EU anti-BEPS directive: Application, linkage with OECD and select country actions Russell Fielder, Head of UK Tax Center, KPMG February 26, 2016

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1 Notices This information is not intended to be “written advice concerning one or more federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2 Discussion topics BEPS: The European story so far Where now? - EU tax consolidation? - The EU Anti-Avoidance package

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3 BEPS: The European perspective  European countries are actively responding to BEPS. Largely a result of:  Significant public and political pressure to tackle avoidance  Tax morality debate  Existing legislative framework among 28 member states  EU working groups looking at most action items  EU legislation, recommendations that mirror the BEPS action items (and go beyond in certain cases)  State Aid  Ongoing consultation e.g. public disclosure of CbyC reports

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4 OECD/G20 BEPS Action Plan OECD/G20 BEPS action pointsRelated EU action points 2 Hybrid mismatch arrangements EU Parent Subsidiary Directive: hybrid finance EU Code of Conduct group: hybrid entities EU Code of Conduct group: hybrid permanent establishments 5.1 Counter harmful tax practices EC State Aid: Ruling Practices EU Code of Conduct: IP regimes 5.2 Exchange of information on preferential regimes EU Directive on automatic exchange of information for tax rulings

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5 OECD/G20 BEPS action pointsRelated EU action points 6 Prevent treaty abuse EU Parent Subsidiary Directive: GAAR EU Interest and Royalty Directive: GAAR 13 Re-examine TP documentation including CBCR EU public disclosure extractive industry and banks EC public disclosure all multinationals? OECD/G20 BEPS Action Plan

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 6 Unilateral Action e.g. UK OECD sign-upGoing it alone? Hybrid mismatch provisions  To be implemented with effect from 1 January 2017 CbC  Supported Action 13 from the outset; adopting recommendations in full  Expected from 1 January 2016 Patent Box  Adopted “modified nexus approach” from July 1, 2016  Diverted Profits Tax introduced, effective 1 April 2015  Balance between being open for business and dealing with perceived avoidance  Corporate tax rate falling to 18%; Patent Box  DPT and impact on new inbound investors

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 7 State Aid – increased public interest February 16, State aid is frequently in the news 2.But the news is mostly limited to corporate tax and transfer pricing

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8 EU State aid criteria February 16, Advantage2. State resources 3. Effect on competition 4. Selective Article 107 TFEU “…any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.” …by favouring certain undertakings or the production of certain goods… …any aid…in any form whatsoever… (e.g. tax refund) …granted by a MS or through State resources... (e.g. tax deduction) …which distorts or threatens to distort competition…. affects trade between MSs …

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 9 Focus of the Commission February 16, 2016 State Aid is relevant to all undertakings doing business in EU Member State (or EEA) IP and patent boxes Gambling tax Ruling practices and tax settlements UK (January2016) Investigation in Google’s tax settlement Ireland (June 2014) Apple case & Irish branch (TP) the Netherlands (Oct 2015) Starbucks case & manufacturing activities Luxembourg (Jun 2014) Fiat case & financing activities (TP) Luxembourg (Oct 2014) Amazon case & royalty payments (TP) Gibraltar (Oct 2014) Existing investigation extended to include rulings practices Spain (Nov 2014) Tax benefits on acquiring overseas HoldCos not unlawful Hungary (March 2015) Hungary's advertisement tax case opened Belgium (Jan 2016) Excess profit ruling system McDonalds (Dec 2015) Investigation

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 10 European Government and EU Actions (sampling) Spain Country-by-country reporting and Master file/ Local file France Deny interest deduction in certain circumstances (low taxed) Denial of participation exemption for deductible payment Tax avoidance transactions list Ireland Elimination of the NRI/RI structure Knowledge development box consultation Netherlands New procedures for seeking tax rulings Germany Proposed anti-hybrid rules Hungary Proposal to deny all treaty benefits with respect to any transaction that results in double non taxation Austria Proposal to deny interest deduction if not taxed in the hands of the owner UK 2015 Finance Act – Diverted Profits Tax – Country-by-Country Reporting Draft anti-hybrid legislation Interest deductibility consultation Changes to Patent Box EU ■State Aid Investigations Ireland, Netherlands, Luxembourg, Belgium ■Revisions to EU Parent- Subsidiary and Interest and Royalty directive ■Mandatory disclosure of rulings

Anti-Tax Avoidance Package Overview Common Consolidated Corporate Tax Base Common Corporate Tax Base Anti-Tax Avoidance Directive Country-by-Country Reporting Tax Treaty Issues & External Strategy

