CYPRUS – LITHUANIA TAX STRUCTURING Alecos Papalexandrou Tax Partner Lithuania, June 2012

Holding Company - Inbound Investment Plan Establish Cyprus company to hold operating subsidiary in Lithuania for dividend stream income Benefits Eliminate withholding tax in Lithuania on dividend payment to Cyprus Participation exemption on dividend income – No tax in Cyprus No withholding tax on dividends to parent whether EU or Non-EU No CFC rules in Cyprus Parent Non-EU Lithuania Opco Cyprus Holdco 0% withholding tax on dividends EU Parent – Subsidiary Directive EU \ ЕС 2 Cyprus – Lithuania: tax restructuring © 2012 Deloitte Limited

Holding Company - Inbound Investment Investor from a country with no DTT with Lithuania Investment through Cyprus Dividends received by Cyprus holding Co exempt from tax (subject to conditions) No withholding taxes on payments out of Cyprus Investor Non EU No Treaty Cyprus Holding Co Lithuanian Subsidiary 3 Cyprus – Lithuania: tax restructuring © 2012 Deloitte Limited

Holding Company - Outbound investment Lithuanian Investor Co Plan Lithuanian investor establishes Cyprus company to hold various EU and non-EU operating subsidiaries for dividend stream income Benefits Access to EU directives and DTTs of Cyprus in relation to holding EU and non-EU subsidiaries – No or low withholding tax on dividend (for example 5% in Russia, 0% in Ukraine) Full participation exemption on dividend income - No tax in Cyprus No withholding tax on dividends to Lithuanian parent No CFC rules in Cyprus Dividend payment 0% withholding tax Cyprus Holdco Dividend income 0% tax Dividend payment 0% or low withholding tax Treaty Subsidiary EU Subsidiary 4 Cyprus – Lithuania: tax restructuring © 2012 Deloitte Limited

Holding Company - Outbound investment Plan Lithuanian investor establishes Cyprus company to hold various operating subsidiaries for dividend stream income Benefits Access to favorable treaties No withholding tax on dividend from Ukraine Withholding Tax in accordance with Treaty Full participation exemption on dividend income - No tax in Cyprus No withholding tax on dividends to parent No CFC rules in Cyprus Lithuanian Investor Cyprus Holdco Dividend payment 0% withholding tax Dividend income 0% tax Ukrainian Opco 5 Cyprus – Lithuania: tax restructuring © 2012 Deloitte Limited

Holding Company with Foreign PE In Cyprus : Profits from PE abroad exempt provided: Active income>50% or Tax burden >5% Losses of PE set off against Cyprus Co’s other income (but recapture rule) Profits in PE country exempt if they relate to construction and/or assembly activities lasting within the periods specified in the Cyprus DTT Network. Cyprus Co Investor Foreign PE Example: Austria <24 months Romania <12 months Russia Ukraine Other Eastern European Countries 6 Cyprus – Lithuania: tax restructuring © 2012 Deloitte Limited

Financing Company - Inbound Foreign Co / Bank Cyprus Financing Co Lithuanian Operating Co Interest deductible in operating country (Lithuania) No WHT in Lithuania based on EU Interest & Royalties Directive Small margin taxable in Cyprus at 10% No withholding taxes on payments out of Cyprus Interest Payable Interest Receivable 7 Cyprus – Lithuania: tax restructuring © 2012 Deloitte Limited

Finance Company - Outbound investment Cyprus Financing Company Lithuanian Investor EU / non-EU Opco Dividend payment 0% withholding tax Interest payment 0% or low withholding tax Profit Margin - 10% tax Plan Lithuanian investor establishes Cyprus company to be the group finance company of EU and non – EU operations. Capitalisation with equity Benefits Tax on profit margin 10% Access to EU interest directive and DTT network of Cyprus – No or low withholding tax on interest Interest deductibility in paying company No WHT on dividends paid from Cyprus 8 Cyprus – Lithuania: Tax restructuring © 2012 Deloitte Limited

Financing Company - Outbound Profits reduced in operating company Low or no WHT in operating company based on DTT or EU Directive Small margin taxable in Cyprus at 10% No withholding taxes on payments out of Cyprus to Lithuania Lithuanian Financing Co. Cyprus Financing Co. Operating Co Treaty/ EU Interest Payable Interest Receivable 9 Cyprus – Lithuania: tax restructuring © 2012 Deloitte Limited

