18th Cross Atlantic and European Tax Symposium
Jonathan Cooklin – Davis Polk & Wardwell LLPNicolas de Boynes – Sullivan & Cromwell LLPStephen Fiamma – Allen & Overy LLP
21st November, 2014
Corporate Inversions and Migrations
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INVERSIONS: THE U.S. PERSPECTIVE
“An inversion is a transaction through which the corporate structure of a U.S.-based multinational group is altered so that a new foreign corporation, typically located in a low-or-no-tax country, replaces the existing U.S. parent corporation as the parent of the corporate group.” Corporate Inversion Transactions: Tax Policy Implications, Office of Tax Policy, Department of the Treasury (May 2002).
Can be accomplished by transfers of shares or assets to a non-U.S. company
Objective: to mitigate tax and compliance costs of an U.S.-headed international group
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INVERSIONS/MIGRATIONS INVOLVING EU COMPANIES
Different options:
Transfer of corporate seat in another EU State (with or without transfer of assets/functions)
Tender-offer launched by a foreign company
Cross-border merger into another EU company (with or without transfer of assets/functions)
Different objectives:
Transfer of corporate tax basis is generally restricted by EU Directive/case law
Objectives vary depending on the State of origin of the corporation
Withholding on dividends is often a key element to decide the location of the parent company
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INVERSIONS: THE EUROPEAN PERSPECTIVE PARTYGAMING PLC AND BWIN INTERACTIVE ENTERTAINMENT AGEU CROSS BORDER MERGER BY ABSORPTION
Shareholders
TRANSFEROR SUCCESSOR
Shareholders
DISSOLVEDWITHOUT
GOING INTOLIQUIDATION
LISTED ONTHE L.S.E.
Transfer of assets and liabilities
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GREENCORE AND NORTHERN FOODSPROPOSED EU CROSS BORDER MERGER BY ABSORPTION
Shareholders
TRANSFEROR SUCCESSOR
Shareholders
DISSOLVEDWITHOUT
GOING INTOLIQUIDATION
LISTED ONTHE L.S.E.
Transfer of assets and liabilities
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U.S. INVERSIONS: ABBVIE/SHIRE
Shareholders Shareholders
AbbVie(U.S.)
Shire(Jersey)
U.S. SUBSNon-U.S.
SUBSSUBS
Shareholders Shareholders
New AbbVie(Jersey)
AbbVie(U.S.)
U.S. SUBSNon-U.S.
SUBS
Shire(Jersey)
SUBS
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U.S. Tax Advantages of an Inversion
Escape from subpart F/CFC anti-deferral regime
Access to cash trapped in non-U.S. subsidiaries without triggering current U.S. taxation
Elimination of dividend withholding tax on payments to non-U.S. shareholders
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U.S. Response to Inversions
Section 367
Immediate and ongoing taxation of transfers to non-U.S. entities
Section 7874
Inhibitions on post-inversion reorganizations/loss of inversion benefits
Notice 2014-52
Widening of scope of sections 367 and 7874
Limitations on tax-free use of foreign subsidiary cash
Limitations on decontrolling CFCs
Expansion of section 304
Possible legislative change
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INVERSION THROUGH A TENDER-OFFER
Stock tender offer
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TRANSFER OF CORPORATE SEAT WITHIN THE EU
National Grid (2011)
Immediate collection of tax on latent gains is a disproportionate restriction
Com v. Portugal (2012) – Adv. Gen. Mengozzi
“Staggered taxation on annual maturities or as capital gains are realized” is appropriate and proportionate
Com v. Denmark (2013)
“A taxable event other than the effective disposal” would be acceptable given that certain assets, such as operational assets or goodwill, are never disposed of
Letter from the Commission to the Danish government dated 21 January 2014: A distinction has to be made between assets meant to be disposed of and assets not meant to be disposed of; no minimum fixed tax instalments; no interest
DMC (2014) – Note: this case does not directly address transfers of corporate seat
Staggered taxation over five years is satisfactory and proportionate given the risk of non-collection of the tax (but a guarantee requested by the tax authorities is not)
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TRANSFER OF CORPORATE SEAT WITHIN THE EU (cont.)
Benefits of the SE form:
Continuity of the legal personality
Unanimity vs. qualified majority
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UK INVERSIONS
TOPCO
PLC
Trust
UK SUBS NON-UK SUBS
INCOME ACCESS SHARE
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WHERE TO GO
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POST INVERSION PLANNING
PLANNING
CFC Planning
IP Restructuring
Finance structure
Reinsurance treaties
Transfer businesses
offshore
Establish new business offshore
Service companies
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INVERSIONS: THE U.K.’S RESPONSE
Territorial/exemption tax system
No tax on disposal of trading subsidiaries (the “substantial shareholding exemption”)
No tax on receipt of dividends from subsidiaries
Can elect for non-U.K. branches to be exempt from U.K. corporation tax
Controlled foreign companies (“CFC”) regime generally only bites if profits are artificially diverted from the U.K.
21% corporate tax rate (20% from April 2015)
Although a U.K. resident holding company is unlikely to have material taxable income
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INVERSIONS: THE U.K.’S RESPONSE (contd)
Intellectual Property Patent Box
10% tax rate when fully implemented
No withholding tax on payment of dividends (other than REIT dividends) irrespective of the location of the shareholder
Access to a very broad double tax treaty network
Accordingly, dividends from a U.S. subsidiary to a U.K. parent may often be paid without U.S. withholding tax
Access to the benefits of EU Directives for a U.K. incorporated parent
Minimises withholding tax on dividends, interest and royalties from EU subsidiaries
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U.K. INVERSIONS
Not so much “Desertion” as “Absent Without Leave”
Welcome back
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DOUBLE INVERSIONS: GTECH S.P.A AND INTERNATIONAL GAME TECHNOLOGY
NEW U.K.HOLDCO
U.S. MERGER SUB
IGT (U.S.)
GTECH(ITALY)
Merger with and into
Merger with
and into
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PUBLICIS/OMNICOM
HoldCo NV(Resident in the UK)
MergerCo US
Merger
Merger
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