18 th Cross Atlantic and European Tax Symposium Jonathan Cooklin – Davis Polk & Wardwell LLP Nicolas de Boynes – Sullivan & Cromwell LLP Stephen Fiamma – Allen & Overy LLP 21st November, 2014 Corporate Inversions and Migrations

INVERSIONS: THE U.S. PERSPECTIVE 1  “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

INVERSIONS/MIGRATIONS INVOLVING EU COMPANIES 2  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

INVERSIONS: THE EUROPEAN PERSPECTIVE PARTYGAMING PLC AND BWIN INTERACTIVE ENTERTAINMENT AG EU CROSS BORDER MERGER BY ABSORPTION 3 Shareholders TRANSFEROR SUCCESSOR Shareholders DISSOLVED WITHOUT GOING INTO LIQUIDATION LISTED ON THE L.S.E. Transfer of assets and liabilities

GREENCORE AND NORTHERN FOODS PROPOSED EU CROSS BORDER MERGER BY ABSORPTION 4 Shareholders TRANSFEROR SUCCESSOR Shareholders DISSOLVED WITHOUT GOING INTO LIQUIDATION LISTED ON THE L.S.E. Transfer of assets and liabilities

U.S. INVERSIONS: ABBVIE/SHIRE 5 Shareholders AbbVie (U.S.) AbbVie (U.S.) Shire (Jersey) Shire (Jersey) U.S. SUBS Non-U.S. SUBS SUBS Shareholders New AbbVie (Jersey) New AbbVie (Jersey) AbbVie (U.S.) AbbVie (U.S.) U.S. SUBS Non-U.S. SUBS Shire (Jersey) Shire (Jersey) SUBS

U.S. Tax Advantages of an Inversion 6  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

U.S. Response to Inversions 7  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  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

INVERSION THROUGH A TENDER-OFFER 8 Stock tender offer

TRANSFER OF CORPORATE SEAT WITHIN THE EU 9  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)

TRANSFER OF CORPORATE SEAT WITHIN THE EU (cont.) 10  Benefits of the SE form:  Continuity of the legal personality  Unanimity vs. qualified majority

UK INVERSIONS 11 TOPCO PLC Trust UK SUBS NON-UK SUBS INCOME ACCESS SHARE

WHERE TO GO 12

POST INVERSION PLANNING 13 PLANNING CFC Planning IP Restructuring Finance structure Reinsurance treaties Transfer businesses offshore Establish new business offshore Service companies

INVERSIONS: THE U.K.’S RESPONSE 14  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

INVERSIONS: THE U.K.’S RESPONSE (contd) 15  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

U.K. INVERSIONS 16  Not so much “Desertion” as “Absent Without Leave”  Welcome back

DOUBLE INVERSIONS: GTECH S.P.A AND INTERNATIONAL GAME TECHNOLOGY 17 NEW U.K. HOLDCO NEW U.K. HOLDCO U.S. MERGER SUB U.S. MERGER SUB IGT (U.S.) IGT (U.S.) GTECH (ITALY) GTECH (ITALY) Merger with and into Merger with and into

PUBLICIS/OMNICOM 18 HoldCo NV (Resident in the UK) HoldCo NV (Resident in the UK) MergerCo US Merger