure of Group Member 31

IX FLANNING WITH INTANGIBLES 31 [A] Local Regime (If Favourable) 31

[1] IP Holding Company 31 [B] Treatment of Transfers Offshore and Licensing Back (If Local

Regime Is Unfavourable) 32 [1] Migration 32

[a] General 32 [b] Cost Sharing 32

[C] Any Other Issues of Special Concern in Japan 32 X INTERNAL RESTRUCTURINGINVOLVING JAPANESE TARGET 33 XI TARGET BREAKUP OR OTHER DISPOSITION OF UNWANTED

ASSETS 33 XII DEMERGERS - CORPORATE DIVISION - KAISHA BUNKATSU 33

[A] Domestic Treatment and Issues 33 [1] General (Corporate Division - Kaisha Bunkatsu) 33 [2] Tax-Qualified Division 34

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[a] 100% Shareholding Relationship 34 |b] More tlian 50% Shareholding Relationslhp 34 |c| Joint Business 35

[B] Transfer Taxes 3^ [1| Real Property Acquisitum lax (l-udimstinsliiituku .•<•() 36 [2) Registration Tax (Tourokuniciikvo _vi) 36 [3) Stamp Tax (/ns/ii zci) 37 [4) Consumption Tax (VAT - Slioulii jri) 37

[C] Cross-Border Treatment and Issues 37 [1] Issuance of Foreign Rarem Company Sliares 10 Nun-resident

Shareholders 37 [2] Issuance of Sliares in a Tax Häven Company 38

XIII SUBSIDIARY LIQUIDATIONS 39 [A] Domestic Treatment and Issues 39

[1] Taxable Liquidation 39 [2] Liquidation of a Croup Company (Wliolly Owned)

Subsidiary 39 [3] Liquidation of a Japanese Permanent [Establishment

(' PE") 39 [B] Cross-Border Treatment and Issues 40

XIV JOINT VENTURES 40 [A] Structuring, Treatment and Issues in Cross-Border Context 40

[1] Corporate JV 40 [2] Partnership JV 40

[B] Taxation of Operating Results and Distributions 41 [1] Corporate JV 41 [2] Partnership JV 41

[C] Exit/Unwind 41

[1] Corporate JV 41

[2] Partnership JV 42

XV EQUITY AND DEBT RESTRUCTURING 42

[A] Debt Modifications 42

[1] Debt Forgiveness 42

[a] Issuer Consequences 42

[b] Holder Consequences 42

[2] Debt-Equity Swap 43

[B] Equity Modifications 43

[1] Capital Increase 43

[2] Share Buybacks 43

[3] Disguised Dividend 44

XVI CORPORATE EXPATRIATIONS 44

[A] General 44

[B] Anti-corporate Inversion Rules 44

XVII BUSINESS RESTRUCTURINGS 44

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Contents Volume II

XVIII JAPANESE CORPORATION AS ACQUISITION VEHICLE FOR FOREIGN BUSINESS 44

Republic of Korea Soo-Jeong Ahn, John Jangwoon Kwak & Jin Soo Soh 1

I INTRODUCTION 3 [A] General Tax Environment 3 [B] General Tax Rules on Reorganization 5

[ 1 ] Main Characteristics of Current Reorganization Rules 5 [2] Transaction Tax Considerations 7

II TAXABLE ACQUISITIONS AND DISPOSITIONS 9 [A] Non-qualified Merger 10

[1] Tax Consequences for Target 10 [2] Tax Consequences for Shareholders of Target 10 [3] Tax Consequences for Acquiror 11 [4] Tax Consequences for Shareholders of Acquiror 11

[B] Sale and Purchase of Shares 12 [1] Tax Consequences for Seiler (Transferor) 12 [2] Tax Consequences for Buyer 13 [3] Tax Consequences for Target 13

[C] Sale and Purchase of Assets 13 [1] Tax Consequences for Seiler (Transferor) 14 [2] Tax Consequences for Buyer (Transferee) 14

[D] Treatment of Contingent Purchase Price/Contingent Liabilities 14 [1] Earn-Out Payments 14 [2] Clawback 15

[E] Allocation of Purchase Price 15 [F] Special Considerations 15

[1] Triggering Events for Gain Realization 15 [2] Local Tax and VAT Consequences 15 [3] Special Status of Target 16 [4] Loss Limitation 16

IG] Tax Indemnification and Other Contractual Provisions 16 III TAX-FREE ACQUISITIONS AND DISPOSITIONS 17

[A] Merger 17 [1] Requirements for a Qualified Merger 18 [2] Issues to Consider in Reviewing Requirements for

Qualified Merger 19 [a] One Year Requirement 19 [b] Continuity of Interest ("COI") Requirement 19 [c] Distribution Requirement 21 [d] Continuing Shareholding Requirement 22

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Contents Volume II

|e| Contimiity ol Business Enterprise ("COBE") Requirement 22

[3| lux Consequenees 23 |uI I ux Consequenees for Target 23 IM I ux l ouset|tieuees lor Shurehohlers ol l'urgel 23 |c| lux Consequenees lor Aet|uiror 23 MI I 'ix Consequenees loi Shureholders ol Aequiror 24 |e| lux Consequenees of Post Merger Cupiinli/.uion

ot Ihe Gains from Merger 24 [4] Post-Mer^er Requirements und Reeupture ol l ux Benelits 25

|u| Post-Merger Requirements 25 [b] Plfects ol' Reeupture ol l ux Benelils 26

IB| Comprehensive Shure Pxelmnqe/Tmnsfer 26 111 Requirements for Comprehensive Shure I'.xehunge/

Transfer 27 [2] Tax Consequenees 28

[a 1 Tax Consequenees for Turqel 28 [b] Tax Consequenees for Shureholders of Targel 28 [c 1 Tax Consequenees for Acquiror 28 [d] Tax Consequenees for Shureholders of Acquiror 28

[3] Post-Transaction Requirements 29 [C] Comprehensive Assel Transfer 29

[1] Requirements for Comprehensive Assel Transfers 30 [2] Tax Consequenees 30

[a] Tax Consequenees for Target 30 [b] Tax Consequenees for Shureholders of Target 31 [c] Tax Consequenees for Acquiror 31 [d] Tax Consequenees for Shureholders of Acquiror 31

[3] Post-Transaction Requirements 32 IV ATTRIBUTE PRESERVATION AND USAGE 32

[A] Orange in Ownership Impact on Tax Assets 32 [1] General rule 32

[B] Allocation of Compensation and Other Deductions between Pre- and Post-closing Periods 33 [1] NOL Carryover 33

[a] NOL 33 [b] NOL Carryover 33 [c] Separate Accounting Requirement 34

[2] Carryover of Tax Reductions and Tax Credits 35 [a] Tax Reduction and Tax Credit 35 [b] Carryover of Tax Reductions and Tax Credits 35

[3] Tax Adjustment Carryover 36 [a] Meaning of Tax Adjustment Carryover 36 [b] Tax Adjustment Carryover 36

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V DUE DILIGENCE AND CONTRACTUAL TAX PROTECTION 36 [A] Due Diligence 36

[1] Triggering Events for Gain Realization 36 [2] Local Tax and VAT Consequences 37 [3] Special Status of Target 37 [4] Loss Limitation 37

[B] Tax Indemnification 37 VI FINANCING AND DEBT PUSHDOWN STRATEGIES 38

[A] Leveraging the Taxable Acquisition, Including Cross-Border Aspects 38

[B] Debt Pushdown Strategies 38 [1] Debt versus Equity 38 [2] Thin-Capitalization Rule 40 [3] Deemed-Capitalization Rule 41

[C] Other Ways of Maximizing Tax Deductibility of Interest and Acquisition Expenses - Withholding Tax on Interest Payments 42 [1] General Rule 42 [2] Domestic Law Exemptions 42 [3] Eligibility for Reduced Withholding Tax Rates under

Income Tax Treaties 43 [a] Residence 43 [b] Claiming Reduced Withholding Tax Rates under

Income Tax Treaties - Applicable to Korean Sourced Income Paid from July 1, 2012 43

[c] Foreign Hybrid Entities and Substantive Ownership 44 VII DEALING WITH COMPENSATION PLANS 46

[A] Treatment and Issues in M&A Context 46 [B] Tax Treatment of Retirement Income and Compensation Income 47

VIII GROUPING 48 [A] Requirements 48

[ 1 ] Complete Control 49 [2] Eligible Entities 49

[B] Consequences and Advantages 50 [ 1 ] Determination of Taxable Income for Each Taxable Year 50 [2] Consolidated NOLs 50

[a] Non-deductible NOLs of the Parent Company 50 [b] Non-deductible NOLs of the Member Subsidiaries 50

[C] Departure of Group Member 50 [1] Addition of a Member 50 [2] Departure of a Member 51

[D] Reporting Requirement 51 [1] Opting Out from the Consolidated Tax Return Filing

Regime 51

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[2] Cancellation of the Application of the Consolidated Tax Return Regime 51

IX FLANNING WITHINTANGIBLES 52 [A] Treatment of Transfers Offshore and Licensing Back (If Local

Regime Is Unfavorable) 52 [1] IP Transfer by a Korean Corporation to a Foreign

Corporation 52 [2] IP Transfer by a Foreign Corporation to a Korean

Corporation 53 [B] Cost Sharing Arrangement 54 [C] Transfer of Know-How versus Provision of Services 55

X INTERNAL RESTRUCTURINGINVOLVING KOREAN TARGET 56 [A] Dividend Received Deductions 56 [B] CFC Rule 57

XI TARGET BREAKUP OR OTHER DISPOSITIONS OF UNWANTED ASSETS 58

XII DEMERGERS 59 [A] Domestic Treatment and Issues 59 [B] Non-qualified Spin-Offs 59

[1] Non-qualified Florizontal Spin-Offs 59 [2] Non-qualified Vertical Spin-Offs 60

[C] Qualified Spin-Offs 61 [1] Qualified Horizontal Spin-Offs 61

[a] Requirements for Qualified Horizontal Spin-Offs 61 [b] "Independent Business Unit" Requirement 62 [c] Tax Consequences 64

[2] Qualified Vertical Spin-Offs 65 [a] Requirements for Qualified Vertical Spin-Offs 65 [b] Tax Consequences 65

[3] Recapture of the Tax Benefits after the Spin-Offs 66 [a] Qualified Horizontal Spin-Offs 66 [b] Qualified Vertical Spin-Offs 67

[D] Other Matters 68 [1] Horizontal Spin-Off Followed by Merger 68 [2] Vertical Spin-Off Followed by Merger 69 [3] In-Kind Contribution 69

[a] Non-qualified In-Kind Contribution 69 [b] Qualified In-Kind Contribution 70 [c] Recapture of Tax Benefits after Qualified In-Kind

Contribution 70 XIII SUBSIDIARY LIQUIDATION 70

[A] Domestic Treatment and Issues 70 [1] Liquidation Procedure and Tax Consequences 70 [2] Tax-Free Liquidation of Subsidiary 71

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[B] Cross-Border Treatment and lssues XIV JOINT VENTURES

[A] Structuring, Treatment and lssues in Cross-Border Context [B] Tax Implications upon In-Kind Contribution of Property on

Formation [1 ] Treatment of Built-In Gain [2) Treatment of Built-In Loss

[C] Tax Impact on Ongoing Operations of JV 111 Tax to JV (2J Tax on Distribution to Shareholders (Partners)

|D] Tax Implications upon Exil (1) Liquidation of JV [21 Disposition of JV Interest

XV EQUITY AND OEBT RESTRUCTURING (A] Debt Modifications

(11 Tax Effect on Debtor [2) Tax Effect on Creditors

(B] Equity Modifications (C] Special Treatment

(1 ] Assel Transfer [2] Acquisition and Repayment of Debt by Corporate

Shareholders (31 Forgiveness of Debt by Financial Institution [4] Share Exchange

XVI CORPORATE EXPATRIATIONS | A] Determination of the Domestic Corporation Status linder the

CITA [B) Determination of the Residence Status under the Tax Treaty IC( Corporate Expatriation as Taxable Event

