1. March 17, 2011 Kalamazoo, MI Your Trusted Tax Counsel ® Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference within the organization to a “partner” means a person who is a partner, or equivalent, in a member firm or its affiliate. Similarly, reference to an “office” means an office of any such law firm. Global Asset and Stock Deals Tax Executives Institute Western Michigan Chapter Thomas May (New York/Washington DC)

2. ©2011 Baker & McKenzie 2 Presenter Thomas May (New York, Washington, DC) thomas.may@bakermckenzie.com (212) 891-3983

3. ©2011 Baker & McKenzie 3 [change title in View/Header and Footer] 3 Acquisition Financing

4. ©2011 Baker & McKenzie 4 Acquisition Financing –Use of Luxembourg Company USP (US) CFC1 (Luxembourg) $200 in Cash for FT Shares USS (US) Holdco (A) Branch (US) FT (A) FT (A) $150 Loan $50 Equity $200 for CPECs or Convertible Loan Fiscal Unity

5. ©2011 Baker & McKenzie 5 Acquisition Financing –Repatriation/Financing Technique USP (US) CFC1 (Luxembourg) $200 in USP Shares for FT Shares FS (B) Low Tax CFC (A) FT (A) FT (A) $200 for USP Shares

6. ©2011 Baker & McKenzie 6 [change title in View/Header and Footer] 6 Section 338(g) Elections and Covered Asset Acquisitions

7. ©2011 Baker & McKenzie 7 Section 338(g) Elections –USP files a section 338(g) election with respect to FT USP (US) CFC1 (A) FT Shares USS (US) FT (A) FT (A) $200 Cash

8. ©2011 Baker & McKenzie 8 –Requirements for section 338(g) election: –Acquisition of stock in FT meeting the requirements of section 1504(a)(2) (80% vote and value) during a 12-month period –FT stock must be acquired in a transaction in which gain or loss is recognized in full –Section 338(g) election must be made on Form 8023 filed by 15 th day of 9 th month following month in which acquisition is made –Unlike section 338(h)(10) election, the seller’s consent is not required for a section 338(g) election Section 338(g) Elections

9. ©2011 Baker & McKenzie 9 –Effect of section 338(g) election –FT (Old Target) treated as having sold all assets at close of acquisition date for aggregate deemed sales price (“ADSP”) –ADSP is equal to grossed-up amount realized on recently- purchased stock plus the liabilities of Old Target –Allocation of ADSP amongst target assets based on asset classes –FT recognizes taxable gain or loss on each asset Section 338(g) Elections

10. ©2011 Baker & McKenzie 10 –Effect of section 338(g) election –FT (New Target) is treated as new corporation which purchased assets of Old Target at start of day after acquisition date for adjusted grossed-up basis (“AGUB”) –AGUB is sum of grossed-up basis of recently-purchased stock, basis of non-recently purchased stock, and liabilities of New Target –Allocation of AGUB amongst assets based on asset classes –FT’s historic tax attributes erased –FT’s depreciation deductions increased for US E&P purposes but not foreign purposes Section 338(g) Elections

11. ©2011 Baker & McKenzie 11 –Effect of sale of FT stock on Seller absent section 338(g) election –Seller recognizes taxable gain or loss on the sale of FT stock –Gain or loss is capital in nature and either U.S. or foreign source –If Seller is U.S. person that owned 10% or more of voting stock of FT during 5-year period ending on date of sale when FT was CFC (“section 1248 conditions”), gain treated as dividend income to extent of E&P accumulated during period FT stock was held while FT was a CFC –Dividend income may be general basket income –If U.S. person is corporation, dividend carries FTCs (if any) Section 338(g) Elections

12. ©2011 Baker & McKenzie 12 –Effect of sale of FT stock on Seller with section 338(g) election –Seller recognizes taxable gain or loss on the sale of FT stock and FT recognizes gain or loss on deemed asset sale for E&P purposes (and, potentially, subpart F purposes) –Seller’s gain or loss is capital in nature and either U.S. or foreign source –If Section 1248 Conditions satisfied, gain treated as dividend income to extent of existing E&P plus E&P on deemed asset sale –Is dividend income from deemed asset sale general basket? –Section 338(h)(16) –Dilution of FTC pool – Cf. PLR 8938036 with CCA 200103031 Section 338(g) Elections

13. ©2011 Baker & McKenzie 13 Covered Asset Acquisitions –Section 901(m) provides that, if there is a covered asset acquisition (“CAA”), the disqualified portion of foreign income tax determined with respect to the income or gain attributable to the relevant foreign assets is not taken into account in determining the credit under section 901 or sections 902 and 960 –A CAA includes: –a qualified stock purchase under section 338(a); –any transaction treated as an acquisition of assets for U.S. federal income tax purposes and treated as an acquisition of stock (or is disregarded) for foreign income tax purposes; –any acquisition of an interest in a partnership if a section 754 election is in place; and –any other similar transaction identified by the Treasury

14. ©2011 Baker & McKenzie 14 Covered Asset Acquisitions –Where there is a CAA, the disqualified portion of foreign taxes is, for any taxable year, the ratio (expressed as a percentage) of the aggregate basis differences (but not below zero) allocable to such taxable year with respect to all relevant foreign assets divided by the income on which the foreign income tax is determined –The basis difference with respect to any relevant foreign asset is the excess of the adjusted basis of such asset computed under U.S. federal income tax principles immediately after the CAA over the adjusted basis of such asset computed under U.S. federal income principles immediately before the CAA –Basis difference is allocated to taxable years based on cost recovery method applicable under U.S. federal income tax law –A foreign asset is relevant with respect to a CCA if income, deduction, gain, or loss attributable to such asset is taken into account in determining the foreign income tax

