European Regional Meeting 2009 – Cairo



European holding company regimes


Jeroen van der Linden
HLB Schippers – Amsterd...
Program:



• Introduction;
• European holding regimes;

• How to make use of a holding company?

• End.
Country/Firm report:



• HLB Schippers, largest firm within Dutch federation;

• HLB Schippers has 5 office locations, in...
Reasons for holding companies:



• desire to consolidate foreign subsidiaries;

• creation of platform for future acquisi...
Key requirements for holding company jurisdiction:



• no or low tax on capital contributions;

• exemption for dividend ...
Example of benefits of proper holding structure             1/2


                           Dividend is taxed with 15% It...
Example of benefits of proper holding structure   2/2




          India
                          0% WHT


          EU
...
How about tax havens?



• no treaty available to reduce withholding taxes paid to tax haven;

• EU Member states agreed t...
EU holding locations to be discussed:



• Cyprus

• Ireland

• Luxemburg

• The Netherlands

• Spain
• Belgium
• Denmark
EU holding locations to be discussed:



• Cyprus

• Ireland

• Luxemburg

• The Netherlands
• Spain
• Belgium
• Denmark
EU holding locations to be discussed:



• Cyprus

• Ireland

• Luxemburg

• The Netherlands

• Spain
• Belgium
• Denmark
EU holding locations to be discussed:



• Cyprus

• Ireland

• Luxemburg

• The Netherlands

• Spain
• Belgium
• Denmark
EU holding locations to be discussed:



• Cyprus

• Ireland

• Luxemburg

• The Netherlands

• Spain
• Belgium
• Denmark
EU holding locations to be discussed:



• Cyprus

• Ireland

• Luxemburg

• The Netherlands
• Spain
• Belgium

• Denmark
EU holding locations to be discussed:



• Cyprus

• Ireland

• Luxemburg

• The Netherlands
• Spain
• Belgium

• Denmark
EU holding locations to be discussed:



• Cyprus

• Ireland

• Luxemburg

• The Netherlands
• Spain
• Belgium
• Denmark
Tax on capital contributions:



            Parent

                                Cash
            EU
            holdc...
Tax treatment of capital contributions



• Cyprus                          0.6%, but exemptions may apply

• Ireland     ...
Corporate Income Tax (“CIT) rates



• Cyprus                            10%, (or 15% defense tax)

• Ireland             ...
Dividend regime (participation exemption)



          India



          EU
                           To what extent is ...
Dividend regime
Cyprus




• Full exemption

• Requires:              shareholding of 1% or more
                         ...
Dividend regime
Ireland




• No exemption, but credit           for Dividend WHT and CIT of sub

• Requires              ...
Dividend regime
Luxemburg



• Full exemption

• Requires:             shareholding of 10% or more, or

                  ...
Dividend regime
the Netherlands




• Full exemption

• Requires:              shareholding of 5% or more

•              ...
Dividend regime
Spain




• Full exemption
• Requires:        shareholding of 5% or more, or
                   acquisitio...
Dividend regime
Belgium



• 95% exemption

• Requires:             shareholding of 10% or more, or
                      ...
Dividend regime
Denmark



• 100% exemption

• Requires:             shareholding of 10% or more
                        m...
Gains on shares (if participation exemption applies)




           India



           EU
                            To ...
Gains on shares (if participation exemption applies)




              India



              EU
                         ...
Gains on shares (if participation exemption applies)



• Cyprus                           exempt

• Ireland              ...
Gains on shares (if participation exemption applies)



• Cyprus                          exempt

• Ireland               ...
Interest payments relating to the acquisition of the Subs


                                   Interest on the loan deduct...
Interest payments to non-EU shareholder


                                WHT on interest on shareholder’s loan?
         ...
Certainty in advance for the applicability of the participation
exemption?

• Cyprus                            clearance ...
Withholding taxes payable on dividends paid by the holding
company?

                         • Cyprus          0%
    Par...
Number of Tax Treaties in force (per 1 jan 2008)



• Cyprus                          42

• Ireland                       ...
Concluding remarks


And the winner is ……………………………….




Although the Netherlands seem the best location for a holding com...
How to make use of a holding company?