Financing Company Margins on Loans – back to back structures Transfer Pricing Considerations – Acceptable indicative profit margins where low financing risk retained in Cyprus: Up to EUR€50m 0.35% From EUR€50m - EUR€200m 0.25% Above EUR€200m 0.125% 10 Cyprus – Lithuania: tax restructuring © 2012 Deloitte Limited

Intellectual Property Rights EU or No DTT Licensor Co Cyprus Royalty Co. Lithuanian Operating Co Royalty Company (Inbound): Royalty premiums deductible in Lithuania No WHT in Lithuania based on EU Interest & Royalties Directive (subject to conditions) Small margin taxed at 10% in Cyprus No withholding taxes on payments out of Cyprus As from 1/1/2012: cost of acquisition of IP can be amortised over 5 years 80% of the profits from royalties, including the profit from disposal of the IP, exempt from 10% corporation tax in Cyprus Royalty Payable Royalty Receivable 11 Cyprus – Lithuania: tax restructuring © 2012 Deloitte Limited

Royalty company - Outbound investment Plan Lithuanian investor establishes Cyprus company to be the owner of intellectual Property Rights. Capitalisation with equity (contribution of the IP) Benefits Amortisation of cost of acquisition of IP over 5 years Tax on 20% of the profits from royalties, including profits from sale of IP, at the rate of 10% (therefore, effective tax rate lower than 2%) Access to EU interest & royalty directive and DTT network of Cyprus – No or low withholding tax on royalties Royalty deductibility in paying company No withholding taxes on dividend payments from Cyprus Royalty premiums are deductible in operating country Credit relief in Cyprus for WHT in operating country if any Lithuanian Investor Co. EU or DTT Opco Dividend payment 0% withholding tax Royalty payment 0% or low withholding tax Profit - less than 2% effective tax Dividend Payable Cyprus IP Co. Royalty Receivable 12 Cyprus – Lithuania: tax restructuring © 2012 Deloitte Limited

Trading in Securities Profit is exempt from tax Cyprus Trading Co Buy Securities Sell Securities Profit is exempt from tax Use of Double Tax Treaties No withholding tax on payments out of Cyprus Result = 0% tax in Cyprus 13 Cyprus – Lithuania: tax restructuring © 2012 Deloitte Limited

Non Resident Trading Company Managed and controlled outside Cyprus Exempt from tax in Cyprus Non resident Cyprus registered company Use of EU VAT number and reputation Result = 0% tax in Cyprus Cyprus Trading Co Buy Products Sell Products 14 Cyprus – Lithuania: tax restructuring © 2012 Deloitte Limited

Lithuanian Operating Co. Employment Company Parent Co Cyprus Employment Co. Lithuanian Operating Co. Cyprus Company employs staff Charges at cost plus Profits taxable in Cyprus at 10% Profits reduced in operating country Employee costs reduced as employees pay less tax and S.I. Contributions * Employees exempt from tax in Cyprus * Depends on nationality of employees and rules of operating country 15 Cyprus – Lithuania: tax restructuring © 2012 Deloitte Limited

Cyprus International Trusts Beneficiary & Settlor Not residents of Cyprus Trustee At least one Cyprus tax resident Trust Property Plan Set up a trust under the Cyprus International Trusts Law of 2012 Benefits Exempt from any taxation in Cyprus Exempt from any Capital Gains and Inheritance Tax Protection of Property Confidentiality Trading activities through the set up of a company owned by the trust 16 Cyprus – Lithuania: tax restructuring © 2012 Deloitte Limited

International Collective Investment Schemes An ICIS can take one of the following legal forms: Fixed Capital Company; Variable Capital Company; Unit Trust Scheme; Investment Limited Partnership. 17 Cyprus – Lithuania: tax restructuring © 2012 Deloitte Limited

An example: Overseas Investments Cyprus HoldCo ICIS Partnership General Partner (CyprusCo) Limited Partners Lithuanian Parent 18 Cyprus – Lithuania: tax restructuring © 2012 Deloitte Limited

Thank you! For more information you may contact: Alecos Papalexandrou Tel: + 357 25 868686 E-mail: apapalexandrou@deloitte.com 19 © 2012 Deloitte Limited Cyprus – Lithuania: tax restructuring