1. © Grant Thornton LLP. All rights reserved. Corporate Inversions A primer on inversion strategies and the U.S. tax landscape Disclaimer Opinions and views expressed are solely those of the speaker and not necessarily the opinion or view of Grant Thornton LLP or it's other partners.

2. © Grant Thornton LLP. All rights reserved. Why Invert? An overview of the US tax system U.S. corporate income tax system taxes worldwide income of US Corps vs. certain other taxing jurisdictions which tax only territorial income. U.S. corporate tax system GENERALLY allows "deferral" of U.S. taxation of income earned by foreign subsidiaries until such time the income is repatriated or deemed repatriated to the US. To mitigate the risk of double taxation, U.S. tax system offers a foreign tax credit mechanism to offset foreign taxes paid against U.S. tax liability. This system is complex and sometimes fails to fully mitigate double taxation. U.S. corporate income tax system has a robust "anti-deferral" regime that applies to certain types of income earned by "Controlled Foreign Subsidiaries" or CFC. This regime works to tax income in the U.S. on a real-time basis where deferral is deemed inappropriate. This is commonly referred to as Subpart F and Section 956 income.

3. © Grant Thornton LLP. All rights reserved. Why Invert? Opportunities for Inverted Companies Inverted organization can structure future income from non-U.S. sources to be earned outside the US tax net as to avoid U.S. tax permanently as opposed to only gaining deferral under the U.S. corporate system. The introduction of intercompany charges into the U.S. company from members of the inverted group considered to be permanently outside the U.S. tax system can create opportunities for significant global tax savings through rate arbitrage. –Common examples may include intercompany services charges, royalties, interest expense charges, and other arms-length charges designed to be sustainable under U.S. tax principles. Use of so-called "hopscotch loans" to avoid repatriation of CFC earnings but allow access to cash by new foreign parent. The ability for non-US companies to avoid the US anti-deferral regime (i.e. avoid CFC status) presents opportunities to shift income that previously would have been subject to U.S. tax on a real-time basis.

4. © Grant Thornton LLP. All rights reserved. Why Invert? Many U.S. tax considerations still remain The inversion transaction itself may give rise to shareholder level taxation related to the exchange of U.S. shares for foreign shares. In most inversions, the inverted U.S. company remains in the structure and is still subject to tax at 35% on it's earnings (worldwide). Existing CFCs and valuable assets (e.g. non-US IP) owned by the U.S. Company, pre-inversion, are likely to remain subject to U.S. taxation after an inversion. This includes unrepatriated earnings of foreign subsidiaries held by the U.S. Company. The movement of existing CFCs and valuable assets out from "under" the U.S. company will typically result in U.S. corporate level taxation making restructuring difficult where inherent gain exists.

5. © Grant Thornton LLP. All rights reserved. Corporate Inversion Transactions "Before and After" Original Structure USCo, Inc. (US) Inverted Structure Foreign Subs New Foreign Parent USCo, Inc. (US) Foreign Subs

6. © Grant Thornton LLP. All rights reserved. Corporate Inversion Transactions An illustrative example of an Inversion Transaction USCo, Inc. (US) Foreign Subs Shareholders New Foreign Parent Merger Sub Merger New FP shares issued in exchange for USCo. Shares

7. © Grant Thornton LLP. All rights reserved. Anti-Inversion Measures Major U.S. Legislative and Regulatory Activity Section 367 (Shareholder level tax) –In general, operates to tax U.S. shareholder level gain in situations where domestic shares are exchanged for foreign shares and U.S. transferors of the domestic shares own in aggregate more than 50% of the vote or value of foreign co immediately following the exchange. Section 7874 (Corporate Level Taxation) - Enacted in 2004 under the AJCA IRS Notice 2009-78/Temp. Regs - (Notice issued September 17, 2009/Temporary Regulations issued January 16, 2014) IRS Notice 2014-52 – issued September 22, 2014