XVII BUSINESS RESTRUCTURINGS XVIII KOREAN CORPORATION AS ACQUISITION VEHICLE FOR FOREIGN

TARGET [A] Holding Company Regime |B| Pros and Cons of Locating a Holding Company in Korea

Mexico Jose Carlos Silva & Adalberto Valadez

I INTRODUCTION IA] Overview of Mexico [ B] General Legal System

11 ] General lssues |a| Overview |b| Strategie Sectors [c] Exclusion of Foreign Investment

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73 73 73 73 73 74 74 74 75 75 76 76 77 78 79 79

79 80 80 80

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Contents Volume II

[d] Limited Foreign Investment Sectors g [e] Neutral Investments 7

[2] Investment Vehicles 7 [a] Overview 7 [b] Corporate Forms 7

[i] Sociedad Anönima 8 Iii] Sociedad de Responsabilidad Limitada 8 [iii] Fixed versus Variable Capital 8 [iv] Filings 8 [v] Sociedad Anönima Promotora de Inversion 9

[c] Asociaciön en Participaciön 9 [d] Branch Office 9 [e] Mexican Real Estate Trust 10

[C] General Tax Environment 11 [1] Comments on 2014 Tax Reform 11 [2] Income Tax 13

[a] Tax Rate 13 [b] Taxable Basis 13

[i] Employee Profit Sharing 13 [ii] Net Operating Bosses 14 [iii] Deductions 15 [iv] Depreciation of Assets, Amortization of

Deferred Assets and Expenses 17 [v] Interest 18

[c] Tax Attributes 19 [i] CUFIN 19 [ii] CUCA 20 [iii] CUFINRE 20

[d] Dividends 20 [e] Capital Redemptions 21 [f] Preferential Tax Regimes (Tax Hävens) 22 [g] Taxation of Nonresidents 23

[3] Value Added Tax 25 [a] Tax Rate 25 [b] Creditable Value Added Tax 25

[4] Business Fiat Tax (IETU) 26 [5] Real Estate Transfer Tax 26 [6] Tax on Cash Deposits 27 [7] Capital Taxes 27

[D] Characteristics Unique to Mexico 27 [1] Tax Treaties and Information Exchange Agreements 27

[a] Treaty Network 27 [i] Relief on Interest Withholding Rate 28 [ii] Relief on Capital Gains 28

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Contents Volume II

[iii] Reorganizations 29 [b] Broad Agreements for the Exchange of Information 29

II TAXABLE ACQUISITIONS AND DISPOSITION OF MEXICAN ENTITY OR ITS ASSETS 30 [A] Sale and Purchase of Shares 30

[1] Consequences for Selling Stockholders 30 [a] Taxation on Mexican Transferors 30

[i] Income Tax 30 [ii] Value Added Tax 33

[b] Taxation on Nonresident Transferors 34 [i] Income Tax 34

[2] Consequences for Acquirer 36 [a] Appraisals in Transactions Involving Nonresidents 36

[B] Sale and Purchase of Assets 36 [1] Implications for the Seiler 37 [2] Implications for Purchaser 37

[C] Treatment of Contingent Purchase Price/Contingent Liabilities 38 [1] Income Tax 38 [2] Value Added Tax 38

[D] Allocation of Purchase Price 38 [E] VAT and Other Transfer Taxes 38

[1] Transfer of Shares 38 [2] Transfer of Assets 39

III TAX-FREE ACQUISITIONS AND DISPOSITION 39 [A] Types and Requirements 39 [B] General Consequences and Objectives 39

[1] Sale of Shares Using Tax Basis as Price 39 (2] Merger 40

[a] Tax-Free Merger 41 [b] Tax Attributes 41 [c] Transfer of Assets 42 [d] Tax Integration Effects 42 [e] Real Estate Tax 42

[C] Cross-Border Transfers 42 [1] International Reorganization 42 [2] Tax Treaty Reorganizations 44

[a] Mexico-US Tax Treaty Protocol 44 [b] Mexico-Netherlands Tax Treaty Reorganization 44 [c] Requirements for Implementation 45

[3] Tax Häven Reorganization 45 [D] Transfer Taxes 46 [E] Issues of Special Concern in Mexico 46

IV TAX ATTRIBUTE PRESERVATION AND USAGE 46 [A] Change in Ownership Iinpact on Tax Assets 46

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[B] Allocation ol Compensatio!) and Other I)eductions helwoon Pre- and Post-closing Periods

[C) Any Other Issties of Special Concern in Mexico 46

V DUE DIUCKNCH ÄND CONTRACl'UAI. TAX PROTECTION 47 |A| Overview

111 VAT Dne Diligence 4g [2] Income Tax Due Diligence 48

|B] Tax Indemnifications and Other Contractiial Provisions 49 VI FINANCINC ANO HEBT PUSHOOWN STRATEGIES 49

[A] Leveraging (ho Taxahle Acquisitum, Including Cross Bördel Aspects 49

[1| Considerations 49 [2j Equity Financing 50 [3] Withholding 011 Interest Payments 50 [4] Reclassification of Interest Payments and Back-to-Back

Loans 51 [5] Thin Capitali/.ation 51 [6] Transfer Pricing 52 [7] Disclosure Ohligations 52

[B] Debt Pushdown Strategies 52 [C] Other Ways of Maximizing Tax Deductibility of Interest and

Acquisition Expenses 53 VII DEALING WITH COMPENSATION PLANS 53

[A] Treatment and Issues in M&A Context 53 [B] Any Other Issues of Special Concern in Mexico 53

VIII GROUPING 54 [A] Requirements 54 [B] Consequences and Advantages 54 [C] Departure of Group Member 55

IX FLANNING WITH INTANGIBLE PROPERTY (IP) 55 [A] Local Regime (If Favorable) 55 [B] Treatment of Transfers Offshore and Licensing Back (If Local

Regime Is Unfavorable) 56 [C] Any Other Issues of Special Concern in Mexico 56

X INTERNAL RESTRUCTURING INVOLVING MEXICAN TARGET 57 XI TARGET BREAKUP OR OTHER DISPOSITION OF UNWANTED

ASSETS 58

XII DEMERGERS 88

[A] Domestic Treatment and Issues 58 [1] Tax-Free Spin-Off 58 [2] Transfer of Tax Attributes 58 [3] Transfer of Assets 59

[B] Cross-Border Treatment and Issues 59 [C] Any Other Issues of Special Concern in Mexico 59

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XIII SUBSIDIARY LIQUIDATIONS 60 [A] Domestic Treatment and Issues 60 [B] Cross-Border Treatment and Issues 61 [C] Any Other Issues of Special Concern in Mexico 61

XIV JOINT VENTURE 62 [A] Structuring, Treatment and Issues in a Cross-Border Context 62 [B] Any Other Issues of Special Concern in Mexico 63

XV EQUITY AND DEBT RESTRUCTURING 64 [A] Debt Modifications 64 [B] Equity Modifications 65 [C] Any Other Issues of Special Concern in Mexico 65

XVI CORPORATE EXPATRIATIONS 65 [A] Inbound Migrations 65

[1] Legal Considerations 66 [2] Tax Considerations 66 [3] Exit Taxes 67

[B] Outbound Migration 67 XVII BUSINESS RESTRUCTURINGS 68 XVIII MEXICAN CORPORATION AS ACQUISITION VEHICLE FOR

FOREIGN TARGET 68

The Netherlands Maarten J.M. van der Weijden, Margriet E. Lukkien & Mönica Sada Garibay 1

I INTRODUCTION 3 [A] General Legal System 3 [B] General Tax Environment 4

[1] Corporate Tax 5 [a] Base and Rate 5 [b] Preventing Double Taxation 5 [c] Interest Deductions 6 [d] Tax Attributes 7 [e] Recent Changes and Changes under Consideration 8

[2] Dividend Withholding Tax 9 [3] Dutch Revenue 10

[C] Types/Classification of Major Business Entities 11 [1] Main Dutch Business Entities 11 [2] Taxation of Main Dutch Business Entities 11 [3] Other Dutch Business Entities 12 [4] Classification of Foreign Entities 13

II TAXABLE ACQUISITIONS AND DISPOSITIONS 14 [A] Sale and Purchase of Shares 14

[1] Consequences for Selling Shareholders 14 [a] Seiler Is a Dutch Tax Resident Company 15 [b] Seiler Is an Individual Resident in the Netherlands 16

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[i] Box 1 16

[ii] Box 2 17

[iii] Box 3 17 [c] Seiler Is a Non-resident Company or Individual 18

[2] Consequences for Acquiror 19 [a] Acquiror Is a Dutch Tax Resident Company 19

[i] Corporate Tax 19 [ii] Dividend Withholding Tax 20

[b] Acquiror Is a Non-Dutch Resident Company 21 [i] Corporate Tax 21 [ii] Dividend Withholding Tax 22

[3] Tax Consequences to the Dutch Target Company 23 [a] Corporate Tax 23 [b] Other Taxes 24 [c] Post-acquisition Restructuring of the Dutch Target 24

[B] Sale and Purchase of Assets 25 [1] Taxable Purchase of Dutch Business Assets of a Dutch

Target Company 25 [a] Consequences for Seller/Dutch Target 25 [b] Consequences for Acquiror 26

[2] Taxable Purchase of Assets of a Non-Dutch Target Company 27 [a] Consequences for Seller/Non-Dutch Target 27 [b] Consequences for Acquiror 27

[C] Treatment of Contingent Purchase Price/Contingent Liabilities 28 [D] Allocation of Purchase Price 28 [E] VAT and Other Transfer Taxes 28

[1] Sale and Purchase of Shares 28 [a] VAT 28 [b] Real Property Transfer Tax 29

[2] Purchase of Dutch Business Assets 29 III TAX-FREE ACQUISITIONS AND DISPOSITIONS 30

[A] Types and Requirements 30 [1] Business Merger 30 [2] Legal Merger and Legal Demerger 31

[a] Facility at the Level of the Merging/Demerging Entities 31

[b] Facility at the Level of the Shareholders 32 [3] Share Merger 33

[B] General Consequences and Objectives 34 [C] Cross-Border Transfers 34 [D] Transfer Taxes 34

[1] Business Merger 34 [2] Legal Merger and Demerger 34

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IV ATTRIBUTE PRESERVATION AND USAGE 35 [A] Change in Ownership Impact on Tax Assets 35

[1] Availability of Loss Compensation 35 [2] Use of pre-2012 Claims for Exempt Foreign PE Profits and

Foreign Tax Credit Carry Forwards 36 [B] Any Other Issues of Special Concern in the Netherlands 37

V DUE DILIGENCE AND CONTRACTUAL TAX PROTECTION 37 [A] Due Diligence 37 [B] Tax Indemnification 38 [C] Tax Treatment of Indemnity Payments 39

VI FINANC1NG AND DEBT PUSHDOWN STRATEGIES 39 [A] Leveraging the Taxable Acquisition, Including Cross-Border

Aspects 39 [1] General 39 [2] Article 10a CTA: Anti-base Erosion Provisions 40 [3] Article 10b CTA: Low or No Yield Loans 41 [4] Article 13L CTA: Loans Taken Up for Investments in

Qualifying Participations 41 [B] Debt Pushdown Strategies 43 [C] Other Ways of Maximizing Tax Deductibility of Interest and


[A] Treatment and Issues in M&A Context 44 [ 11 General 44 [2] Roll-Over Provisions under Dutch Tax law 45

[a] Wage Tax 45 [b] Personal Income Tax 46

[3] Cash-Out of Existing Plan 47 [a| Wage Tax 47 [b] Personal Income Tax 47 [c] Severance payments 47

[B] Any Other Issues of Special Concern in the Netherlands' Current Deductibility Rules for Equity-Based Compensation 47

VIII GROUPING 48 [A] Requirements 48 [B] Consequences and Advantages 50 [C] Departure of Group Member 51

[1] General 51 [2] Seiler Is a Dutch Tax Resident Company 51 [3] Tax Consequences to the Dutch Target Company 52