1. For which types of clients or potential clients?
2. What are the advantages for...
1. For which types of companies?



• Companies that sell products internationally;
• Companies with foreign subsidiaries;...
2. What are the advantages for you?



• You can make your client happy (lower effective tax rate);
2. What are the advantages for you?



• You can make your client happy (lower effective tax rate);

• Show the strengths ...
3. Create an international client team



• Representatives from key countries where the company is active;

• Share clien...
4. Some examples




 a) New clients;

 b) Existing clients.
Targeting new clients



• Creation of cross border target team
    Example 1: End 2007 HLB Schippers and
    HLB Ler Lum ...
Targeting new clients           Potential client wishes to
                                move:
                         ...
Targeting new clients
                                 Proposal 1:
           Malaysia
                                 In...
Targeting new clients
                                 Proposal 2:
           Malaysia
                                 To...
Targeting new clients



                    US LLC



                        Coop



    Cyprus Ltd          UK ltd   Du...
Targeting new clients


                    Private
                     indiv.



                    Cyprus



         ...
To existing clients



• Example 1: Analysis of international legal structure
     HLB Schippers will perform an initial q...
To existing clients
                               Proposal:
           Private
                               Internation...
To existing clients



• Example 2: Entry into Europe
     Your client is considering an entry into Europe for doing
     ...
To existing clients
                                 Proposal:
           BVI
                                 Acquisition...
Questions?



• Jeroen van der Linden (tax);

  j.linden@hlb-schippers.com;



• Pascal Belfroid (audit)

 p.belfroid@hlb-...
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European Holding Regimes