8. © Grant Thornton LLP. All rights reserved. Anti-Inversion Measures Section 7874 – Relevant Provisions Section 7874(a)(2)(B): A foreign corporation (the “foreign acquiring corporation”) typically is treated as a surrogate foreign corporation if: –The foreign acquiring corporation completes after March 4, 2003, the direct or indirect acquisition of substantially all of the properties held directly or indirectly by a domestic corporation, or substantially all the properties constituting a trade or business of a domestic partnership, –After the acquisition, at least 60% (by vote or value) of the equity interests in the foreign acquiring corporation is held by former owners of the domestic entity by reason of holding equity interests in the domestic entity (the “ownership fraction”), and –After the acquisition, the expanded affiliated group that includes the foreign acquiring corporation does not have substantial business activities in the relevant foreign country In determining the ownership fraction, section 7874(c)(2)(B) provides that stock of the foreign acquiring corporation that is sold in a public offering related to the acquisition is not taken into account. This is known as the statutory public offering rule.

9. © Grant Thornton LLP. All rights reserved. Anti-Inversion Measures Section 7874 – Relevant Provisions (cont.) The 7874 provisions apply where continuing ownership is at least 60% but are generally fatal to the transaction if ownership is 80% or more. –If the requirements for a 60% inversion are satisfied, there are limitations on the use of corporate attributes to offset inversion gain. –If the ownership fraction is at least 80%, the foreign acquiring corporation will be treated as a domestic corporation. Special rules relate to the application of section 7874, including anti- avoidance rules (e.g. section 7874(c)(4)).

10. © Grant Thornton LLP. All rights reserved. Anti-Inversion Measures Notice 2009-78 21% Old USCo shareholders 79% USCo stock for FA stock cash for FA stock New Investor FA USCo New investor uses cash to facilitate an inversion Statutory anti-abuse rule requires proving “a principal purpose ” 80% rule potentially avoided

11. © Grant Thornton LLP. All rights reserved. Anti-Inversion Measures Notice 2009-78 Notice 2009-78 ("the Notice") indicated that regulations to be issued under section 7874 would identify stock of a foreign acquiring corporation that is not taken into account in determining the ownership fraction Temporary regulations published January 16, 2014 set forth the rules described in the Notice, subject to certain modifications Effective date: generally for acquisitions completed on or after September 17, 2009 (the date of the Notice) The temporary regulations modify the scope of the public offering rule to address the potentially over- and under-inclusive application of section 7874

12. © Grant Thornton LLP. All rights reserved. Anti-Inversion Measures Notice 2014-52 Effective primarily for transactions occurring on or after September 22, 2014. Notice announces that Treasury intends to issue Regulations under IRC Sections 304, 367, 956(e), 7701(l) and 7874. According to the Notice: –"Treasury and the IRS are concerned that certain recent inversion transactions are inconsistent with the purposes of 7874 and Section 367 of the IRC. The Treasury Department and the IRS understand that certain inversion transactions are motivated in substantial part by the ability to engage in certain tax avoidance transactions after the inversion that would not be possible in the absence of the inversion…"

13. © Grant Thornton LLP. All rights reserved. Anti-Inversion Measures Notice 2014-52 Provisions addressing Inversion Transactions: –Expansion of the "Group Nonqualified Property" provisions where more than 50% of the gross value of all "foreign group property" is nonqualified. –Rules to disregard certain distributions made by US Target in connection with the transaction to alter the numerator under 7874. –Transaction involving subsequent transfers of stock for purposes of the EAG rules and exceptions.

14. © Grant Thornton LLP. All rights reserved. Anti-Inversion Measures Notice 2014-52 Provisions addressing post Inversion Tax Avoidance: –Section 956 regulations to be issued targeting transactions where untaxed CFC earnings can be accessed by inverted group without US taxation by way of intergroup loans and investments. –Section 7701 provisions targeting transactions under which CFC ownership is diluted resulting in a US person avoiding taxation on previously untaxed CFC earnings. –Section 304 regulations to be issued to prevent the removal of untaxed earnings through intergroup stock transfers.

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