IX DUTCH TAX RULES RELATING TO R&D 52 [AJ General 52 [B] Local Regimes 53

[1] Innovation Box 53

xxv

Contents Volume II

[a| Qualifying Business Assots 54

|i) Selt-Created Intangihlc Business Asseis 54 |ii| Patent or K&D Certifie.ite 55

|hj The Innovation Box Election 55 [c] Affective Corporate Tax Kate ol' 5% 55

[i| Tower Tax Base 55 [ii] ' I hreshold' tor Development Costs 56 [iiil Bosses from Intangihlc Assets 56

Itl 1 International Contexl 56 |e| Using ihe Innovation Box in l'raetiee 56

[i] Methods Used 56 Iii] Tax rulings 57

[2] R&D Certificates 57 [3] Extra R&D Deduetion 58

[C] International Exploitation of IP Held ontside the Netherlands 58 X INTERNAL RESTRUC TUR1NG INVOI.V1NC DUTCH TARGET 59

[A] Treatment of Assets That Qualily under the Duleh Participation Exemption Regime 59

[B] Treatment of Assets That Do Not Qualify under the Dutch Participation Exemption Regime 59

XI TARGET BREAKUP OR OTHER DISPOSITION OE UNWANTED ASSETS 60 [A] General 60 [B] Alternatives for Acquiring Part of the Assets of a Dutch Target 60

XII DEMERGERS 60 [A] Domestic Treatment and Issues 60 [B] Cross-Border Treatment and Issues 61

XIII SUBSIDIARY LIQUIDATIONS 61 [A] Domestic Treatment and Issues 61

[1] Corporate Law Aspects 61 [2] Tax Consequences of a Liquidation 61

[a] Gains and Bosses for the Liquidating Subsidiary 61 [b] Tax Treatment of the Shareholder in the Liquidated

Subsidiary 62 [B] Cross-Border Treatment and Issues 63 [C] Any Other Issues of Special Concern in the Netherlands 63

XIV JOINT VENTURES 63 [A] Structuring, Treatment and Issues in Cross-Border Context 64

[1] Structuring 64 [2] Treatment and Issues in Cross-Border Context 64

[a] Tax Treatment of the Contributions to the Joint Venture 64

[b] Tax Treatment of the Joint Venture Income 65 [i] Tax Transparent Joint Venture 65

xxvi

Contents Volume II

[ii] Corporate Joint Venture 65 [c] Tax Treatment of a Discontinuation of the Joint

Venture 66 XV EQUITY AND DEBT RESTRUCTURING 67

[A] Debt Modification 67 [1] Write Off and Waiver of Debt 67 [2] Purchase by a Debtor of Own Debt 68 [3] Conversion of Debt into Indebtedness on Different Terms 68 [4] Conversion of Debt into Equity 69

XVI CORPORATE EXPATRIATIONS 69 [A] General 69 [B] Exit Taxation 69

[1] Domestic Legislation 69 [C] Inversions 70

XVII BUSINESS RESTRUCTURINGS 71 XVIII DUTCH CORPORATION AS ACQUISITION VEHICLE FOR FOREIGN

TARGET 72 [A] General 72 [B] Dutch Participation Exemption 72

[1] General 72 [2] Five Percent Ownership Requirement 74 [3] General: Motive Test, Asset Test or Taxation Test 74

[a] Motive Test 74 [b] Asset Test 75 [c] Taxation Test 77

[4] Credit System If Participation Exemption Does Not Apply 78 [C] No Comprehensive Controlled Foreign Company Legislation 78 [D] Dutch Treaty Network 78 [E] Tax Liability for Shareholder(s) of Dutch Acquisition Vehicle 79 [F] Dividend Withholding Tax 80

Russian Federation Victor Match.ekh.in 1

I INTRODUCTION 3 [A] General Legal System 3 [B] General Tax Environment 5

[1] General 5 [2] Russian Tax Administration and Finance Ministry 6 [3] Tax Terminology 7 [4] Written Clarifications 7 [5] Foreign Investments 8 [6] Corporate Tax 8

[a] Base and Rate 8 [b] Deductions 9

xxvii

Contents Volume II

kl Net Operating Bosses g

|d] Preventing Double Taxation g

|e| Interest Deduction 10

|f| Ret eilt Changes .uul t liauges uiuler Consideration 10 Igl Dividend Withholding Tax u

|h| Russi.in CRC niles |7| Complex und Innovative Slruclures 13 [8] Application of Tax Treuties 13

IC] I ypes/Clussificution ol Major Business Bunnes 14 [1] Main Russinn Business Kntities 14 [2] Iaxation of Main Russian Business Emilies 14 [3] Classification of Foreign Hniities 14

[D] Anti-avoidance 13 II TAXABLE ACQUISITIONS AND DISPOSITION* 15

[Aj Sale and Purchase of Sinnes of Russian 'Bärget 16 [1] Consequences for Solling Shareholders 16

[aj Seiler 1s Russian Company 16 [b] Seiler Is Foreign Company 17 [c] Seiler Is Individual Russian lax Resident 18 [d] Seiler Is Individual Non-Russinn l ax Resident 19

[2] Consequences for Buyer 19 [a] Buyer Is Russian Company 19

[i] Profits Tax 19 Iii] Dividend Withholding Tax 20

[b] Buyer Is Foreign Company 20 [i] Profits Tax 20 [ii] Dividend Withholding Tax 20

[3] Tax Consequences for Russian Target Company 20 [a] Profits Tax 20 [b] Other Taxes 20 [c] Post-acquisition Restructuring of Russian Target 21

[4] Acquisition by Russian Company of Non-Russian Company 21 [B] Sale and Purchase of Assets 21

[1] Taxable Purchase of Russian Assets of Russian Company 21 [a] Consequences for Seiler 21 [b] Consequences for Buyer 21

[2] Taxable Purchase of Assets of Non-Russian Company 22 [a] Consequences for Seiler 22 [b] Consequences for Buyer 22 [c] Transfer of Business as a Going Concern 22


[1] Sale and Purchase of Shares 23

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Contents Volume II

[a] VAT 23 [b] Other Taxes 23

[2] Purchase of Russian Business Assets 23 [a] VAT 23 [b] Other Taxes 23

III TAX-FREE ACQUISITIONS AND DISPOSITIONS 24 [A] Types and Requirements 24

[1] Change of Corporate Form (Reorganization) 24 [2] In-Kind Contributions 24 [3] Mergers 24 [4] Demergers 24

[B] Cross-Border Transfers 25 [C] Transfer Taxes 25



[1] Substance of Operations 26 [2] Transfer Pricing 26 [3] Input VAT 26 [4] Thin Capitalization Rules 27 [5] Application of Tax Treaties 27 [6] Tax Bosses 27

[B] Tax Indemnification 27 [1] General 27 [2] Scope 28 [3] Gross Up 28 [4] Tax Indemnity Claims 28 [5] Conduct of Tax Affairs 28

[C] Tax Treatment of Indemnity Payments 28 VI FINANCING AND DEBT PUSHDOWN STRATEGIES 29

[A] Leveraging Taxable Acquisitions, Including Cross-Border Aspects 29 [1] General 29 [2] Anti-abuse Erosion Provisions 29 [3] Thin Capitalization Rules 29 [4] FX Considerations 30 [5] Withholding Tax 30

[B] Debt Pushdown Strategies 30 VII DEALING WITH COMPENSATION PLANS 31

[A] Treatment and Issues in M&A Context 31 [1] General 31 [2] Rollover Provisions under Russian Tax Law 31

[a] Wage Tax 31

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Contents Volume II

|b] Personal Income Tax 31

[3] Cash-Out of Existing Plans 32 [a] Wage Tax 32 [b] Personal Income Tax 32

[B] Other Issues of Special Concern: Pension Arrangements 32 VIII GROUPING 32

[A] Requirements 32 [B] Consequences and Advantages 33 [C] Departure of Group Member 34

IX PLANNING WITH 1NTANGIBI.ES 34 [A] General 34 [B] Local Regimes 34 [C] Treatment of Transfer Offshore und Licensing Back 34 [D] Cost Sharing 34 [E] Tax Treaties 35

X INTERNAL RESTRUCTURING INV0LV1NG RUSSIAN TARGET 35 XI TARGET BREAK-UP OR OTHER DISPOSITION OE UNWANTED

ASSETS 35 [A] General 35

XII DEMERGERS 35 [A] Domestic Treatment and Issues 35

XIII SUBSIDIARY LIQUIDATION 36 [A] Domestic Treatment and Losses 36

[1] Corporate Law Aspects 36 [2] Tax Aspects 36

[a] Garns and Losses of Liquidating Subsidiary 36 [b] Tax Treatment of Shareholder 36

[B] Cross-Border Treatment and Issues 36 XIV JOINT VENTURES 37

[A] Structuring, Treatment, and Issues in Cross-Border Context 37 [1] Structuring 37 [2] Corporate Joint Ventures 37 [3] Contract JV (Simple Partnership/Joint Activity Agreement) 37

[B] Offshore Organization Favoured 38 XV EQUITY AND DEBT RESTRUCTURING 38

[A] Equity Restructuring 38 [B] Debt Modification 38

[1] In General 38 [2] Conversion into Equity 39 [3] Write Off and Waiver of Debt 39 [4] Purchase by Debtor of Own Debt 39 [5] Change of Terms of Debt 39

XVI CORPORATE EXPATRIATION 39 [A] General 39

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Contents Volume II

[B] Exit Taxation XVII BUSINESS RESTRUCTURINGS XVIII RUSSIAN COMPANY AS ACQUISITION VEHICLE FOR FOREIGN

TARGET [A] General [B] Russian Participation Exemption [C] No Exit Taxation [D] Tax Liability for Shareholder(s) of Russian Acquisition Vehicle [E] No Capital Duty, No Transfer Taxes [F] Short Limitation Period for Tax Audit [G] Speedy Tax Dispute Resolution [H] Russian Treaty Network

Spain Sorna Velasco, Javier Asensio & Marti Adroer

I INTRODUCTION [A] General Legal System [B] General Tax Environment [C] Characteristics Unique to Spain

II TAXABLE ACQUISITION AND DISPOSITIONS [A] Asset Purchase and Share Purchase

[1] Asset Deals [a] Liabilities [b] Step-Up in Tax Basis of Asset [c] Third-Party Finance [d] Other Considerations

[2] Share Purchase [B] Value Added Tax and Other Transfer Taxes

[1] Asset Deal [2] Share Deal

[C] Holding Company Structures Commonly Used to Invest in Spain [1] Using the Spanish Holding Company to Invest outside

Spain [a] Conditions for Applying the ETVE Regime [b] Taxation at the Level of the Spanish Holding

[i] Exemption on Dividends [c] Tax Deduction of Expenses and Capital Losses [d] Tax Treatment of ETVEs' Nonresident Shareholders

[i] Dividends Distributed by ETVEs [ii] Transfer of ETVEs' Shares

[D] Treatment of Contingent Purchase Price/Contingent Liabilities [1] Beneficiary of the Payments Deriving from Breach of Tax

Warranties

xxxi

40 40

40 40 40 40 40 41 41 41 41

1

3 3 4 5 5 5 6 6 6 6 7 7 9 9 9

10

10 11 11 11 13 13 13 14 14

15

Contents Volume II

|2] Tax Treatment of the l'.ivinents lor Bre.idi of l ux Warranties

13] Succession of Responsibilities in Sinne .nul Asset Ilenls: Certificate froin Tax Autliorities 16

III TAX-FREE ACQUISITIONS AND DISPOSITIONS 17 1A] Introduction 17

[B] Principles of the Spanish l ax Deferrnl Regime ig 111 The Tax Deferrnl Effect: Polling over the l ax Basis und

Holding Period of the Asseis Coniributed 18 [2] T erritoriality Limiiations in Gross Border Reorgani/ation

Transactions 18 [3] Universal Succession and Transfer of Carried Forward Tax

Bosses under Reorgani/ation Transactions 19 [a] Universal Succession of Tax Rights and Ohligations 19 [b] Transfer of Carried Forward Tax Bosses under

Reorgani/ation Transactions 20 [4] Applicability of the Tax Ueferral Regime lo Other Taxes 20

[C] Types and Requireinents 21 [1] Merger 21 [2] Füll Demerger 22 [3] Partial Demerger 22 [4] Contribution of a Brauch of Activity (In-Kind Contribution) 23 [5] Share for Share Mergers 24 [6] In-Kind Contributions 24 [7] Transfer of SE and SCE Registered Offices between