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 12 Anti-Tax Avoidance Package January 2016 Overview February 16, 2016 Anti-Tax Avoidance Package 28 January 2016 Source: EU CommissionEU Commission

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 13 Anti-Tax Avoidance Package January 2016 Overview : from CCCTB to CCTB to Anti-BEPS Directive CCCTB CCTB Anti-Tax Avoidance Directive February 16, 2016 ‘International aspects’ of the CCCTB proposal

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 14 Anti-Tax Avoidance Package January 2016 Common Consolidated Corporate Tax Base (CCCTB) Common Consolidated Corporate Tax Base (=CCCTB) Working Group 2011 Commission Proposal on a Common Consolidated Corporate Tax Base (=CCCTB), including ‘international aspects’ of the common base 2015 Relaunch of the C(C)CTB within the June Action Plan announced: step-by-step approach February 16, 2016 CCCTB – 2011 Proposal single set of rules – formulary apportionment – one stop shop - optional Reduction in compliance costs One stop shop for administrative and procedural aspects More transparency – competition only through different tax rates Holistic approach to tackle tax avoidance No mismatches and loopholes between tax systems CCCTB

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15 CCTB – Proposal expected in Autumn 2016 single set of rules – no consolidation – cross border loss relief – mandatory Step-by-step approach announced in the June Action Plan st step:CCTB – without Consolidation, but cross border loss offset element 2 nd step:Consolidation – postponed without time limit Why? Member States could not agree on Apportionment Formula Labour Factor Asset Factor Sales Factor In order to make progress, the Commission decided to put the consolidation aspect on hold until the common base has been agreed and implemented Anti-Tax Avoidance Package January 2016 Common Corporate Tax Base (CCTB) February 16, 2016 CCTB

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 16 Anti-Tax Avoidance Package January 2016 Anti-Tax Avoidance Directive February 16, 2016 Anti-Tax Avoidance Directive Anti-Tax Avoidance Directive – 28 January 2016 Part of the Tax-Avoidance Package - common minimum level of protection Based on the “international aspects’ of the CCCTB proposal and the outcomes of the OECD/G20 BEPS project Anti-Tax Avoidance rules in 6 specific fields: Interest limitation rule Exit taxation Switch over clause General Anti-Avoidance Rule (GAAR) Controlled Foreign Company (CFC) legislation Hybrid mismatches Member states can apply stricter anti-avoidance rules (Article 3)

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 17 Interest Limitation Rule (Article 4) February 16, 2016 High tax jurisdiction INTEREST ACo LOAN BCo Low tax jurisdiction GROUP Facts: Low/no taxation Full interest deduction x

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 18 Exit taxation (Article 5) Rule tries to prevent taxpayers from reducing taxes by moving residence and/or assets to low-tax jurisdiction Member states may apply exit taxes in case of: Transfer of assets from head office to PE in another member state/third country; Transfer of assets from PE to head office or PE in another member state/third country; Transfer of tax residence to another member state/third country. Except for assets remaining effectively connected with PE. Transfer of PE out of a member state. Exit tax amount is equal to market value transferred assets minus value for tax purposes. Step up to market value in member state of immigration. In case of transfers within the EU or to EEA, payment option for taxpayer to pay in instalments over at least 5 years (in line with ECJ case law).

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 19 Switch-over clause (Article 6) Rule aims to avoid untaxed or low-taxed income entering the internal market and circulate untaxed Switch-over from exemption to credit method in case of: Profit distributions by/ proceeds from disposal of shares held in an entity in a third country or income from a permanent establishment; if The entity is taxed at statutory tax rate lower than 40 percent of the statutory tax rate of the taxpayer’s member state. EU Parent Corp. EU Parent: taxation at local rate with deduction of foreign tax Third country: statutory rate < 40% of EU Parents’ Dividend payment PE Disposal

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 20 EU Parent Corp. A EU Parent: taxation at local rate with deduction of foreign tax. Indirect tax credit? Third country: statutory rate < 40% of Parent Dividend payment Corp. B Switch-over clause (Article 6) Dividend payment High tax jurisdiction

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 21 General Anti-Abuse Rule (Article 7) GAAR aims to fill in remaining gaps from specific anti-abuse rules For calculating the corporate tax liability members states shall ignore: non-genuine arrangements (or a series thereof).. carried out for the essential purpose of obtaining a tax advantage that defeats the object or purpose of otherwise applicable tax provisions (A series of) arrangements shall be regarded as non-genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality. Where arrangements or a series thereof are ignored in accordance with the GAAR, the tax liability shall be calculated by reference to economic substance in accordance with national law.