15. ©2011 Baker & McKenzie 15 Covered Asset Acquisitions –Section 338 Election –USP files a section 338(g) election with respect to FT USP (US) CFC1 (A) FMV/Recovery Period Asset A: $150/15-year Asset B: $50/5-year FT Shares FS (B) FT (A) FT (A) $200 Cash Basis Asset A: $0 Asset B: $0

16. ©2011 Baker & McKenzie 16 Covered Asset Acquisitions –Section 338 Election –USP files a section 338(g) election with respect to FT –Calculation of disqualified portion USP (US) CFC1 (A) 1.Aggregate Basis Difference Allocable to Year 1: $20 2.Foreign Taxable Income in Year 1: $100 3.Foreign Taxes: $35 4.Disqualified Portion of Foreign Taxes: $20/$100 x $35 = $7 FT (A)

17. ©2011 Baker & McKenzie 17 Covered Asset Acquisition –Other Special Rules –Disqualified portion of foreign taxes is deductible for U.S. federal income tax purposes (e.g., for earnings and profits purposes) –In the case of a section 338 election, CAA is treated as occurring at close of acquisition date –If basis of asset immediately after CAA is less than basis immediately before CAA, difference is taken into account as a negative basis difference (thereby decreasing disqualified portion of foreign taxes) –If there is a disposition of any relevant foreign asset, any remaining basis difference with respect to that asset is allocated to year of disposition –Effective date –Subject to transition rules, CAA rules apply to CAAs after December 31, 2010

18. ©2011 Baker & McKenzie 18 Covered Asset Acquisitions –Section 338 Election –USP files a section 338(g) election with respect to FT –Calculation of earnings and profits and foreign tax credits USP (US) CFC1 (A) 1.U.S. Taxable Income in Year 1: $100 2.Less Amortization:$20 3.Less Foreign Taxes:$35 4.U.S. Earnings and Profits: $45 5.Foreign Tax Credits:$28 FT (A) 1.Dividend in Year 1: $45 2.Section 78 Gross-Up:$28 3.U.S. Taxable Income:$73 4.U.S. Tax Liability:$26 5.Foreign Tax Credits:$28 6.Excess Foreign Tax Credits:$2

19. ©2011 Baker & McKenzie 19 Covered Asset Acquisitions –Section 338 Election –USP files a section 338(g) election with respect to FT –Disqualified portion exists even if there is a foreign step up as well!! –JCT report indicates it is anticipated that Treasury will exclude CAAs in which basis of relevant foreign assets is increased for foreign tax purposes USP (US) CFC1 (A) 1.Aggregate Basis Difference Allocable to Year 1: $20 2.Foreign Taxable Income in Year 1: $100 - $20 = $80 3.Foreign Taxes: $28 4.Disqualified Portion of Foreign Taxes: $20/$100 x $28 = $5.6 FT (A)

20. ©2011 Baker & McKenzie 20 Covered Asset Acquisitions –Pre-CAA Planning –FT’s election to be treated as a partnership is a liquidation taxable under sections 331 and 336 –Step transaction, substance over form, economic substance, etc. FP (A) FT elects to be treated as a partnership for U.S. federal income tax purposes 79% FT (A) FC1 (A) 21% FP transfers 21% of the stock of FT to FC1 USP (US) CFC1 (A) FT (A) FP and FC1 transfer all of FT stock to CFC1

21. ©2011 Baker & McKenzie 21 [change title in View/Header and Footer] 21 Post-Acquisition Integration

22. ©2011 Baker & McKenzie 22 Post-Acquisition Integration –Pursuant to Treas. Reg. section 1.368-2(l) and Rev. Rul. 2004- 83, transaction is treated as a reorganization under section 368(a)(1)(D) –Impact of CCA 201032035 (i.e., must FT be solvent?) USP (US) CFC1 (A) USP transfers the stock of FT to CFC1 FT (A) FT (A) FT elects to be treated as a disregarded entity or merges into CFC1

23. ©2011 Baker & McKenzie 23 –Proper characterization? –Double 351 plus a D reorganization, 351 plus a triangular C reorganization, or D reorganization with grandparent stock USP (US) CFC3 (C) USP transfers the stock of FT to CFC1 FT (C) FT (C) FT elects to be treated as a disregarded entity or merges into CFC3 CFC1 (A) CFC2 (B) CFC1 transfers the stock of FT to CFC2 CFC2 transfers the stock of FT to CFC3 Post-Acquisition Integration

24. ©2011 Baker & McKenzie 24 –Proper characterization? –Merger of UST1 into USP –Sale of FT3’s assets and liabilities to CFC4 –Drop and check of FT1 into CFC2 USP (US) CFC4 (C) USP transfers the stock of FT1 to CFC1 UST1 (US) FT1 (D) Cash CFC1 (A) CFC3 (B) Post-Acquisition Integration FT2 (A) FT1 (D) UST2 (US) FT3 (C) CFC2 (D) FT1 elects to be treated as a disregarded entity or merges into CFC1 Cash All of FT3’s Assets and Liabilities Cash UST1 merges into USP CFC1 transfers the stock of FT1 to CFC2

25. ©2011 Baker & McKenzie 25 Thank You! Pursuant to requirements relating to practice before the Internal Revenue Service, any tax advice in this communication (including any attachments) is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties imposed under the United States Internal Revenue Code, or (ii) promoting, marketing, or recommending to another person any tax-related matter.