Member States 24 [D] Other Issues 24

[1] Anti-avoidance Provision 24 [2] Compliance 25


V DUE DIEIGENCE AND CONTRACTUAB TAX PROTECTION 27 [A] Due Diligence 27

[B] Tax Indemnification and Other Contractual Provisions 27 [1] Usual Content of Tax Warranties 28

VI DEABING WITH COMPENSATION PLANS 29 [A] Treatment and Issues in an M&A Context 29

[1] Compensation Paid to Dismissed Employees 29 [2] Incentives to Retain Company Key Staff Members 30

[B] Other Issues 31

[1] Stock Options 31

[2] Pension Commitments 32 [3] Changes in Remuneration 33

VII FINANCING AND DEBT PUSHDOWN STRATEGIES 33

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Contents Volume II

[A] Leveraging the Taxable Acquisition, Including Cross-Border Aspects 33 [1] Thin Capitalization Rules 34 [2] Arm's Length Interest Rate 35 [3] Profit Sharing Loans 35 [4] FX Considerations 36 [5] Taxation on Interest Faid to Nonresidents 36

[B] Debt Pushdown Strategies 36 [C] Other Ways to Maximize the Tax Deductibility of Interest and

Acquisition Expenses 37 VIII FLANNING WITH INTANGIBLES 37

[A] Local Regime: Spanish IP Tax Regime 37 [B] Treatment of Transfers Offshore and Licensing Back 38

[1] Transfer of Intangibles 38 [2] License of Intangibles 39 [3] EU Directive 39 [4] Abolition of Taxation on Gross Income: Effect in an EU

Context 40 [5] Cost Sharing Agreements 40

[C] Other Issues 41 [1] Inbound and Outbound: Anti-abuse Considerations 41

IX GROUPING 41 [A] Requirements 41

[1] Legal Form 41 [2] Tax Residence 42 [3] Shareholding and Controlling Company 42

[B] Consequences and Advantages 43 [C] Departure of Group Member 44

X INTERNAL RESTRUCTURING INVOLVING SPANISH TARGET GENERALLY 44

XI TARGET BREAKUP OR OTHER DISPOSITION OF UNWANTED ASSETS 45

XII TAX-FREE DEMERGERS 45 XIII SUBSIDIARY LIQUIDATIONS 46

[A] Domestic Treatment and Issues 46 [1] Taxation of Wound-Up Entities 46 [2] Taxation of Shareholders 46

[a] Stamp Duty 46 [b] Corporate Income Tax 46 [c] Personal Income Tax 47 [d] Nonresident Shareholders 47

[B] Crossborder Treatment and Issues 48 XIV JOINT VENTURES 49

[A] Partnerships 49

xxxiii

Contents Volume 11

[B] Foreign Partnerships IC) Other lssues

111 Temporary C.rouping of Emilies XV EQU1TY AND HEBT RESTRUCTURINC

[AJ Deht Modifieations [B| Equity Modifieations

XVI CORPORATE RED0M1C1LAT10N (AI Redomiciliation of a Spanish Company tu Another EU Member

State (BJ Cross-Bürdet Merger versus Transfer of Company Seat

XVII BUSINESS RESTRUCTURINC XVIII SPANISH CORPORATION AS OWNER OR ACOUISITION VEHICLE

FOR FOREIGN BUSINESS IA] Direct Foreign Tax Credit [Bj Indirect Foreign Tax Credit [C] Foreign Tax Credits under Spanisli l ax Treaties [D] Spanish-Controlled Foreign Corporation Rules [E] Portfolio Depreciation [F] Goodwill Depreciation

Sweden Peter Utterström <S Daniel Gustafsson

I INTRODUCTION [A] Overview of Sweden (B( General Legal System

[1] Legal Forms Available in Sweden [a] Limited Liability Company

[i] Private Limited Liability Company (ii( Public Limited Liability Company

[b] Partnerships [c] Economic Association [d] European Company [e] Brandl of a Foreign Corporation [f] Sole Proprietorship

[C] General Tax Environment [1] Anti-avoidance Rules

[a] Controlled Foreign Corporation (CFC) [b] The Anti-tax Evasion Act [c] The "Transparency" Doctrine

[D] Characteristics Unique to Sweden II TAXABLE ACQUISITIONS AND DISPOSITION

[A] Treatment of Seiler and of Target Entity [1] General [2] Closely Held Companies

49 50 50 51 51 52 53

53 54 54

55 56 56 57 57 59 59

1

3 3 3 3 4 4 4 4 5 5 6 6 6 6 7 8 8 8 9 9 9 9

xxxiv

Contents Volume II

[3] Shell Companies 11 [4] Share-for-Share Exchange of Stock 11 [5] Sale and Purchase of Partnership Interests 11

[a] Consequences for Individual Partners 11 [b] Consequences for Corporate Partners 12

[B] Sale and Purchase of Stock 12 [1] Consequences for Corporate Stockholders 12

[a] General 12 [b] The Participation Exemption 13 [c] Shell Companies 15

[C] Sale and Purchase of Assets 15 [1] General 15 [2] Price Below Fair Market Value 16 [3] Tax Free Reorganizations 16

[D] Treatment of Contingent Purchase Price/Contingent Liabilities 16 [E] Allocation of Purchase Price 17 [F] VAT and Other Transfer Taxes 17

III TAX-FREE ACQUISITIONS AND DISPOSITION 17 [A] Types and Requirements 18

[1] Acquisitive Reorganizations 18 [a] Mergers 18

[i] Target Shareholder Consequences 19 [b] Asset-for-Share Exchange 20

[2] Incorporation/Contribution Transfers 20 [a] Incorporation 20 [b] Tax Free Asset Contributions 21

[B] General Consequences and Objectives 21 [C] Cross-Border Transfers 22 [D] Transfer Taxes 22 [E] Issues of Special Concern in Sweden 22

IV ATTRIBUTE PRESERVATION AND USAGE 22 [A] Change in Ownership Impact on Tax Assets 22 [B] Allocation of Compensation and Other Deductions between

Pre- and Post-closing Periods 23 [1] Tax Loss Carry Forward 23

V DUE DILIGENCE AND CONTRACTUAL TAX PROTECTION 24 [A] Due Diligence 24 [B] Tax Indemnifications and Other Contractual Provisions 25

VI FINANCING AND DEBT PUSHDOWN STRATEGIES 25 [A] Debt Financing 25

[1] Limitations on Interest Deductibility 26 [B] Shareholders' Contributions 26 [C] Profit-Sharing Debentures 27 [D] Participating Debentures 28

xxxv

Contents Volume II

[E] Withholding Tax 28 [F] Income Tax Treaty Requireinenis Cor Eligibility für Redticod

Withholding Tax Rates 29 [G] Leveraging the Taxable Acquisitum, Inehiding Cross-Border

Aspects 29 [H] Debt Pushdown Strategies 29 [I] Other Ways of Maximizing Tax Deductibility of Iniorost and


[A] Treatment and Issues in M&A Context 30 [1] Employee Stock Option and Other Coinpensation Plans 30

[a] Bonus Scheines 30 [b] Restricted/Unrestricted Employee Sectnilies 30

[B] Other Issues of Special Concern in Sweden 32 VIII GROUPING 32

[A] Requirements 34 [B] Consequences and Advantages 34 [C] Departure of Group Member 34

IX FLANNING WITH INTANGIBLES 35 [A] Local Regime (If Favourable) 35

[1] Royalty 35 [B] Other Issues of Special Concern in Sweden 36

X INTERNAL RESTRUCTURING INVOLVING A SWEDISH TARGET 36 XI TARGET BREAKUP OR OTHER DISPOSITION OF UNWANTED

ASSETS 36 XII DEMERGERS 36

[A] Domestic Treatment and Issues 36 [1] Complete Demerger 37 [2] Partial Demerger 37

[B] Cross-Border Treatment and Issues 38 XIII SUBSIDIARY LIQUIDATION 38

[A] Domestic Treatment and Issues 38 [B] Cross-Border Treatment and Issues 39 [C] Any Other Issues of Special Concern in Sweden 39

XIV JOINT VENTURES 39 [A] Structuring, Treatment and Issues in Cross-Border Context 39 [B] Any Other Issues of Special Concern in Sweden 40

XV EQUITY AND DEBT RESTRUCTURING 40 [A] Debt Modifications 40 [B] Equity Modifications 40 [C] Any Other Issues of Special Concern in Sweden 40

[1] Share Buybacks 40 [2] Reduction of Share Capital 41 [3] Composition 41

xxxvi

Contents Volume II

XVI CORPORATE EXPATRIATIONS 41 XVII BUSINESS RESTRUCTURINGS 43 XVIII SWEDISH CORPORATION AS ACQUISITION VEHICLE FOR FOREIGN

TARGET 43 [A] Holding Companies 43

[1] Participation Exemption 44 [2] Dividend 44 [3] Capital Gain 44 [4] Intra-group Interest Deduction Limitations 44

Switzerland Daniel Bader, Daniel Lehmann & Peter Reinarz 1

I INTRODUCTION 3 [A] Overview of Switzerland 3 [B] General Legal System 3

[1] Political Institutions 3 [2] Swiss Legislation and Decision Making 4

[C] General Tax Environment 5 [1] Corporate Income Tax 5 [2] Corporate Capital Tax 6 [3] Withholding Tax 6 [4] Holding and Group Companies 6

[D] Characteristics Unique to Switzerland 7 [1] Intercantonal Tax Allocation 7 [2] Double Taxation Treaties 7

II TAXABLE ACQUISITIONS AND DISPOSITION 7 [A] Treatment of Seiler and Target Entity 8

[1] Sale of Assets 8 [2] Sale of Shares 9

[B] Sale and Purchase of and Share Asset 10 [1] Asset Purchase 10 [2] Share Purchase 11


[1] VAT 13 [a] Asset Deal 13 [b] Share Deal 14

[2] Securities Transfer Tax 14 [3] Real Estate Transfer Tax 14 [4] Other Taxes and Fees 14

III TAX-FREE ACQUISITIONS AND DISPOSITION 15 [A] Types and Requirements 15

xxxvii

Contents Volume II

[1] Merger [a] In General 17

[b] Tax Consequenees lor Shareholders 18

Ii] Income from Participations from Private Assets 18

Iii] Income from Participations from Business Assets lg

|c] lax Consequenees lor Merging Companies 19 |2] Upstream Merger 19 [3] Downstream Merger/Reverse Merger 20 [4] Quasi-Merger 20 [5] Demerger 20

|a] Tax Considerations 21 [6] Asset Transfer 21

|a] Tax Considerations 22 [B] Cross-Border Transfers 22

[1] In General 22 [2] Cross-Border Mergers 22

|a] Immigration Merger 22 |b] Quasi-merger 23 [c] Emigration Merger 24

[3] Cross-Border Demergers 24 [C] Transfer Taxes 24

[1] Stamp Duty/Securities Transfer Tax 24 [2] Value Added Tax 25

[a] Net Remittance Procedure 25 [b] Acquisitions and Dispositions within a VAT-Group 26 [c] Transaction with Non-VAT Group Members 26 [d] VAT Issues with Cross-Border Restructuring 27

[i] Export Out of Switzerland 27 [ii] Import to Switzerland 27

[e] Transfer Duties on Real Estate 27 IV ATTRIBUTE PRESERVATION AND USAGE 28

[A] Change in Ownership Impact on Tax Assets 28 [1] Boss Carryforwards 28 [2] Old Reserves Theory 28

[B] Allocation of Compensation and Other Deductions between Pre- and Post-closing Periods 29


[B] Tax Indemnifications and Other Contractual Provisions 30 [1] Asset Deal 3(3

[2] Share Deal 33

[a] Tax Indemnifications 31

xxxviii

Contents Volume II

[b] Other Contractual Provisions 31 VI FINANCING AND DEBT PUSHDOWN STRATEGIES 32

[A] Leveraging the Taxable Acquisition Generally 32 [B] Leveraging the Cross-Border Acquisition 34 [C] Double Dip Flanning 35 [D] Thin Capitalization Rules 35

