1. Tax Executives Institute, Inc. New Jersey Chapter Paul DePasquale | Amir-Kia Waxman February 26, 2016 “Oops I Did It Again” “Oops I Did It Again” International Traps for the Unwary…and Solutions for the Astute

2. 2 BAKER & MCKENZIE | Lorem Ipsum Dolor Sit Met Top 10 Tax Issues in International Transactions  The Tax Indemnity  Tax Considerations on Structure  Sections 336 and 338 Elections  Tax Effecting Indemnification Payments  Purchase Price Allocation  Transfer Taxes  Withholding  Ancillary Agreements (License, TSA and Escrow Agreements)  FATCA  Closing Deliverables

3. 3 BAKER & MCKENZIE | The Tax Indemnity

4. 4 BAKER & MCKENZIE | Practice Tip #1: Taxes indemnified at dollar one on private transactions The Tax Indemnity Standard Tax Indemnity/Private Acquisitions  On Buy-side, can carve out Taxes from general indemnity and move to standalone tax indemnity in tax covenants section Taxes not subject to caps/baskets Indemnity for pre-closing taxes vs. indemnity for breach of tax reps “Dash 6”/Successor Liability (Treas. Reg. §1.1502-6)  On Sell-side, run Taxes through the general indemnity (subject to caps/baskets) Standard Tax Indemnity/PE Model

5. 5 BAKER & MCKENZIE | Tax Considerations on Structure

6. 6 BAKER & MCKENZIE | Practice Tip #2: Bring tax team in early and often on structuring talks Tax Considerations on Structure Taxable Asset Acquisition Buyer gets FMV tax basis in assets Target’s NOLs not available to Buyer No carryover of tax methods No transfer of historic liabilities to Buyer Increases structuring flexibility Usually a double level of tax for corporate Seller and its shareholders Generally Buyer’s preference Taxable Stock Acquisition Buyer gets carryover tax basis in assets Tax attributes (including NOLs) generally carryover, subject to limitations Usually single level of tax for Seller Historic liabilities of Target transfer to Buyer Generally an individual Seller’s preference Section 338 Election: Step-up in basis of assets but NOLs not available (distributed to Seller under Section 381)

7. 7 BAKER & MCKENZIE | Sections 336 and 338 Elections

8. 8 BAKER & MCKENZIE | Practice Tip #3: Partnerships (and corps) can make the 336(e) election Sections 336 and 338 Elections

9. 9 BAKER & MCKENZIE | Tax Effecting Indemnification Payments

10. 10 BAKER & MCKENZIE | Practice Tip #4: If representing Seller, tax-effect indemnification payments Tax Effecting Indemnification Payments Real Dollars at Stake:  Ex. Buyer acquires Target for $1 Billion. Buyer finds environmental liability that was not disclosed and pays EPA $100 million. Buyer brings indemnity claim against Seller for $100 million. If SPA provides that indemnification payments are reduced by tax benefits, Seller only pays $65 million to Buyer because Buyer received a $35 million tax deduction for the payment it made to the EPA. If no provision in SPA, Seller must pay the full $100 million to Buyer ($35M windfall). Actually Realized vs. Hypothetical Present Value Method If indemnification payments are reduced by tax benefits, then it’s reasonable for such payments to be increased for tax costs incurred

11. 11 BAKER & MCKENZIE | Purchase Price Allocation

12. 12 BAKER & MCKENZIE | Practice Tip #5: The party that controls the PPA is a negotiated point Purchase Price Allocation (“PPA”) Not legally required but if an “Applicable Asset Acquisition”/“1060 Deal” then parties will need to file IRS Form 8594  Applicable Asset Acquisition means the sale of an active trade or business or a sale to which going concern value/goodwill attaches Factors such as licenses, leases, covenant not to compete, etc. considered PPA provides that parties will agree to attached schedule by signing/closing  Better for Seller because Seller loses leverage at Closing (plus closing taxes/stamp duty may need to be paid); if assets are unwieldy may not be feasible Or, PPA provides typical post-closing review period, dispute resolution, parties bound to allocation

13. 13 BAKER & MCKENZIE | Transfer Taxes

14. 14 BAKER & MCKENZIE | Practice Tip #6: Better to first understand scope of TT when negotiating Transfer Taxes Which party shall bear?  Typically negotiated on domestic transactions Beware of indirect transfer taxes in certain states (e.g., tax on transfer of controlling interest in entity that holds in-state real property) Different states have different thresholds (Ex. NYS and NYC have 50% equity threshold)  Often negotiated on cross-border transactions, but some jurisdictions accept that the party that has the legal obligation to pay the tax shall be the party that bears the tax Beware of foreign jurisdictions that have indirect transfer taxes as well (e.g., China, India and Germany (with respect to German real property) to name a few)

15. 15 BAKER & MCKENZIE | Withholding

16. 16 BAKER & MCKENZIE | Practice Tip #7: On Buy-side deals, include basic withholding provision Withholding Various types  Domestic – withholding on compensation (including options); potential backup withholding on individual sellers, etc.  Cross-border Consider jurisdictions and type of payment (follow the cash flow) Interest, dividends depending on structure, treaty application, etc. Negotiation pressure points include notice, opportunity to cure, opinion of law firm whether withholding applies

17. 17 BAKER & MCKENZIE | Ancillary Agreements (License, TSA and Escrow Agreements)

18. 18 BAKER & MCKENZIE | Practice Tip #8: Tax folks can add value to ancillary agreements! Ancillary Agreements License Agreement – treatment of withholding, gross-up Transition Services Agreement – which party bears sales or similar taxes (including foreign goods and services taxes, value added tax, etc.) Escrow Agreements  Which party is treated as the owner of the escrow?  Imperative that the owner of the escrowed funds for tax purposes has the ability to withdraw funds from the escrow to pay taxes on a quarterly basis  Escrows longer in duration – negotiation pressure points regarding which party performs Section 483 calculations, etc.

19. 19 BAKER & MCKENZIE | FATCA

20. 20 BAKER & MCKENZIE | Practice Tip #9: Prepare classifications early FATCA, CRS, and CbC Considerations What you need to know What withholding agents and banks need to know Following payment flows and knowing FATCA/CRS classification of entities

21. 21 BAKER & MCKENZIE | Closing Deliverables

22. 22 BAKER & MCKENZIE | Practice Tip #10: FIRPTA footfaults can be costly Closing Deliverables FIRPTA Certificates  Different types, depending on whether Sellers are domestic or foreign and whether one selling shareholder versus large number of selling shareholders  Officer of wholly owned LLC cannot sign FIRPTA certificate – need to go up the chain through disregarded entities until you reach a regarded entity  Publicly-traded exception Forms W-8, W-9, etc. Stamp Duty Certificates, etc.

23. 23 BAKER & MCKENZIE | Lorem Ipsum Dolor Sit Met Top 10 Tax Issues in International Transactions  The Tax Indemnity  Tax Considerations on Structure  Section 336 and 338 Elections  Tax Effecting Indemnification Payments  Purchase Price Allocation  Transfer Taxes  Withholding  Ancillary Agreements (License, TSA and Escrow Agreements)  FATCA  Closing Deliverables

24. 24 BAKER & MCKENZIE | Paul DePasquale Associate Baker & McKenzie LLP 452 Fifth Avenue New York, New York 10018 Tel: + 1 212 626 4230 Paul.DePasquale@bakermckenzie.com Amir-Kia Waxman Associate Baker & McKenzie LLP 452 Fifth Avenue New York, New York 10018 Tel: + 1 212 626 4262 Amir-Kia.Waxman@bakermckenzie.com