Nexia International 2010 Annual Tax Conference

European Holding Company Analysis

Nexia World Tax Meeting New York, May 15, 2010 European Holding Company Analysis by Chris Leenders, International Tax Partner at Koenen en Co, Member of Nexia The Netherlands/ Nexia International

European Holding Company Analysis Countries covered: 20 Updates as per January 1, 2010 Issues covered: 17 Main developments

European Holding Company Analysis Countries covered: Out:CyprusIn: Ireland Austria Denmark Mauritius Italy Singapore Norway Croatia Poland Slovak Republic

European Holding Company Analysis Countries not covered? Czech RepublicCroatia AustriaTurkey FinlandHong Kong CyprusMauritius RomaniaSingapore

European Holding Company Analysis Main changes/developments

European Holding Company Analysis Issues 1.Treatment of dividend income Participation exemption: 17 countries (full or 95%) Taxable with credit: 2 countries (Greece, Russia) 3% burden: Norway

European Holding Company Analysis 2.Treatment of capital gains Participation exemption: 15 (some 95%) Taxable with credit: 1 (Greece) Taxable: 2 (Russia, Slovak Republic) Taxable: 1 (UK, if non trading) Taxed at 3%: Norway

European Holding Company Analysis 3.Minimum “ownership” period requirements None :9 (Denmark, Germany, Hungary, Netherlands, Malta, Ireland, Italy, Sweden, UK)

European Holding Company Analysis 4.Active business test on underlying participation No :15 (Belgium, Denmark, Hungary, Ireland, Poland, France, Germany, Greece, Luxembourg, Malta, Portugal, Russia, Sweden, Slovak Republic, Switzerland)

European Holding Company Analysis 5.Subject to tax-test on underlying participation No :8 (Greece, Netherlands (if active business), Luxembourg (if EU sub) Ireland, Malta (if EU sub), Portugal, Switzerland, Slovak Republic)

European Holding Company Analysis 6.Withholding tax on liquidation (of the holding company) No :10 (Denmark, Greece, Hungary, Ireland, Luxembourg, Malta, Norway, Slovak Republic, Spain, UK)

European Holding Company Analysis 7.Interest deductibility; Debt/equity ratio’s Interest deductible: No:5 (Portugal, Denmark, Poland, Italy, Hungary) Debt/equity ratio’s: No:5 (Malta, Norway, Italy, Ireland, Sweden)

European Holding Company Analysis 8.CFC and/or anti-abuse regulations? None:4 (Greece, Slovak Republic, Malta, Ireland)

European Holding Company Analysis 9.Anti treaty shopping provisions No:Hungary, Greece, Poland, Russia

European Holding Company Analysis 10.Taxes on capital contribution Yes:Greece 1% Hungary ($ 200 or € 150 fixed) Spain 1% Switzerland 1%

European Holding Company Analysis 11.To sum up: Best: Ireland and Malta Worst: Russia, Poland, Norway, Italy

European Holding Company Analysis 12.Main developments - CIT rates seem to stabilise -Much more tax treaties in place -Non interest deductibility increases from 2 to 5

European Holding Company Analysis 13.Main developments -Active business test on underlying participation: Increased from 10 to 15 countries! -New taxation on banks?

European Holding Company Analysis 14.Upcoming: lyrics Alanis Morisette: ironic “An old man turned ninety-eight. He won the lottery and died the next day.” Death and Taxes

European Holding Company Analysis QUESTIONS ? THANK YOU !

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Death & Taxes 24

Reasons to Discuss Death on a Saturday Morning 1.Alcohol 2.Headaches Free Friday nights 4.It’s a fun topic for accountants

Death & Taxes 26 You are a tax advisor in your home country. You are engaged by Mrs. X, the wife of a foreigner, Mr. X, who has passed away. Mrs. X advised you that, at the time of his death, Mr. X owned property in your home country. Mrs. X has asked you to determine and advise on any possible tax consequences in your home country resulting from Mr. X’s death. More specifically, she wishes to know what will be the implications for Mr. X, for the estate of Mr. X, and the heirs of Mr. X.