[1] Outline of Procedure 35 [2] Qualification of Debts 36 [3] Capitalization 36

[E] Arm's Length Interest Rate 38 [F] Foreign Exchange Considerations 38 [G] Tax Treaty Usage 40 [H] Debt Push-Down Strategies 40

VII DEALING WITH COMPENSATION PLANS 41 [A] New Law on the Taxation of Employee Participation Plans 41 [B] Rollover of Existing Plan 42

[1] Expectation Rights ('Anwartschaft') 42 [2] Participation Rights with a Fair Market Value 42 [3] Tax Ruling 43

[C] Cash-Out of Existing Plan 43 [1] In General 43 [2] Locking Period 44

[D] Deductibility 45 [1] Target Company 45 [2] Acquisition Company 45

VIII GROUPING 45 IX FLANNING WITH INTANGIBLES 45

[A] Migration Generally 45 [B] Separate Transfer of Intangibles 46

X INTERNAL RESTRUCTURING INVOLVING SWISS TARGET GENERALLY 46 [A] Motivation for Restructuring 46 [B] Restructuring Techniques 47 [C] Tax Treatment 47

[1] Corporate Income Taxes 47 [2] Swiss Withholding Tax on Dividends 47 [3] Securities Transfer Stamp Tax 48

XI TARGET BREAKUP OR OTHER DISPOSITION OF UNWANTED ASSETS 48 [A] Background 48 [B] Techniques 48 [C] Tax Considerations 48

[1] General 48 [2] Spin-Off 49

xxxix

Contents Volume II

XII DEMERGERS [AJ Domestic Tre.itments and lssues 4g

[ 11 Demerger 4g

(.i| Types of Demergers 4g

[b] Direct I ebei.il l ax - Corporate lncome Tax 51 Ic] Direct Föderal Tax - lncome Tax 5]

Ii| lncome froin l'arlieipations from Private Asseis

(üI lncome Imm Partieipations Pom Business Assets 52

IdJ Withholding Tax 52 |e] Stciinp L)uty 53 [f] Securities Transfer Tax 53

[2] Transfer of a (Partial) Business 01 Asseis ihereof lo .1 Subsidiary 53 [a] Direct Föderal Tax - Corporate Profil Tax 53 [b] Stamp Duty 54 [c] Securities Transfer Tax 55 [d] Not Affected l axes 55

[3] Transfer of Partieipations tu a Subsidiary 55 [a] Direct Föderal Tax - Corporate Profil Tax 55 [b] Stamp Duty 56 [c] Securities Transfer Tax 56 [d] Not Affected Taxes 56

[B] Cross-Border Treatment and lssues 56 [1] Direct Federal Tax - Corporate Profit Tax 56 [2] Direct Federal Tax - lncome Tax 57

[a] lncome from Partieipations from Private Assets 57 [b] lncome from Partieipations from Business Assets 57

[3] Withholding Tax 57 [4] Stamp Duty 58 [5] Securities Transfer Tax 58

[C] Any Other lssues of Special Concern in Switzerland 58 [1] Asset Management and Holding Companies 58 [2] Financial and Intellectual Property Rights Companies 58 [3] Real Estate Company 59

XIII SUBSIDIARY LIQUIDATIONS 59 [A] Domestic 59

[1] Concept of Liquidation under Swiss Tax Law 59 [2] Direct Taxes (Corporate lncome Tax, Capital Tax) 60

[a] Overview on Dissolution of Swiss Subsidiäres 60 [b] Dissolution with Formal Liquidation 60

[3] Withholding Tax 61 [a] Tax Base 61

xl

Contents Volume II

[b] Fulfilment of Withholding Tax Obligation 61 [i] Fulfilment of Withholding Tax Obligation by

Payment 61 [ii] Fulfilment of Withholding Tax Obligation by

Way of Notice 62 [4] Value Added Tax (VAT) 62

[B] Cross-Border 62 [1] Introduction 62 [2] Withholding Tax 62

[C] Other Issue of Special Concern in Switzerland: Liquidator s Liability 63 [1 ] Scope 63 [2] Withholding Tax 63 [3] Direct Taxes (Corporate Income Tax, Capital Tax) 63 [4] VAT 64

XIV JOINT VENTURES 64 [A] Non-entity JVs (Cooperation Agreements, Consortia, Strategie

Alliances, etc.) 64 [B] JV: Choice of Entity and Structure 64 [C] Domestic JV 65 [D] Cross-Border JV 65 [E] Property Transfers on Formation 65 [F] Treatment of Built-In Gain or Loss 66 [G] Indemnification Provisions 66 [H] Compensation Flanning 66 [I] Allocation and Taxation of Operating Results 66 [J] Taxation of Distributions 67 [K] Double Taxation Relief 67 [L] Exit/Unwind Scenarios 67 [M] Flanning Techniques 67 [N] Compliance 68

XV EQUITY AND DEBT RESTRUCTURING 68 [A] Equity Modifications (Recapitalizations) 68

[1] Issuance Stamp Duty 68 [2] Corporate Income Taxes 68 [3] Federal Dividend Withholding Tax 69

[B] Disguised Dividends or Hidden Profit Distributions 69 [C] Debt Modifications 69 [D] Flolder Consequences 70 [E] Share Buybacks 71 [F] Repatriations 71

XVI CORPORATE EXPATRIATIONS/REDOMICILIATIONS 72 [A] Preliminary Remarks, Motivation Factors 72 [B] Outbound Migration 73

xli

Contents Volume II

111 Migration of the I.eg.il Se.it ^ |a| I.eg.il Framework ^ [b| Corporate Ineoine 'laxes 73

|c| Föderal Dividend Witlilmliling Tax 74

[2] Migration of Place of Effect tve M.mageiiient 75 [3] Taxation of Sltareliolders 75

IC] lnboutui Migration 7(. |1| Legal Framework 7g [2| Föderal Isstianee Stamp Dutv 76

|3| Direct Taxes/Corporale Ineoine Tax 77 [4J Föderal Dividend Withliolding lax 77 |5| Ongoing Swiss Fixation ol Migtaied Coinpanv 78

[a] Holding Company 78 [b| 'Doinicile' (Administration, Mixed' 01 'Auxiliary')

Company 79 IcJ Principal' Company 80 [d] 'Service' Company 80

XVII BUSINESS RESTRUCTURINGS 80 [A] Inbound Restructuring 80 [B] Outbound Restructuring 81

XVIII SWISS CORPORATION AS ACQUISITION VKIIICI.E FOR FOREIGN TARGET 81

United Kingdom Dominic Stuttaford 1

I INTRODUCTION 3 [A] General Legal System 3 [B] General Tax Environment 3 [C] Types/Classification of Major Business Emilies 5

[1] Special Tax Regimes 5 [2] Main Rate of Corporation Tax 5 [3] Abbreviations 6 [4] Law as at Mid-July 2013 6

II TAXABLE ACQUISITIONS AND DISPOSITIONS 7 [A] Treatment of Seiler, Buyer and Target 7 [B] Sale and Purchase of Shares and Assets 7

[1] Share Purchase 7 [a] Consequences for Seiler: General 7 [b] Seiler - Taxation of Gain/Loss: Territorial Limits 8 [c] Seiler - Taxation of Gain/Loss: Computation 8 [d] Seiler - Taxation of Gain/Loss: Substantial

Shareholding Exemption (SSE) 8 [i] SSE Rules 9

xlii

Contents Volume II

[e] Seiler - Use of Losses 11 [i] Losses to Reduce the Chargeable Gain 11 [ii] Use of Capital Losses 12

[f] Seiler - Taxation of Gains: Flanning to Reduce Gain 12 [g] Deferred and Contingent Consideration 13

[i] Ascertained Deferred Consideration 13 [ii] Contingent Consideration - Ascertainable

(but Not Yet Ascertained) 13 [iii] Contingent Consideration - Unascertainable 14

[h] Consequences for Buyer: General 15 [i] Buyer - Chargeable Gains 15 [j] Buyer - Transfer Tax: General 15 [k] Buyer - Transfer Tax: Deferred and Contingent

Consideration 16 [1] Buyer - Transfer Tax: Mitigation 17 [m] Consequences for Target 17

[2] Asset Purchase 19 [a] Background 19 [b] Seiler - Taxation of Profit/Loss: Territorial Limits 20 [c] Seiler - Taxation of Profit/Loss: Chargeable Gains

Regime 20 [d] Seiler - Taxation of Profit/Loss: Intangible Fixed

Assets 21 [e] Seiler - Taxation of Profit/Loss: Plant and

Machinery 22 [f] Seiler - Taxation of Profit/Loss - Loan Relationships

and Derivative Contracts 22 [g] VAT 23 [h] Consequences for Buyer - General 23

[i] Buyer - Transfer Tax 23 [3] Deciding between a Share Sale and Asset Sale 24

[a] Hive-Down of Business into Newco before Sale 25 III TAX-FREE ACQUISITIONS AND DISPOSITIONS 25

[A] Types and Requirements 27 [1] Sections 135, 136 and 138A TCGA 1992: Roll-Over Reliefs 27 [2] Section 135: Exchange 27 [3] Section 136: Reconstruction 29 [4] Section 138A: Earn-Out Relief 30 [5] Section 137 TCGA 1992: Anti-avoidance 31 [6] Section 139 TCGA 1992: Reconstruction 32 [7] Section 140 TCGA 1992: Incorporation of Non-UK

Permanent Establishment 34 [8] Mergers under the EU Mergers Directives 35

[B] General Consequences and Objectives 36

xliii

Contents Volntne II

111 Qn.ililyinj; Corporate Bonds and Non quahlving Corporate Bonds

IC] Gross Border• Tr.insl'ers ^ |1| Territorial Aspeds (2| Section 140C TCC.A 1992: lianster „i NonHK Btl

Permanent Establishment 3g

(3| Section 140A ICCA: Transter l>v El) Compunv ot DK Permanent Establishment 39

[D| Transfer Taxes 3g

111 Stamp Dnty anil Stamp Dutv Reserve Tax 39 ATTRIBUT!-; PRESERVATION AND IISACE 40

IA) Change in Ownersliip linpaet 011 l ax Asseis 40 111 Backgromul 40

|2) 1 rading Bosses: Overview 40 |3J I'racling Bosses: Chan;;e in Cwnership 42

[a] Backgromul 42 !b| Meaning ot 'Change in Ownersliip' 42 Ic| Relevant Time Frame for 'Major Change in the

Natnre or Coiuluet of a Trade' 43 [d] Meaning of 'Major Change in the Natnre or Condnct

of a Trade' 44 [e] Activities Become Sinall or Negligihle 44

[4] Capital Allowances: Overview 44 [a] Capital Allowances: Change in Ownersliip 45

[5] Capital Bosses: Overview 46 [a] Capital Bosses: Restrictions 46

[6] Companies witli Investment Business 47 [a] Meaning of 'Significant Increase in the Amount of

the Company's Capital' 47 [b] Effect of Restrictions 48

[B] Allocation of Compensatio:! and Other Deductions between Pre- and Post-closing Periods 48 [1] Group Relief: General 48

[a] Group Relief: Apportionment of Profits on Sale 48 [b] Arrangements 49

[2] Usability of Buying Company's Bosses by Target and Target's Bosses by Buy er 49

[C] Other Issues of Special Concern in the United Kingdom 49 [1] Asset/Business Sales: Overview 49

[a] Trading Bosses 50 [b] Trading Bosses: Seller's Position 50 [c] Trading Bosses: Buyer's Position 51 [d] Capital Allowances 51

DUE DIEIGENCE AND CONTRACTU AB TAX PROTECTION 51

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Contents Volume II

[A] Due Diligence and Contractual Tax Protection 51 [1] Exit Charges 52 [2] Tax Returns 52 [3] Deferred Tax 52 [4] Tax Reliefs 52 [5] Potential Liabilities under Previous Sale Agreements 53 [6] VAT 53 [7] Post-closing Flanning 53

[B] Contractual Protection - Tax Warranties and Tax Indemnity 53 [1] Conventional UK Approach to Contractual Tax Protection 53 [2] Tax Indemnity 54

