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33713186/1
Tax Strategies for
Latin American Operations
Hyatt Regency ♦ Coral Gables
Practical Aspects of Establishing Ope...
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U.S. Drivers
• Foreign tax credit planning
– Avoid double tax
– OFL planning
– Debt push-down
• Deferral
– Avoi...
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Overall Strategy
U.S.
Intermediate
Jurisdiction
Bank
Loan
Holdcos/
SPVs
Latam
Opco
USCo
Equity
Debt
Source
Coun...
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Check-The-Box Strategy
Braz
Brazil
Opco
Mexico
Opco
Holdco
(Benelux)
U.S. Parent
100%
Royalties
Brazilian
Custo...
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Holding Company Jurisdictions
Marcela Kane
https://marcelakane.wordpress.com
(Houston)
Sam K. Kaywood, Jr. Alst...
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Holding Company Jurisdictions
Types of Jurisdictions
High-Tax
Jurisdictions
• High-tax rates
• CFC rules
• Not ...
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Tax Friendly Jurisdictions
(1) Netherlands
(2) Belgium
(3) Luxembourg
(4) Switzerland
(5) Ireland
(6) Spain
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Holding Company Jurisdictions
• Luxembourg, Netherlands and Switzerland all
good as holding companies– particip...
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Financing Structures
Debt Push-Down
HoldCo
Local
Acquisition
Co
Loan
Target
Opco
Merger
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Financing Structures
Debt Push-Down
• Deduct interest against local tax
• Withholding tax in LatAm
country
(Br...
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• No tax in Switzerland on dividends and capital gains
– Be careful to maintain holding company exemption
• Ne...
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Financing Structures
Use of Hybrid Debt
• Lux HoldCo accrues “interest”
on PECs/CPECs to offset
against intere...
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Holding Company Jurisdictions
Luxembourg
• Preferred Equity Certificates (“PEC”)
– Can be debt for Luxembourg ...
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Financing Structures
Swiss Finance Branch
• Pay corporate tax in Switzerland and Luxembourg on a small
spread
...
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Spanish ETVEs
(Source Country to Spain)
 No personal assets tax
 0% on capital gains
 0% on dividends
 Imp...
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Spanish ETVEs
Inbound Spanish Consequences
 0% Capital Duty on contributions in kind
 Participation exemptio...
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Spanish ETVEs
Outbound Spanish Consequences
 0% on dividends (ETVEs)
• 10% for non-ETVEs
 0% on capital gain...
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Financing Structures
Argentina/Netherlands
WHT planning for interest:
• Deduct interest against Argentinean do...
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Royalty planning:
• Royalties are deductible against 34% corporate tax rate and are subject to 15%
WHT if paid...
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Downstream Merger – Amortization of Goodwill
Brazil
• The downstream merger
allows the Buyer (who
survives the...
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Thank You
For more details Visit:
https://marcelakane.wordpress.com
https://marcelakanelanhttps://www.slidesha...
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Latin american tax conference - Coral Gables

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Practical Aspects of Establishing Operations in LATAM - Marcela Kane has been a tax professional for more than a decade. She earned a law degree from the Universidad del Rosario in 1997 and then a Master of Laws in tax law from the same university in 1998.