Death & Taxes 27 What did Mr. X own?  Real estate Owned directly Owned through a domestic company Owned through a foreign company Owned through a domestic trust Owned through a foreign trust Owned through a domestic partnership Owned through a foreign partnership

Death & Taxes 28 What did Mr. X own? (Cont’d)  Shares of a company  Interest in a partnership  Interest in a trust

Death & Taxes 29 Implications to Mr. X on death  Filing requirements Income tax returns Compliance certificates Estate tax/inheritance tax returns Due dates Information required

Death & Taxes 30 Implications to Mr. X on death (Cont’d)  Taxes to pay Income taxes Estate tax/inheritance tax Mutation tax Probate fees

Death & Taxes 31 Implications to the Estate of Mr. X  Residency of the Estate Determined by trustees or beneficiaries Differences  Estate tax returns Requirements to file Due dates Special tax rates or rules

Death & Taxes 32 Implications to the Estate of Mr. X (Cont’d)  Period of the Estate’s existence Legal requirements Reasons to lengthen or shorten Estate’s existence Requirements to close estate and distribute assets Personal liability for executors

Death & Taxes 33 Implications to the heirs of Mr. X  Any taxes to be paid by heirs on receipt of property Ways to avoid Filing requirements to receive property Due dates

Death & Taxes 34 Implications to the heirs of Mr. X (Cont’d)  What are the tax attributes of property inherited to the heirs? Original cost to decedent Fair market value at decedent’s death Another value Elections available

Structuring Investments in North America James Wall * J. H. Cohn LLP May 15, 2010 * Thanks to Steve Roth and Alfredo Solloa for their helpful comments

Circular 230 – General Information The information included herein is not intended or written to be used, and it cannot be used by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing or recommending to another party any tax related matters. (The foregoing disclosure has been affixed pursuant to U.S. Treasury Regulations governing tax practice.) The information included herein is of a general nature and should not be relied on as tax advice. Consultation with a tax advisor in respect of specific transactions should be undertaken. 1

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High-Level US, Canada and Mexico Tax “Highlights” USCanadaMexico General Federal and state/provincial tax rate40%31%30% Employee profit-sharing taxn/an/a10% Dividend withholding tax rate (non-treaty)30%25%0% Interest withholding tax rate (non-treaty)30%25%30% Management fees paid for non-local based services0%0%0% Transfer pricing documentation requiredYesYesYes Significant capital taxesn/an/an/a Exchange controlsNoNoNo Special rules and reporting for foreign operationsYesn/an/a Comparability to US rulesn/aYes generally more complex 3

General Background Information Regarding US Tax Rules US persons and entities subject to US tax on WWI Foreign persons and entities subject to US tax under one of two regimes: Net Income Regime – Applies to income effectively connected with a US trade or business (“ECI”), less allowable deductions Two requirements for the net income regime to apply The person must be engaged in a US trade or business (“ETB”); except for sales of US real property interests The income be effectively connected with the US trade or business (source is key) Gross Income Regime – Certain (non-capital gain) Income from US sources that is not ECI Collected via withholding tax (30% rate) Rates reduced or eliminated via tax treaties Domestic law exemptions Bank account interest Registered debt (portfolio debt exemption) 4

General Background Information Regarding US Tax Rules – cont’d. US Limited Liability Companies/Partnerships – Treated as flow through entities with no entity level income tax Earnings taxed at the owner level If the entity is ETB, the partners are considered to be ETB Rev Rul takes the position that gain realized from the disposition of a USP interest is ECI No treaty protection because the PE of the USP is attributed to the partner US Corporations – Taxed at the entity level on WWI Owners are not subject to US tax unless they receive income from the US Corp. Generally no owner tax on disposition of shares (USRPHC exception) Elective system for entity classification commonly referred to as the “check-the-box” election 2011 budget proposals will not modify this system (for now) 5

Canadian Tax Rules Overview The Canadian tax system is broadly comparable to the US tax system in terms of computation of taxable income. Tax rates are somewhat lower. But, Canada does impose a Goods and Service Tax or “GST” that operates more or less like a VAT. The starting point for the computation of taxable income is GAAP income. Like the US, there is an accelerated system for computing tax depreciation. Meals & entertainment expenses are only 50% deductible. LIFO is not permitted. The basic Federal tax rate is 16.5% (for 2011), and provincial rates rate from 10% to 16%. Interest paid to related or unrelated parties is generally an allowable Canadian tax deduction, and the Canadian CFC can be capitalized with a reasonable amount of debt. Canada imposes so-called “thin capitalization” rules, and interest paid to related parties will not be allowed, to the extent that the CFC’s debt-to-equity exceeds a two-to-one ratio. 6