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Cairo

  1. 1. European Regional Meeting 2009 – Cairo European holding company regimes Jeroen van der Linden HLB Schippers – Amsterdam, the Netherlands January 31, 2009
  2. 2. Program: • Introduction; • European holding regimes; • How to make use of a holding company? • End.
  3. 3. Country/Firm report: • HLB Schippers, largest firm within Dutch federation; • HLB Schippers has 5 office locations, including Amsterdam; • 250 people, including 15 partners; • Audit, tax and legal services; • Seperate International Business Desk, focus Asia and trust offices. • Turnover 2008 approx. € 23 million
  4. 4. Reasons for holding companies: • desire to consolidate foreign subsidiaries; • creation of platform for future acquisitions; • vehicle for cash redeployment; • enabling access to EC Directives and Tax Treaties • in order to save tax.
  5. 5. Key requirements for holding company jurisdiction: • no or low tax on capital contributions; • exemption for dividend income and capital gains; • no withholding tax on dividends, interest and royalty outflows; • access to EC Directives and strong network of Tax Treaties; • no CFC legislation or anti tax haven legislation; • political and economic stability.
  6. 6. Example of benefits of proper holding structure 1/2 Dividend is taxed with 15% Italian withholding tax (WHT) India Italy
  7. 7. Example of benefits of proper holding structure 2/2 India 0% WHT EU holdco 0% Italian WHT Italy
  8. 8. How about tax havens? • no treaty available to reduce withholding taxes paid to tax haven; • EU Member states agreed to phase out tax havens; • can be obstacle in obtaining rulings from tax authorities; • “smell factor” / lack of transparency; • nevertheless combination tax haven with EU jurisdiction can have best result.
  9. 9. EU holding locations to be discussed: • Cyprus • Ireland • Luxemburg • The Netherlands • Spain • Belgium • Denmark
  10. 10. EU holding locations to be discussed: • Cyprus • Ireland • Luxemburg • The Netherlands • Spain • Belgium • Denmark
  11. 11. EU holding locations to be discussed: • Cyprus • Ireland • Luxemburg • The Netherlands • Spain • Belgium • Denmark
  12. 12. EU holding locations to be discussed: • Cyprus • Ireland • Luxemburg • The Netherlands • Spain • Belgium • Denmark
  13. 13. EU holding locations to be discussed: • Cyprus • Ireland • Luxemburg • The Netherlands • Spain • Belgium • Denmark
  14. 14. EU holding locations to be discussed: • Cyprus • Ireland • Luxemburg • The Netherlands • Spain • Belgium • Denmark
  15. 15. EU holding locations to be discussed: • Cyprus • Ireland • Luxemburg • The Netherlands • Spain • Belgium • Denmark
  16. 16. EU holding locations to be discussed: • Cyprus • Ireland • Luxemburg • The Netherlands • Spain • Belgium • Denmark
  17. 17. Tax on capital contributions: Parent Cash EU holdco Shares Subs
  18. 18. Tax treatment of capital contributions • Cyprus 0.6%, but exemptions may apply • Ireland exempt • Luxemburg exempt • The Netherlands exempt • Spain 1%, but exemptions may apply • Belgium exempt • Denmark exempt
  19. 19. Corporate Income Tax (“CIT) rates • Cyprus 10%, (or 15% defense tax) • Ireland 25% on passive income, 12.5% only on trading income • Luxemburg 28.59% (combined) • The Netherlands 20% - 25.5% • Spain 30% • Belgium 24.98% - 33.99% • Denmark 25%
  20. 20. Dividend regime (participation exemption) India EU To what extent is dividend taxed in holdco EU holdco? Italy
  21. 21. Dividend regime Cyprus • Full exemption • Requires: shareholding of 1% or more no minimum holding period • Exemption denied if: >50% of activities of sub (defence tax again) generate passive income and are taxed less than 5%
  22. 22. Dividend regime Ireland • No exemption, but credit for Dividend WHT and CIT of sub • Requires shareholding of 5% or more • To the extent the underlying tax in the participation is below 25%, Irish tax will be payable.
  23. 23. Dividend regime Luxemburg • Full exemption • Requires: shareholding of 10% or more, or acquisition of at least Eur 1.2mio minimum holding of 12 months • Exemption denied if tax rate of sub is below 11% (unless EU sub)
  24. 24. Dividend regime the Netherlands • Full exemption • Requires: shareholding of 5% or more • no minimum withholding period • Exemption denied if: >50% of assets of sub generate passive income and are taxed less than 10%
  25. 25. Dividend regime Spain • Full exemption • Requires: shareholding of 5% or more, or acquisition of at least Eur 6mio • minimum holding of 12 months • sub should be non-Spanish and not from tax haven, subject to tax • sub must have 85% operating income
  26. 26. Dividend regime Belgium • 95% exemption • Requires: shareholding of 10% or more, or acquisition of at least Eur 1.2mio • minimum holding of 12 months • sub is “financial fixed asset” • Exemption denied if tax rate of sub is below 15% (unless EU sub)
  27. 27. Dividend regime Denmark • 100% exemption • Requires: shareholding of 10% or more minimum holding of 12 months • Exemption denied if shareholding company resides outside EU and no tax treaty exists with the resident country (Denmark has app. 60 treaties with countries outside EU)
  28. 28. Gains on shares (if participation exemption applies) India EU To what extent are capital gains on holdco shares taxed in EU holdco? Italy
  29. 29. Gains on shares (if participation exemption applies) India EU To what extent are capital gains on holdco shares taxed in EU holdco? Italy