Published in: Economy & Finance

Latin american tax conference - Coral Gables

  1. 1. 33713186/1 Tax Strategies for Latin American Operations Hyatt Regency ♦ Coral Gables Practical Aspects of Establishing Operations in Latin America – Entity Choice, Corporate Structure, Tax Compliance, Individual Tax Issues Marcela Kane https://marcelakane.wordpress.com (Houston)
  2. 2. 33713186/2 U.S. Drivers • Foreign tax credit planning – Avoid double tax – OFL planning – Debt push-down • Deferral – Avoid subpart F • APB 23 • Cash management – Where do we need the cash? Marcela Kane https://marcelakane.wordpress.com (Houston) Sam K. Kaywood, Jr. Alston & Bird LLP (Atlanta)
  3. 3. 33713186/3 Overall Strategy U.S. Intermediate Jurisdiction Bank Loan Holdcos/ SPVs Latam Opco USCo Equity Debt Source Country Marcela Kane https://marcelakane.wordpress.com (Houston) Sam K. Kaywood, Jr. Alston & Bird LLP (Atlanta)
  4. 4. 33713186/4 Check-The-Box Strategy Braz Brazil Opco Mexico Opco Holdco (Benelux) U.S. Parent 100% Royalties Brazilian Customers Mexicah Customers Latam Customers IP Co (Swiss) Other Latam Opcos • The 2009 Obama Budget proposed to limit these structures
  5. 5. 33713186/5 Holding Company Jurisdictions Marcela Kane https://marcelakane.wordpress.com (Houston) Sam K. Kaywood, Jr. Alston & Bird LLP (Atlanta)
  6. 6. 33713186/6 Holding Company Jurisdictions Types of Jurisdictions High-Tax Jurisdictions • High-tax rates • CFC rules • Not good for holding companies • U.S., U.K., Germany, France, China Tax-Haven Jurisdictions • Totally tax-free • No tax treaties • Cayman • Bermuda • BVI • Anti-tax haven rules- e.g., Brazil, Mexico Tax-Friendly Jurisdictions • No tax on capital gains and dividends • Good for holding companies • May have capital duties • Can be good for interest and royalties • Good treaty networks • Netherlands, Spain Luxembourg, Belgium, Switzerland • Otherwise, high-tax countries e
  7. 7. 33713186/7 Tax Friendly Jurisdictions (1) Netherlands (2) Belgium (3) Luxembourg (4) Switzerland (5) Ireland (6) Spain
  8. 8. 33713186/8 Holding Company Jurisdictions • Luxembourg, Netherlands and Switzerland all good as holding companies– participation exemption for dividends and capital gains – Lux and Netherlands not good for tax haven subsidiaries, whereas Switzerland does not care • For IP licensing, Switzerland and Ireland are good, taxing royalties at 8% and 12.5% respectively, although tax planning available to reduce rates further
  9. 9. 33713186/9 Financing Structures Debt Push-Down HoldCo Local Acquisition Co Loan Target Opco Merger
  10. 10. 33713186/10 Financing Structures Debt Push-Down • Deduct interest against local tax • Withholding tax in LatAm country (Brazil 15%; Mexico 10%-15%, etc.) • IETU in Mexico • Forex Issues • Tax planning needed for interest income in HoldCo jurisdiction • CTB for Foreign Opco • Simulacion? Abuse of Law? Loan HoldCo Interest Foreign Opco
  11. 11. 33713186/11 • No tax in Switzerland on dividends and capital gains – Be careful to maintain holding company exemption • Need tax planning to avoid 1% capital duty – Contribute significant participation in one or more companies • No dividend withholding tax under Luxembourg- Switzerland Tax Treaty – Need substance in Luxembourg Financing Structures Use of Switzerland for Mexican Investment
  12. 12. 33713186/12 Financing Structures Use of Hybrid Debt • Lux HoldCo accrues “interest” on PECs/CPECs to offset against interest income from Opcos • Can defer paying interest as long as desired • When paid, interest can be treated as dividend for U.S. purposes, carrying out foreign tax credits • APB 23 considerations Opco Companies Loans Holdco (Lux) Parent (US) Interest PECs CPECs
  13. 13. 33713186/13 Holding Company Jurisdictions Luxembourg • Preferred Equity Certificates (“PEC”) – Can be debt for Luxembourg purposes but equity for U.S. tax purposes – No capital duty on amounts invested in PECs – Usually a 50+ year instrument • Convertible Preferred Equity Certificates (“CPEC”) – Like a PEC but is convertible into equity – Lower interest rate usually – Interest is deductible – No capital duty on CPECs
  14. 14. 33713186/14 Financing Structures Swiss Finance Branch • Pay corporate tax in Switzerland and Luxembourg on a small spread • Need CHF100 million of debt for Swiss purposes Loans HoldCo (Lux) Swiss Finance Branch Interest Opcos
  15. 15. 33713186/15 Spanish ETVEs (Source Country to Spain)  No personal assets tax  0% on capital gains  0% on dividends  Impact of Treaty Repeal?  0% on dividends  15% on capital gains  Most Favored Nation on dividends US Holdco (Spain) Opco (Brazil) Opco (Argentina) (Courtesy of Garrigues)
  16. 16. 33713186/16 Spanish ETVEs Inbound Spanish Consequences  0% Capital Duty on contributions in kind  Participation exemption: • requirements • > €6,000,000 for participations < 5%  Brazil: no requirements needed for dividends  Deduction of financial goodwill (under investigation by the EU)  Limited CFC rules US Holdco (Spain) Opco (Brazil) Opco (Argentina) (Courtesy of Garrigues)
  17. 17. 33713186/17 Spanish ETVEs Outbound Spanish Consequences  0% on dividends (ETVEs) • 10% for non-ETVEs  0% on capital gains for ETVE • 18% for non-ETVEs  0% on refund of contributions (1% Capital Duty if refund of Capital Stock) Dividends US Holdco (Spain) Opco (Brazil) Opco (Argentina) (Courtesy of Garrigues)
  18. 18. 33713186/18 Financing Structures Argentina/Netherlands WHT planning for interest: • Deduct interest against Argentinean domestic rate is 35%, • 12% treaty rate of for NL 2 if beneficial owner • If NL 1 loan to Argco, conduit problem? • Avoid conduit problem by interposing NL 2 funded with equity? – No treaty risk because NL2 is fully equity capitalized and under no legal obligations to use income to service its own debt? – NL1 and NL2 for fiscal unity in NL to offset interest deduction of NL1 against interest income of NL2. • BV/CV structures also available • (Courtesy of LoyensLoeff) Non-Treaty NL 2 NL 1 Argco Loan Loan Equity
  19. 19. 33713186/19 Royalty planning: • Royalties are deductible against 34% corporate tax rate and are subject to 15% WHT if paid to non-tax haven. • This seems to justify royalty planning. However, Brazil also levies additional local taxes (CIDE, ISS, PIS, COFINS) that can amount to approx. 60% and that are not covered by tax treaty. • Solutions? – Sale of usufruct? – Waiver of royalties? Royalty Planning Brazil to Benelux/Spain Use of IP Royalty: - Deductible @ 34% - WHT of 15% - Other levies 45% Brazil Benelux/ Spain
  20. 20. 33713186/20 Downstream Merger – Amortization of Goodwill Brazil • The downstream merger allows the Buyer (who survives the merger) to amortize goodwill arising from the purchase • Numerous cases at the administrative level URPsBuyer (Brazil) Brazilian Target Merger Target Stock Seller
  21. 21. 33713186/21 Thank You For more details Visit: https://marcelakane.wordpress.com https://marcelakanelanhttps://www.slideshare.net/marcelakanelantrip /marcela-kane-lantrip-schlumberger-technology- corporationtrip.jigsy.com https://marcelakanelantrip.tumblr.com

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