[a] Scope 54 [b] Exclusions 55 [c] Limitations and Time Limit 55 [d] Overprovisions and Corresponding Benefits 55 [e] VAT 56 [f] Gross Up 56 [g] Conduct of Tax Affairs of Target 56

VI DEALING WITH COMPENSATION PLANS 56 [A] Treatment and Issues in M&A Context 56

[1] Key Considerations 56 [2] When Pay-Outs under the Compensation Plans Are Due 57 [3] How and When Income Tax and NICs Have to Be

Accounted for to HMRC 57 [4] When Income Tax and NICs Are Due under Tax-Favoured

Plans 59 [a] CSOPs 59 [b] SAYEs 59 [c] SIPs 60 [d] EMIs 60

[5] Corporation Tax Deductions and Payments under Compensation Plans 60

[6] Shares Required to Satisfy Compensation Plans 62 [7] New Compensation Plans after Transaction Has Seen

Completed 62 VII FINANCING AND DEBT PUSH-DOWN STRATEGIES 62

[A] Leveraging the Taxable Acquisition, Including Cross-Border Aspects 62 [1] Acquisition Finance: Background 62 [2] Leveraging a UK Acquisition 63

[a] Background 63 [b] Group Relief 63

[3] Leveraging a Non-UK Acquisition 64 [a] Background 64

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Contents Volume II

[4] Deductibility of Interest Expense 65

|a) Taxation under die 'I.oan Relationships' Code 65 [b] Thin Capitalization Külos 66

[i] Special Relationship 66 [ii] Limit on Deductibility of Finance Costs 67 [iii] Advance Tliin Capitalization Agreements 68 liv] Transactions within the UK Tax Net 68

[c] Recharacterization of Interest as a INon-deductible) Distribution 69

[d] Limit on Deductions for Borrowing with Unallowable Purpose 70

[e] Worldwide Debt Cap 71 [f] Deferral of Deductions for Late-Paid Interest 72 Ig] Structured Finance Arrangements Rules 73 [h] Anti-arbitrage Rules 73

[5] UK Withholding Tax on Interest 73 [a] Background 73 [b] Domestic UK Exemptions 74 [c] Relief under Double Taxation Agreements 75 [d] Interest and Royalties Directive 77 [e] PIK Notes and 'Funding Bonds' Rules 78

[6] FOREX Considerations 78 [B] Debt Push-Down Strategies 79

VIII GROUPING 80 [A] Requirements 80

[1] Background 80 [2] Tracing Group Relationships through Ordinary Share

Capital 80 [3] Economic Ownership 82 [4] Voting Control 83 [5] Anti-avoidance Provisions 83 [6] Payments for Entering into Grouping Elections 84

[B] Consequences and Advantages 84 [1] Group Relief ®4

[a] Group Relief and Consortium Relief: Background 84 [b] Group Relief: Bosses 86 [c] Group Relief: Grouping Test 86 [d] Group Relief: Cross-Border 87 [e] Consortium Relief 87

[2] Chargeable Gains Grouping 88 [a] Chargeable Gains: Background 88 [b] Chargeable Gains: Degrouping 89 [c] Chargeable Gains: Grouping Election 89 [d] Chargeable Gains: Roll-Over 90

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Contents Volume II

[e] Chargeable Gains: Shareholding Requirement 90 [3] Intangible Fixed Assets Grouping 91

[a] Intangible Fixed Assets: Background 91 [b] Intangible Fixed Assets: Degrouping 91 [c] Intangible Fixed Assets: Grouping Election 92 [d] Intangible Fixed Assets: Roll-Over 92 [e] Intangible Fixed Assets: Shareholding Requirement 92

[4] Loan Relationships and Derivative Contracts Grouping 93 [a] Loan Relationships and Derivative Contracts:

Background 93 [b] Loan Relationships and Derivative Contracts:

Degrouping 94 [c] Loan Relationships and Derivative Contracts:

Shareholding Requirement 95 [5] VAT Grouping 95

[a] VAT: Background 95 [b] VAT: Eligibility 95 [c] VAT: Group Application 97

[6] Transfer Tax Croups 98 [a] Stamp Duty Land Tax 98

[i] Stamp Duty Land Tax: Shareholding Requirement 98

[ii] Stamp Duty Land Tax: Anti-avoidance 99 [iii] Stamp Duty Land Tax: Degrouping 99

[b] Stamp Duty and Stamp Duty Reserve Tax 100 [i] Stamp Duty: Shareholding Requirement 101

IX FLANNING W1TH INTANGIBLES 102 [A] Local Regime (If Favorable) 102

[1] Background 102 [2] Overview of UK Taxation of IP 103

[a] Intangibles Regime 103 [b] Reinvestment Relief 104 [c] R&D Credits 105 [d] Patent Box 105

[i] Qualifying IP 105 [ii] Eligibility 106 [iii] Relevant IP profits 107 [iv] Electing into the Patent Box 107

[3] International Elements 108 [a] Withholding Tax 108 [b] Double Tax Agreements 108 [c] Royalties Directive 109 [d] Migrating IP from the UK 109 [e] CFCRules 110

xlvii

Contents Volume II

112 112 112

114 114

[f] Transfer Pricing X INTERNAL RESTRUCTURINGINVOLVING UK TARGET m

IA] Motivation for Restructuring m [B] Restructuring a UK Target with CFCs

[1] Tax on Transfer [2] Transfer Consequences

XI TARGET BREAKUP OR OTHER DISPOSITION OF UNWANTED ASSETS 113

[A] General 113

[B] Structuring Strategies [1] Tax-Efficient Unwanted Asset Transfers [2] Replacing Business Assets 114 [3] Acquisition of Target Followed by a Hive Up of Assets 115 [4] Hive-Down of Unwanted Assets 116

[C] Multiple Bidders 117 XII DEMERGERS 117

[A] UK Treatment and Issues 117 [1] Demergers: Some General Concepts 117

[a] The Main Methods of Undertaking a Demerger 118 [b] 'Direct' and Tndirect' Demergers 119

[2] Demergers: The Company Law Requirements 119 [a] Distribution in Speele 119 [b] Repayment of Capital 119 [c] What If There Are Insufficient Distributable

Reserves/Share Capital? 120 [d] Section 110 Liquidation 121

[3] Achieving Tax-Free Status for a Demerger 121 [a] Demerger by Way of Distribution in Specie:

'Statutory Demergers' and 'Chargeable Payments' 122 [i] Statutory Demergers: Direct 123 [ii] Statutory Demergers: Indirect 125

[b] Demerger by Way of Reduction and Repayment of Capital: Indirect Only

[c] Demerger Pursuant to a Section 110 Liquidation [d] The Cross-Border Dimension 128

[4] Demergers and Losses [a] Change in Ownership [b] Losses and Demergers of Assets [c] Demergers and Group Relief

[5] Pre-demerger Reorganizations [6] Compensation Plans

[a] Key Considerations 131 [b] How Are Pay-Outs under Compensation Plans

Affected by the Demerger?

127 127

129 129 129 130 130 131

131

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Contents Volume II

[c] Should Awards und er Share-Related Compensation Plans ße Adjusted? 132

[d] New Compensation Plans after the Demerger Has Taken Effect 133

[7] Tax Sharing/Indemnification Provisions 133 XIII SUBSIDIARY LIQUIDATIONS 133

[A] Domestic Treatment and Issues 134 [1] Liquidation within a Group of Companies 134 [2] Domestic Tax-Free Liquidation 134

[B] Cross-Border Treatment and Issues 135 [1] UK Company Liquidates into Non-UK Parent 135 [2] Non-UK Subsidiary Liquidates into UK Parent 135 [3] Non-UK Subsidiary Liquidates into Non-UK Corporation 135

XIV JOINT VENTURES 136 [A] Typical UK Joint Venture Structures 136

[1] Background 136 [B] Taxation and the Joint Venture 136

[1] Establishment of Joint Venture 136 [a] Corporation Tax on Chargeable Gains 136 [b] Asset Transfers 137 [c] Degrouping Charges 137 [d] Transfer Taxes 137

[2] Operation (Including Funding Costs and Managing Losses) 138 [a] Funding Costs 138 [b] Consortium Relief 138 [ c 1 SSE 139

[3] Exit 139 XV EQUITY AND DEBT RESTRUCTURING 139

[A] Equity Modifications 139 [B] Debt Modifications 139

[1] Background: The'Loan Relationships'Regime 139 [2] Debt Modifications Generally 140 [3] Debt Modifications: Creditor and Debtor Unconnected 141

[a] Release/Impairment 141 [b] Capitalization 141 [c] Deferral of Interest Payments, Extension of

Maturity and Changes to Financial Covenants 142 [4] Anti-avoidance Rules Relevant to Debt Modifications 142

[a] General 142 [b] Unallowable Purposes 143 [c] Transfer Pricing 143 [d] Debt Buy-Back 143

xlix

Contents Volume II

|5] Differing I realment II Del,im .iiul Creditor Are Connected or in tlie Sonic Corporate Croup 144

Uli Meaning of Connected 144

|h| Basic Svmmetrv Knie 144

|c| Exceptions to Svminelrv Knie 145

|d| Use of Cronping Knies 146 xvi CORPORA ri: EXPATKIATIONS 146

IA] Background: UK lax Resident e 146

IB] Cliange of Kesidence 147

IC] Exit Charges ]47

|1] Exit Charge: Chargeable Cnins ]4g [2] Exit Charge: Intangible l'ixed Assets 149 |3] Exit Charge: Eoau Relationships 150 [4] Exil Charge: Derivative Contracts 150 [5] Exit Charge: Kinance Act 2t) 13 Refonns 150

|a| Eligibility 151 Ib] Exit Charge Payment PI,in 151 (c| Standard Instabilen! Method 152 |d| Realisation Method 152 [e] Compliance witli EU Law 153

[D] Redomiciliation 153 [E] Inward Migration 154

XVII BUSINESS RESTRUCTURING 155 XVIII UK CORPORATION AS ACQUISITION VEHICLE OE FOREIGN

TARGET 155 [A] UK Holding Company Regime 155

[1] UK Holding Company Regime: Background 155 [2] Foreign Entity Classification 156 [3] Dividend Exeniption 157 [4] Double Tax Relief 159 [5] Controlled Foreign Companies (CFC) Rules 159

[a] Background to CFC Rules 159 [b] Reformed CFC Regime 161

[i] Definition of a CFC 161 [ii] Effect of CFC Rules 161 [iii] Carve-Outs 162 [iv] The 'Gateway' 162 [v] Exemptions 164 [vi] EU Law 165

[6] Section 13 TCGA 1992 (Attribution of Garns to Members of Non-resident Companies) 165

[7] Substantial Shareholding Exemption 167 [a] SSE: Background 167 [b] SSE: The Reliefs 168

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Contents Volume II

[8] International Movement of Capital Rules [9] Transfer Taxes [10] Structuring the Acquisition

[a] Financing [b] Withholding Tax [c] Repatriation of Profits [d] Utilization of Losses

United States Peter H. Blessing & Ansgar A. Simon

I INTRODUCTION [A] General Legal System [B] General Tax Environment [C] Types/Classification of Major Business Entities

II TAXABLE ACQUISITIONS AND DISPOSITIONS [A] Sale and Purchase of Shares

[ 1 ] Consequences for Solling Stockholders [2] Consequences for Acquiror

[B] Sale and Purchase of Assets [1] General [2] Consequences for Seiler [3] Consequences for Acquiror [4] Liabilities (Including Contingent Liabilities) That Have

Not Yet Been Incurred [a] Accrued Liabilities Not Yet Deductible by Seiler [b] Contingent Liabilities

[5] Special Consideration for Assets Sales between Related Corporations

[C] Qualified Stock Purchase Treated as an Assel Sale: Section 338(h)(10) [1] General [2] Requirements for Section 338(h) (10) Election [3] Tax Consequences of Section 338(h)(10) Election

(Assuming Target Is Not an S Corporation) [4] Section 338(h)(10) Transaction Involving Tiered Targets [5] Timing of Inclusion of Liabilities (Including Contingent