Canadian Tax Rules Overview – cont’d Management and service fees paid by a Canadian company to a foreign parent should be deductible, and not subject to Canadian withholding tax. However, Canada will want documentation that intercompany charges are reasonable. The reasonableness of the transfer price on any purchases of products from or sales to related parties should also be documented. In addition to the 5% Federal GST, Ontario and the other provinces levy a sales tax, which in some provinces is similar to a VAT tax, and in other provinces is just a sales tax. The rate varies by province. There are currently no foreign exchange controls which would limit a Canadian company’s ability to make dividend, interest, management service fee payments, etc. 7

Mexican Tax Rules Overview The nominal tax rate in Mexico is 30%*. But, the Mexican tax system is less comparable to the US tax system than the Canadian system and has some significant complexities caused by application of a minimum tax and tax rules that apply to inflationary gains/losses and currency movement. As in Canada, the starting point for the computation of taxable income is GAAP income. However, the computation of inventories and COG’s for tax is more complicated owing to adjustments that are made to offset the effects of inflation. Tax depreciation is based on the straight-line method over specified periods, and depreciation is indexed for inflation. Interest paid to related or unrelated parties is generally an allowable Mexican tax deduction. Mexico applies a debt-to-equity ratio of 3 to 1 in determining whether the capitalization of a subsidiary is reasonable (and penalizing interest deductions for undercapitalized companies.) * For FY

Mexican Tax Rules Overview – cont’d Mexico applies a so-called “monetary correction” to account for the impact of inflation on monetary assets and liabilities and also tax-effects FX movements on an annual accruals basis. As a result of the varying effects of monetary correction and FX movements, there have been periods where Mexican companies have incurred a higher tax burden as a result of being capitalized by debt instead of equity. There is also an employee profit-sharing tax of 10% of taxable income after certain adjustments. Splitting employees into a separate company no longer works in many cases – Social Security rules for outsourcing contracts. Management, technical assistance and service fees paid to related parties should be deductible, and such fees are not subject to Mexican withholding tax provided the services in question are rendered outside of Mexico. 9

Mexican Tax Rules Overview – cont’d Mexico will want documentation that intercompany charges are reasonable. The reasonableness of the transfer price on any purchases of products from or sales to related parties should also be documented. (Transfer Pricing Study required and reasonability and method used, must be mentioned by external auditor on filing audit report to Mexican IRS – mandatory “tax” audit if gross income> MUSD in prior FY) Mexico also applies a minimum tax known as the Flat Rate Business Tax (IETU). The rate is 17.5% and it applies to income computed generally on a cash basis rather than an accrual basis. IETU paid in excess of a Mexican company’s income tax liability cannot be carried over, and thus, if applicable is a final tax. The IRS has announced that the IETU will be considered a creditable FTC, pending further study. Mexico applies a VAT of 16%, generally. 10

Repatriation of Funds From US Transfer Pricing Services – Narrower definition of stewardship Generally, no withholding taxes Sales of goods – Consider LRD arrangements Royalties – Treaty provisions are key Dividends Under US domestic law, distributions always come out of E & P first Nimble dividend rule Branch tax attempts to replicate dividend withholding tax for foreign corps doing business in the US as branches Certain treaties allow for zero rate of withholding tax from the US (UK, Germany, Netherlands, Japan, Belgium, etc.) All treaties have different technical requirements for zero rate Leverage – Various Limitations 11

12 Characterization as debt or equity Thin capitalization Documented ability to borrow on similar terms from third parties Limitations on deductibility of interest expense Earnings stripping Cash-basis deduction for related-party payments Transfer pricing considerations Considerations in Financing US Operations

13 Determination of appropriate US WHT (default rate is 30%) Conduit rules (treasury regulations and case law) Treaty limitations of benefits (LOB) provisions Considerations in Financing US Operations cont’d.

14 Most Common Inbound Structures US Canada Mexico F Same in all cases Local corporation ring fences local liability No tax filings by foreign parent Transfer pricing typically the biggest issue Debt financing by F will make sense if F tax rates are lower and a treaty is in place

15 Less Common Inbound Structures Branches and partnerships (except Mexico which does not have partnerships) Allows losses to flow to the branch owner/partner Requires local country tax filings by the branch owner/partner Risk that tax authorities will question allocations of income or deductions among the head office and the branch Hybrid investments from US into Canada (ULC’s) were very common but will be less so going forward due to new treaty provisions

16 Questions