Ali Kanani, Bonnard Lawson

1. Continued Use of Intermediary Holding & Licensing Companies
Presented by: Ali Kanani, Attorney-at-Law,
Bonnard Lawson International Law Firm, Geneva
MBL & LL.M. in International Taxation
www.istructuring.com

2. Introduction
• Ahmed’s case
• What does BEPS say? Actions 5 & 6
• Preventing granting of treaty benefits in inappropriate circumstances
• Eliminating harmful tax competition
• Improving transparency
• Post-Implementation of BEPS
• Domestic rules
• Conclusion for Ahmed
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3. Ahmed’s case (1/3)
• In October 2014: meeting with Ahmed at our Dubai office
• Ahmed is a HNWI, active in the oil industry
• Ahmed heard about the Swiss Trading company ruling
• He disclosed to me his project to establish a trading
company in Geneva
• TradingCo was founded in May 2015, benefitting from an
exemption of 80% of its total income (effective rate of
11,67%)
• TradingCo was initially owned by Ahmed’s UAECo,
reducing the Swiss WHT from 35% to 5% based on the
DTT
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4. Ahmed’s case (2/3)
• Then, Ahmed wanted to establish a company in Italy in
order to be close to one of his main clients.
• Naturally, he required, for sound business reasons, to
have a European holding company to manage his
European participations.
• I suggested a cooperative based in the NL, domiciled
with a corporate service provider.
• The latter also provided two local directors
• Ahmed and the CEO of TradingCo are also at the BoDs
of the Coop.
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5. Ahmed’s case (3/3)
• Thanks to the Coop, the Swiss withholding tax is
reduced from 35% to 0%
• Finally, Ahmed also contributed to TradingCo a patent
related to a software that was developed by one of his
engineers hired by the US subsidiary of the Group
• Exploited by TradingCo, the patent would generate
income under the Trading company ruling
• This structure is working well…
But what about this structure if I would have met Ahmed
after the implementation of BEPS?
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6. Action point 6 (1/2)
• What does action point 6 say?:
– Objective:
• preventing granting of treaty benefits in inappropriate circumstances
• Avoiding treaty shopping
– Means:
• Mention in the DTT that signing countries aim to avoid non-taxation or
reduced taxation in case of fraud or tax evasion
• New treaty anti-abuse rules, such as “Limitation-on-benefits” and/or
“Principal purpose of transactions” clause
– LOB clause:
• Access to the benefits of the DTT only to entities that meet certain conditions
• Conditions based on the legal nature, capital structure, activities of the entity
• Guarantee the existence of a sufficient link between the entity and the
residence state
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7. Action point 6 (2/2)
• What does action point 6 say?
– LOB clause:
• Access to the benefits of the DTT only to entities that meet certain conditions
• Conditions based on the legal nature, capital structure, activities of the entity
• Guarantee the existence of a sufficient link between the entity and the
residence state
– PPT clause:
• If the objective of a structure or a transaction is to access the benefits of a
DTT, such benefits would be denied
• Except if it is demonstrated that granting such benefits would be compliant
with the purpose of the DTT
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8. Action point 5
• What does action point 5 say?:
– Objective:
• Eliminate harmful tax competition and artificial profit shifting
• Improve the transparency on decisions related to preferential tax regimes
– Means:
• Nexus approach: realign taxation of profits with the substantial activities that
generate them in particular for IP Box – benefits of IP Box granted to
taxpayers who incurred qualifying R&D expenses that gave rise to the IP
income
• Improve transparency - Automatic exchange of rulings on six categories of
decisions: (i) rulings related to preferential regimes; (ii) Transfer pricing arrangements (APAs); (iii)
rulings giving a downward adjustment to profits; (iv) permanent establishment rulings; (v) conduit
rulings; and (vi) any other type of ruling where the FHTP agrees in the future that the absence of
exchange would give rise to BEPS concerns
• Review of preferential regimes by the Forum on HTP
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9. Post-Implementation of BEPS
• Reviewing Ahmed’s structure under BEPS
recommendation:
– Imagine a LOB clause in the CH-NL DTT
– LOB clause may probably limit the possibility to establish a
holding company where the beneficial owner or a subsidiary is
not resident
– the holding company may be located where the subsidiary is
carrying out an active business
– Ahmed’s reasonable choice: Establish the holding company in
Switzerland and suffer a reduced WHT of 5% on dividends distributed to UAECo
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10. Post-Implementation of BEPS
• Reviewing Ahmed’s structure under BEPS
recommendation:
– The nexus approach will prevent Switzerland to grant privileged
tax regime to IP Income
– In Ahmed’s case, the R&D expenses have not been incurred by
the Swiss company
– The IP income would likely be taxed at the ordinary rate
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11. Domestic Rules
• Under EU and BEPS pressure…
• Switzerland is reforming its corporate tax system
• Abolition of Holding and trading company regimes
• Introducing a flat corporate tax rate - 13% in Geneva and
Vaud (not yet confirmed)
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12. Conclusion for Ahmed
UAECo
Before
AHMED
UAE
NL Coop
Italian
OpCo
Swiss
OpCo
WHT 0%
CIT 0%
WHT 0%
WHT 0% WHT 0%
CIT 11.67% CIT 31.4%
PIT 0%
After
UAECo
NL Coop
with Subtance
Italian
OpCo
Swiss
OpCo
WHT 0%
CIT 0%
WHT 0%
CIT 13%
PIT 0%
WHT 0% WHT 0%
CIT 31.4%
AHMED
UAE
NL OpCo
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13. Ali Kanani
Attorney-at-Law
MBL & LL.M. in international taxation
kanani@ilf.ch
Rue du Général-Dufour 11
1204 Geneva
Switzerland
+ 41 (0)22 322 25 00
@AKananiSwiss
www.istructuring.com