Liabilities) [6] Adjustments to Purchase Price/Earn-Outs [7] State Tax Treatment

[D] Qualified Stock Disposition Treated as an Asset Sale: Section 336(e) [1] General [2] Requirements for Section 336(e) Election

168 170 171 171 172 173 173

1

3 3 4 5 6 7 7 8 9 9

10 12

12 13 14

16

16 16 17

18 19

19 21 21

22 22 22

Ii

Contents Volume II

|3| Tax Consequenees of Seetiuu 330(e) F.lectmn (Assiunmg Iarget is Not an S Corporation) 23

[4| Section 336(0) Klection lnvolvmg 'l'ieretl Targets 25 |I.| Sale and l'urchase ot l'artnersliip Interesis

111 General Ia 1 l'artnership as Aggmgale ot Paitueis 01 as Fntitv 26 |b] Constt uclive Sale aml l'urchase ot l'attuetsliip

Interests 27 |2| Consequenees for Seiler 27

Ia| Special (. ousidetatious toi Foreign Partners 29 131 Consequenees Cor Acquiror 30 14) Consequenees tot Conliuuing Partners 31

(F| Indeninification l'ayinents bv Seiler 31 [G] Installment Sales and the Installment Method 32

|1] Properties for Which Installment Method Is Not Available 33 [2] Limitation 011 Obligations Qualifying for Installment

Method 33 13] Installment Method 33 [4] Transfer and Pledge of Installment Obligation hy Seiler 34 [5] Special Issues Involving Sales of l'artnership Interests 35

[H] Treatment of Contingent l'urchase l'rice - "Karn-Outs" and Escrows 36 [1] Treatment of Contingent I'ayment Sale nnder Installment

Method 38 [2] Treatment of Contingent Payment Sale If Installment

Method Not Applicable or Klected Out 39 [a] Acquiror Treated as Issuing a Contingent Payment

Debt Instrument 39 [b] Open Transaction Treatment 40

[3] Treatment of Acquiror Issuing Contingent Obligations 40 [4] Escrow 41

[I] Allocation of Purchase Price 42 [1] Purchase-Price Allocation in an Asset Sale 43 [2] Purchase-Price Allocation in a Stock Sale with

Section 338(h)(10) or Section 336(e) Election 45 [3] Purchase Price Allocation for Sale of Partnership Interest 45

[J] Corporate Expatriations (Section 7874) 47 [K] US Real Property Interests (FIRPTA) 47

[1] General FIRPTA Consequenees 47 [2] Rules for Determining USRPHC Status 49

[a] Fair Market Value Test for Determining USRPHC Status 49

[b] Book-Value Test for Determining USRPHC Status 50 [3] Certification and Notice Requirements 51

Iii

Contents Volume II

[L] Reporting regarding Taxable Acquisition or Disposition 51 [1] Broker Reporting 51 [2] Section 6043A Reporting 52

[M) VAT and Other Transfer Taxes: Transfer (Conveyance) Taxes 52 III TAX-FREE ACQUISITIONS AND DISPOSITION 53

[A] Types and Requirements: Section 368 Acquisitive Reorganizations 54 [ 1 ] Merger with Issuance of Shares of Surviving Entity

(Type A) 54 [2] Forward Subsidiary Merger (Type A/a2D) 55

[a] General 55 [b] "Substantially All" Properties 55

[3] Reverse Subsidiary Merger (Type A/a2E) 56 [a] General 56 [b] "Control" 56 [c] "Voting Stock" 57

[4] Stock Solely for Voting Stock (Type B) 58 [5] Assets for Voting Stock (Type C) 59 [6] Related Party Assets for Stock (Type D) 59

[a] General 59 [b] "All Cash" Type D 60

[7] Mere Change in Form or Place of Organization (Type F) 61 [8] Bankruptcy/Insolvency Reorganization (Type G) 62

[B] Additional General Requirements for Section 368 Acquisitive Reorganizations 64 [ 1 ] Continuity of Shareholder Interest (COSI) 64

[a] General 64 [b] Signing Date Rule If the Consideration Is Fixed 65 [c] Continuity of Shareholder Interest in Type D

Reorganization 66 [2] Continuity of Business Enterprise (COBE) 66 [3] Exchange of Net Value 68 [4] Plan of Reorganization/Business Purpose 68 [5] Transactions Involving Two or More Investment

Companies (Section 368(a)(2)(F)) 69 [C] Effect of Related Transactions on Qualification 71

[1] Historie Shareholders 71 [2] Push-Ups and Drop-Downs 72

[a] Pre-reorganization 72 [b] Post-reorganization 73

[3] Recharacterizations 73 [a] Authorities Re-characterizing Stock Transfer/

Liquidation or Merger Transactions 74 [b] Reallocation of Built-In Gain or Loss 75

liii

Contents Volume II

75 M Atiihoritv to Respect I tum

|F>I Cener.il Consetiuenees ,uul Obiectives 111 larget Corpor.ition Consetiuenees in Assel Acquisitums 76

12] Acquiruig Corporation Consetiuenees in Assel Anpnsiiious 77 |.i| No G.iin or l.oss Recognition ^ IM Basis .1111I 1 lolding Poriod ^ |e| Carryover of Attrihutes Cener.illv |tl| Carryover ol Lamings aml l'rol'its Ie| Restrietion 011 C.irrvb.icks

|3| Acquiring Corporation Consetiuenees in Stork Aei|uisition (Type B or l'ype A/a2Lj I a | No Ca in 01 l.oss Ret tignitiou IM Basis aml Holding IVriotl

|4] lärmet Sha rehold er Consetpieures Ia 1 Iaxation Only ol Bool: Gain Limitation 81 [b| Character as Cain or Dividend 82 |c| Tax Basis antl Holding l'erioil 83

|E] Reporting Reipiireineuts tor Seetiou 368 Reorgani/ations 85 |1| Reporting linder Section 1..368-3 85 [21 Broker Reporting 86 [3] Section 6043A Reporting 86

[F] Section 351 (Incorporation/Contrilnition) Transfers 86 [1] Applications 86 [2] Requirements for Qualification 87

[a] General 87 IM lnteraction with Section 304 89

[3] Consequences for Transferors 90 [4] Consequences for Corporate Transferee 92 [5] Multiple Drop-Downs 93 [6] Intentional "Breaking" of Section 351 Transaction 94 [7] Reporting Requirements for Section 351 Transfers 95

[G] Acquisitions by Entities Treated as Partnerships 95 [H] US Person Transfers Stock in US Corporation to Foreign

Corporation (Outbound Stock Reorganization) 95 [1] Overview 96 [2] Issues under the 50% Ownership Limitation and the 50%

Control Group Limitation 97 [a] Treatment of Stock Options 97 [b] US Ownership Presumption 98

[3] Issues under the Substantiality Test 98 [a] Measure of Value 98 [b] Effect of Passive Assets on Value 99

[4] Meeting the 50% Ownership Limitation and Substantiality Test Where Foreign Acquiror Is Smaller than US Target 100

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Contents Volume II

[a] Meeting the 50% Ownership Limitation 101 [b] Meeting the Substantiality Test 101

[5] Gain Recognition Agreements 102 [6] US Parent Transfers Stock in US Subsidiary to Foreign

Corporation 103 [7] Indirect Stock Transfers: Outbound Triangulär

Reorganizations of US Target and Asset Drop-Downs 104 [a] Indirect Stock Transfers: Treatment of US

Transferor 104 [b] Coordination Rule With Asset Transfer 105

[8] Reporting Requirements 108 [I] US Person Transfers Stock in Foreign Corporation to Foreign

Corporation or US Corporation (Foreign-to-Foreign or Inbound Stock Transfer) 108 [1] Application of Section 367(a) 109

[a] Inbound Stock Reorganization 109 [b] Outbound Stock Reorganization 110

[2] Application of Section 367(b) 110 [a] Inbound Stock Reorganization 112 [b] Foreign-to-Foreign Stock Reorganization 113 [c] Foreign-to-Foreign Transfer by a Foreign

Corporation with Section 1248 Shareholders 114 [d] Anti-abuse Rules 115

[3] Application of Section 367(b) in Conjunction with Section 367 (a) 118 [a] General 118 [b] Exclusive Application of Section 367(b) to Certain

Triangular Reorganizations 119 [4] Reporting Obligations 120

[J] US Person Transfers Assets to Foreign Corporation for Stock 120 [1] Incorporation of Foreign Branch 120

[a] General 120 [b] Transfer of Assets to Foreign Corporation for Use in

Active Conduct of a Trade or Business Outside the United States 121

[c] Boss Recapture Rules Applicable to the Transfer of a Foreign Branch 122

[d] Reporting Obligations 125 [2) Outbound Asset Reorganization 125

[a] General Rule 125 [b] Additional Rules Applicable to Transfers of Stock

or Securities by a Domestic Corporation to a Foreign Corporation in Connection with an Asset Reorganization 128

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Contents Volume II

|e| Distribution ol Stork ol I oieign Acquoin m Shareliolders ol US Tr.uisteroi ^

MI Reporting Obligations l3)

1KI Foreign Corporation Transfers Asseis to US Corpoiation lor Stock (Inbound Assel Reorgain/auou) j32 111 lneoine/C.ain Recognilion hv Lxt liaiigmg Sluieholders 132 |2| I ax Attributes ol Foreign I ranslei 01 133

(1-1 Foreign Corporation Flauster- Asseis to Foreign Coiporuiion for Stock (F'oreigu-to Foreign Assel Keorg.ani/aiion and Seciiou 351 'Fransfers) 134 |1| F'oreign-to-l'oreign Asset Keorgani/aiion 134

I a ] Treatment of'l'ransferring Corporation 134 |b| Treatment ol Fxcli.inging Sliareliolders 134

[2| F'oreigu-to-Foreign Section 351 Transacuun 136 |M| Issues of Special Concern in US 136

111 Corporate Fxpatriations (Section 7874) 136 12] US Real Rroperly Holding Companv Target in Otlierwise

Fax-Free Transaction 136 [NJ Indirect l axes IncUuting Transfer (Conveyance) l axes 141

IV ATTRIBUTE PRESERVATION AND US ACE 142 [A] dränge in Ownership Impacl 011 Tax Assets (Sections 3H2 and

383) 142 [1] Overview 142 [2] Section 382 Limitation 143 [3] Testing for Ownership Change 144

[a] Freatment of Options and Other Instrument as Stock or Non-stock 147

(b 1 NOL Shareholder Rights Plans 150 [4] Rules for Built-In Ileitis 150 [5] Special Rules for Bankruptcy and Insolvency Situations 152

[a] Title 11 Exception 152 (b) Alternative to tlie Title 11 Exception 154 [cl Consequences of Treating Stock as Worthless 154 [d] Protections in Gase of a Chapter 11 or Similar

Proceeding ^54 [6] Administrative and Legislative Actions Relating to

Section 382 and 383 in Response to tlre Financial Crisis 155 [B] Net Operating Loss Limitations When Corporations Become

New Members of Consolidated Croups 156

[1] Application of Section 382 to Consolidated Groups 157 [2] SRLY Limitation 159

[3] Loss Carrybacks to Pre-consolidation Taxable Years 16° [4] Lonely Parent Rule 169

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Contents Volume II

[C] Section 269(a) Disallowance of Tax Benefits For Certain Tax Avoidance Acquisitions 161 [1] Principal Purpose Determination 162 [2] Section 269(a) Override of Section 382 163 [3] Deductions Accrued after the Acquisition 164

V DDE DILIGENCE AND CONTRACTUAL TAX PROTECTION 164 [A] Due Diligence 164 [B] Tax Indemnification 165

VI FINANCING AND DEBT PUSHDOWN STRATEGIES 166 [A] General 166 [B] Thin Capitalization Rules and Other Limitations on the

Deductibility of Interest 166 [1] Debt versus Equity 166 [2] Parent Guarantee: True Borrower 170 [3] Section 163(j): Earnings Stripping Rules 170 [4] Sections 163(e)(3) and 267(a)(3) 171 [5] Arm's Length Interest Rate 171

[C] US Withholding Tax 172 [1] Domestic Law Exemptions 172 [2] Income Tax Treaty Relief 173