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 22 CFC rules (Articles 8 and 9) CFC rule aims to prevent shifting of profits out of highly-taxed parent companies towards low-taxed subsidiaries Non-distributed income of entity is included in taxpayer’s tax base if: a)The taxpayer itself or together with associated companies: (In)directly holds more than 50 percent of the voting rights; Owns more than 50 percent of the capital; Is entitled to more than 50 percent of the profits b) The entity’s profits are subject to an effective corporate tax rate lower than 40 percent of the effective tax rate in the taxpayer’s member state; c) The entity accrues more than 50% passive income; and d) Company’s principal class of shares is not regularly traded on a recognized stock exchange CFC rule does not apply if the entity is a financial undertaking tax resident in EU or EEA.

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 23 CFC rules (Articles 8 and 9) In case of a an entity within the EU or EEA the CFC rule only applies: 1.if the establishment of the entity is wholly artificial or 2.to the extent that the entity engages in non-genuine arrangements which have been put into place for the essential purpose of obtaining a tax advantage. In line with ECJ case law on abuse concept: Arrangement is non-genuine “to the extent that the entity would not own the assets or have undertaken the risks that generate its income if it was not controlled by the company with the significant people’s functions. In case of non-genuine arrangement only income linked to significant people’s functions of controlling company is included in its tax base. CFC income calculated in accordance with rules of the member state in which the taxpayer is resident.

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 24 CFC rules (Articles 8 and 9) EU Parent Corp. Third country: - Effective tax rate < 40% of parent rate -> 50% passive income -Not stock exchange listed EU: -Effective tax rate < 40% of parent rate -> 50% passive income -Not stock exchange listed Full inclusion 100% -Full inclusion if wholly artificial entity -Partial inclusion if non- genuine arrangements

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 25 Hybrid mismatches (Article 10) Only apples intra-EU – Code of Conduct Guidelines (‘soft law’) for third countries Rules apply in case of: – Different legal characterization by two member states to same taxpayer, including its PE (hybrid entity) – Leading to a double deduction or a deduction without inclusion Solution: Source state qualification shall be followed by other member state EU Parent Entity PE Deductible payment Deduction Hybrid entity: double deduction EU member state A EU member state B

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 26 EU Parent Entity PE Hybrid entity: deduction without inclusion Hybrid mismatches (Article 10) EU member state A EU member state B No inclusion Solution: Source state qualification shall be followed by other member state Payment Deduction

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 27 Hybrid mismatches (Article 10) - Different legal characterization by two MS’s to same payment (hybrid payment) - Leading to a deduction without inclusion Solution: Source state qualification shall be followed by other member state EU Parent Corp. Deduction No inclusion EU member state A EU member state B

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 28 Anti-Tax Avoidance Package Country-by-Country Reporting February 16, 2016 © 2016 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Proposal on CbC Reporting – 28 January 2016 Amendment to EU Directive on Administrative Cooperation – non public CbC Reporting Reflecting OECD recommendations in BEPS Action 13 Applicable to multinationals with a minimum consolidated group turnover of EUR 750 million For each tax jurisdiction where they operate Reportable information includes: Turnover Pre-tax profit Income tax paid and accrued Number of employees Capital Tangible assets Business activities

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 29 Anti-Tax Avoidance Package Tax Treaty Issues & External Strategy February 16, 2016 © 2016 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Recommendation on Tax Treaty issues– 28 January 2016 Treaty abuse – artificial avoidance of PE status OECD BEPS Action 6 proposes two options: General anti-avoidance rules based on the principle purpose test (PPT), Limitation on Benefits (LOB) clauses considered detrimental to the Single Market New definition of permanent establishment (PE) in Article 5 OECD MC Communication on External Strategy for Effective Taxation– 28 January 2016 Common approach towards 3 rd countries – non-cooperative tax jurisdictions – EU (black) list Updating EU tax good governance criteria Including tax good governance clauses and state aid provisions in bilateral and regional agreements Assisting developing countries in meeting tax good governance standards Developing an EU process for evaluating and listing 3 rd country non-cooperative tax jurisdictions Revising the EU Financial Regulation to prevent EU funds from being channeled through low/no tax jurisdictions

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 30  Package is tabled for (unanimous) approval by the European Council and European Parliament on May 26.  Opposition?  Splitting?  Implementation by July 2016? Where now?

Thank you

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.