  30. 30. Gains on shares (if participation exemption applies) • Cyprus exempt • Ireland exempt, but minimum holding period 1 year, sub must be operating company, and EU resident or Treaty country. Other rules apply for gains on shares in companies owning immovable property
  31. 31. Gains on shares (if participation exemption applies) • Cyprus exempt • Ireland exempt, but • Luxemburg exempt • The Netherlands exempt • Spain exempt, but not to tax haven • Belgium exempt • Denmark exempt, when held for 3 years
  32. 32. Interest payments relating to the acquisition of the Subs Interest on the loan deductible? Parent • Cyprus yes Loan • Ireland in principle yes EU • Luxemburg yes holdco • The Netherlands in principle yes • Spain in principle yes • Belgium yes Subs • Denmark more or less
  33. 33. Interest payments to non-EU shareholder WHT on interest on shareholder’s loan? Parent • Cyprus 0% Loan • Ireland 15% - 0% EU • Luxemburg 0% (Soparfi) holdco • The Netherlands 0% • Spain 18% - 0% Subs • Belgium 15% - 0% • Denmark 30% - 0%
  34. 34. Certainty in advance for the applicability of the participation exemption? • Cyprus clearance upon request • Ireland non-binding opinions • Luxemburg clearance likely upon request • The Netherlands advance tax rulings available • Spain advance tax rulings available • Belgium advance tax rulings available • Denmark advance tax rulings available
  35. 35. Withholding taxes payable on dividends paid by the holding company? • Cyprus 0% Parent • Ireland 15% - 0% • Luxemburg 15% - 0% • The Netherlands 15% - 0% (BV) or 0% (Coop) EU holdco • Spain 18% - 0% • Belgium 25% - 0% Subs • Denmark 28% - 0%
  36. 36. Number of Tax Treaties in force (per 1 jan 2008) • Cyprus 42 • Ireland 46 • Luxemburg 51 • The Netherlands 86 • Spain 68 • Belgium 88 • Denmark 85
  37. 37. Concluding remarks And the winner is ………………………………. Although the Netherlands seem the best location for a holding company it always depends on the case at hand….
  38. 38. How to make use of a holding company? 1. For which types of clients or potential clients? 2. What are the advantages for you? 3. Create an international client team; 4. Some examples.
  39. 39. 1. For which types of companies? • Companies that sell products internationally; • Companies with foreign subsidiaries; • Companies with foreign branches; • Companies with intellectual property (royalty); • Companies with (intragroup) financing activities.
  40. 40. 2. What are the advantages for you? • You can make your client happy (lower effective tax rate);
  41. 41. 2. What are the advantages for you? • You can make your client happy (lower effective tax rate); • Show the strengths of our international network to your client; • Opens the door for future international tax projects (e.g. transfer pricing, supply chain management services, reorgs, etc); • Use the succes as a showcase for attracting new clients.
  42. 42. 3. Create an international client team • Representatives from key countries where the company is active; • Share client information within the team (e.g. group structure); • Set up a conference call to discuss the opportunities; • Define the communication strategy; • Share examples with the client / target in order to build trust.
  43. 43. 4. Some examples a) New clients; b) Existing clients.
  44. 44. Targeting new clients • Creation of cross border target team Example 1: End 2007 HLB Schippers and HLB Ler Lum have jointly targeted a large Malaysian palm oil company with various plants in the Netherlands
  45. 45. Targeting new clients Potential client wishes to move: 1) EU HQ functions Malaysia and 2) Non Dutch subsidiaries to a country outside Malaysia NL BV Problem: Is there a treaty between •NL 2 BVs third country (for instance ROW Egypt Singapore) and Netherlands/ROW
  46. 46. Targeting new clients Proposal 1: Malaysia In case Singapore will be the new HQ: Egypt should be held by ??? NL BV, to avoid 15% WHT between Egypt and Singapore. NL BV ROW •NL 2 BVs Egypt
  47. 47. Targeting new clients Proposal 2: Malaysia To avoid dividend tax from Netherlands to ??? (perhaps no 0% treaty rate), the use of a Dutch ??? cooperative was proposed. HQ will be moved while Coop holding function remains in Europe. ROW •NL 2 BVs Egypt
  48. 48. Targeting new clients US LLC Coop Cyprus Ltd UK ltd Dutch BV
  49. 49. Targeting new clients Private indiv. Cyprus Latvia
  50. 50. To existing clients • Example 1: Analysis of international legal structure HLB Schippers will perform an initial quick scan of your client’s existing structure and provide advice how to optimise the structure (i.e. create cash savings for your client). We are currently doing the follow-up on a quick scan for a client of HLB Australia.
  51. 51. To existing clients Proposal: Private International holding individual (Fiji) structure that lowered the effective tax burden. NA NV Dividend tax from Fiji + eventually from NA Coop Fiji comp
  52. 52. To existing clients • Example 2: Entry into Europe Your client is considering an entry into Europe for doing business. This could be a natural moment to consider a European holding structure. We have done this recently for a large Russian investor which was referred to us by Vantis UK.
  53. 53. To existing clients Proposal: BVI Acquisition vehicle that could set of its finance costs with profits of the Dutch target. Coop Jersey BV had enough substance for Austrian tax purposes. BV •NL 2 BVs Austria
  54. 54. Questions? • Jeroen van der Linden (tax); j.linden@hlb-schippers.com; • Pascal Belfroid (audit) p.belfroid@hlb-schippers.com.
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