[a] "Interest" versus Dividends 173 [b] Four-Part Inquiry for Treaty Relief 173

[D] Income Tax Treaty Requirements for Eligibility for Reduced Withholding Tax Rates 174 [1] Residence 174 [2] Fiscally Transparent (Hybrid) Emilies: Income "Derived

by a Resident" 174 [a] FTE Provisions in Treaties 175 [b] Code Section 894 (c) Regulations 175 [c] Section 1441 Withholding Regulations 177

[3] Limitation on Benefits (LOB) Articles 178 [a] General Rules (US Model Treaty) 178 [b] Derivative Benefits Provisions 179

[4] Beneficial Owner/Conduit Financing Regulations 179 [a] General 180 [b] Conduit Financing Regulations 180

[E] Hybrid Financings 183 VII DEALING WITH COMPENSATION PLANS 183

[A] Rollover of Existing Plan 184 [B] Cash-Out of Existing Plan 185

[1] General 185 [2] Target Included in Seller's Consolidated Return 185

[C] Current Deductibility Rules for Other Acquisition-Related Compensation 186

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Contents Volume II

(11 Simplifying Convention toi F.inployee Compensation 186 [2] Employee Severance Costs 187

(3] Retention Agreements for Transition l'enoci 187 [D] Assumption of Rension or Defened Compensatio!, Obligations 187 [E] Restricted Stock: Addition of Kinployment Restrictions to Stock

Received in Exchange for Target Stock 188 [F] Effect of Restricted Stock and Stock Options on Corporate

Transactions and Ownership Tests 190 [G] Golden Parachute Rules 19j

VIII GROUPING 193

[ A] Requirements 193 [B] Consequences and Advantages 194 [C] Departure of a Member 195

IX FLANNING W1TH 1NTANG1BLHS 195 [A] IP Holding Company 195 [B] Migration 196

[1] General 196 [2] Cost Sharing 198 [3] Licenses 199 [4] Services 200

X INTERNAL RESTRUCTURING INVOLVING US TARGET 200 [A] Motivation for Restructuring 200 [B] Certain Traps to Beware in Restructuring 201 [C] Restructuring of US Target will, CFCs 202

[1] Relevance of Section 338(h)(10) Election 203 [2] Restructuring Techniques 204 [3] Negotiated Acquisition 207

XI TARGET BREAKUP OR OTHER DISPOSITION OF UNWANTED ASSETS 208 [A] General Issues 208 [B] Strategies 208

[1] Transfer If High Basis Assets 208 [2] Installment Sale 209 [3] Leveraged Partnership 209 [4] Like-Kind Exchanges 210 [5] Pre-acquisition Spin-Off 213 [6] Conversion to S Corporation 214

XII DEMERGERS 214

[A] Requirements Generally 214 [1] Business Purpose 214

[2] Distribution of "Control" - Sections 355(a)(l)(A) and (D) 216 [3] The Device Test - Section 355(a)(l)(B) 216 [4] Five-Year Active Trade or Business - Section 355(b) 217 [5] Continuity of Shareholder Interest (COSI) 219

lviii

Contents Volume II

[6] Continuity of Business Enterprise (COBE) 220 [7] Disqualified Investment Corporations - Section 355(g) 220 [8] "Disqualified Distributions" Following Purchase of

Distributing or Controlled Stock - Section 355(d) 221 [9] Transfer of Controlling Interest in Distributing or

Controlled as Part of Spin-Off Plan - Section 355(e) 222 [B] Taxable Boot and "Hot Stock" in Otherwise Qualifying

Transaction 224 [1] Taxable Boot 224 [2] Hot Stock 224

[C] Moving Liquidity from Controlled to Distributing and Flanning in Respect of Debt Securities 225

[D] Tax Basis 226 [1] General Rute 226 [2] Rule Where Distributing Is a CEC (Section 367(b)] 227

[E] Allocation of Earnings and Profits between Distributing and Controlled 228 [1] General 228 [2] Special Rules Applicable to Section 355 Transactions

Involving CFCs 229 [F] Adjustment of Existing Equity-Based Compensation Plans 229 [G] Section 355 Reporting 230 [H] Outbound Section 355 Distributions 231

[1] Gain Recognition If Foreign Controlled: Non-recognition If Domestic Controlled 231

[2] Presumption of Status and Rebuttal Mechanism 232 [3] Basis to Distributees 233 [4] Reporting 233

XIII SUBSIDIARY LIQUIDATIONS 233 [A] Taxable Liquidation 233 [B] Domestic Tax-Free Liquidation 233 [C] US Company Liquidates into Foreign Parent 234

[1] General Rules 234 [2] Exceptions to Taxable Treatment 234

[a] US Trade or Business Property Exception 235 [b] USRPI Exception 236 [c] Exception for Distribution of 80% Owned Domestic

Subsidiary 236 [d] General Anti-abuse Rule 237 [e] Distributee's Basis and Other Attributes 237 [f] Reporting 237

[D] Foreign Subsidiary Liquidates into US Parent 237 [1] Income/Gain Recognition Rules 237 [2] Distributee's Basis and Other Attributes 239

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[F] Dual Consolidated Loss (DCL) Rules [G] Foreign Exchange Considerations for Partnership or Branch

Operations Using Functional Currency Different than Owner

239 239 240 240 241 241

241 243 243 244 245

245

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Contents Volume II

(F| Foreign Subsidiary Liquida,es um, Foreign Corporation |1) luconie/Cain Keeognition Knies 12) Distribulee's Basis and Otlter Attributes

XIV JOINT VENTURE |A] Structuring Considerations

[ 11 Choice ot Vebicle: Partnersbip versus Corporation (2| Issues ot Direct Foreign Partner in Partnerslnp witli US

Business [3] Targeted ITraekingJ Interests in JV [4] Dual JV Strueture |5] Partnership Anti-abuse Knies (General)

[B| Transfer of Assets tu Partnership 111 Avoiding Cain Keeognition ou Dropdown of Assets and

Eiabilities |2] Transfer of Assets/Stock to Partnership Ilaving Foreign

Partner [31 Flanning for Transfer of IP - Seine Alternatives 247 [4] Partnership hiterest for Services 247 [5] Reporting Re Acquisilion/Organizalion 248 [6] Reportable Transactions 248

[C] Capital Accounts, Profit and Eoss Shares and Tax Accounts 249 [1] Capital Accounts 249 [2] Guaranteed Payments 250 [3] Section 704(b) Allocations of Partnership Ite/ns 251 [4] Section 704tc) Allocations of Built-In Heins 253

[a] General Rules in Respect of Contributed Property 253 [b] Rules Following Revaluations (Reverse Section

704(c) Allocations) 255 [5] Section 197 Anti-churning Rules 256

[D] Accounting for Eiabilities and Distributions: Disguised Sales 257 [1] Partner's Share of Partnership Liabilities 257 [2] Distributions and Deemed Distributions, Including in

Excess of Basis 259 [3] Disguised Sale Rules 259

[E] Foreign Tax Credit Utilization [1] Separate Baskets [2] Allocation of Certain Foreign Income Taxes for Foreign

Tax Credit Purposes [3] Foreign Tax Credit Utilization: Debt Issues [4] "Overall Foreign Loss" (OFL) Issues 263

264

261 261

262 263

265 [1] Translation Rules for Income and Loss of Section 987 QBU 265

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Contents Volume II

[2] Foreign Exchange Consequences of Transfers from Section 987 QBU to Its Owner 267 [a] 2006 Proposed Regulations 267 [b] 1991 Proposed Regulations 268

[H] Subpart F Inclusion Regime in Respect of Partnerships 269 [1] General Overview of Subpart F Approach to Partnerships 270 [2] Foreign Personal Holding Company Income 270

[a] Partnership Derives FPHCI 270 [b] Partnership Pays FPHCI to CFC Partner 271

[3] FBC Sales Income 271 [a] Partnership Derives Potential FBC Sales Income 271 [b] Certain Sales between CFC Partner and Partnership 272 [c] CFC Partner's Affiliate Seils to Partnership and

Partnership Seil to Unrelated Party: Branch Rule Risk 273

[d] Partnership Manufactures: Partnership Sales Branch 273

[4] Partnership Derives Potential FBC Services Income 273 [5] Issues regarding Investment in "US Property" 274

[I] Reporting in Respect of Operations 275 [J] Exit Considerations 275

[1] Sale and Other Exit Alternatives Generally 275 [2] Exit: Section 754 Election/Section 734 or 743 Adjustment 276 [3] Exit: Section 708(b)(l)(B) Deemed Termination 277 [4] Exit: Anti-mixing Bowl Rules 277 [5] Exit: Foreign Exchange Gain or Loss Issues 278 [6j Sale of Partnership Interest by CFC 279 [7] Reporting re Exit 279

XV EQUITY AND DEBT RESTRUCTURING 279 [A] Modification of Terms of Debt (Debt Recapitalizations) 279

[1] Consequences Generally 279 [2] Issuer Consequences 280 [3] Holder Consequences 282

[a] Consequences on Exchange in Type E Reorganization 282

[b] Consequences Outside Type E Reorganization Context 283

[B] Modification of Terms of Equity (Equity Recapitalizations) 284 [1] Consequences 284 [2] Disguised Dividend and Section 306 Stock 284

[C] Share Buybacks 286 [D] Repatriations 286

XVI CORPORATE EXPATRIATIONS 287 [A] Scope 287

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Contents Volume II

|B] Comlitions and Operation IC) Anti-stuffing aiui Anti-stripping Kules |D] Direct Ol- Indirect Aaiuisition of Substnntinllv All m Properties [K] Domestic Entitv Owners Own <>1)%/H()% ot Foreign Corporation

Shares 111 General Rule [2] Special kules Excluding Ceiiam Slock |3| Examples

[1*1 Substantiality of Business Activities in Foreign Countrv IG] I axation of Inversion Gain ol Surropale Foreign Corporation

(60%-80% Owner Continuilv) [H] Excise lax on Specitieil Stock Coinpensation ol Insiilers

XVI) BUSINESS RESTRUCTURING XVIII US CORPORATION AS ACOUISI'I'ION VEI IIC1.K FDR FOREIGN

TARGET fA] Key Tax Regime Features Relevant to US Corporation as

Owner of Foreign Business ot Assets 11 ] General [2] Controller! Foreign Corporation Regime

[a] Overview [b] Subpart F Incotne [c] Deemed Repatriation of Flämings (Section 956) [d] Disposition of Shares of CFG

[3] Passive Foreign Investment Companies [4] Disregarded Emilies [5] Foreign Tax Credit Regime

[a] General [b] Worldwide Foreign Source Income Limitation

Applied to Separate Limitation Categories (Baskets) [c] Overall Foreign Loss (OFL) and Overall Domestic

Loss (ODL) [6] Dual Consolidated Loss [7] Exil Tax on Outbound Transfers

[B] Taxable Acquisition of Foreign Target [1] US Tax Consequences to Flolders [2] US Tax Consequences to US Acquiror

[C] Tax-Free Acquisition of Foreign Target by US Acquiror [1] Inbound Stock Acquisition [2] Inbound Asset Acquisition

[D] Tax-Free Merger or Other Reorganization of Two CFCs [E] Financing the Acquisition

[1] Identification of Parties to the Financing [a] General Considerations in Identification of Ultimate

Borrower

288 289 290

292 292 293 296 298

299 300 301

302

302 302 303 303 303 304 305 306 307 307 307

308

309 310 312 312 312 312 314 314 314 315 315 315

315

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Contents Volume II

[b] General Considerations in Identification of Lender 316 [c] Push-Down of Debt 317

[2] Allocation of Interest Expense for US Foreign Tax Credit Regime 320 [a] General Rule 320 [b] CEC Netting Rule 320 [c] CFC-Level Allocation of Expense 321

[3] FTC Consequences of Debt Financing in Certain Settings 322 [a] FTC Consequences of Interest Payments Made by

CFC to US Group 322 [b] FTC Consequences of Interest Payments Made by

CFC to Another CFC 323 [4] Hybrid Entities and Double Dip Flanning 324

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Tax Flanning for International Mergers, Acquisitions, Joint … · IB] Merger 29 IC] Mergers of...

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