1. CLASSIFICATION SHEET
This document relates to the following request:
December 16, 2009
References: CEED/Q6709003M-SAD
PEPP 2 SA (Project Rosebud)- 2005 2228 957
I. Key to i~:_participation exc_n_1,_p_ti_on_ _____ --------
2. Name of the advisor : PwC
3. Corporate group's name, or fund sponsor: Rosebud Real Estate
4. Name of the project: Rosebud ___ - --;=::.--=~:;___ ___ ;;;;;,-,, - I
s. Amount intended to be invested: BUREAU D'IMPOSITION SOC. 6 j
-~~~~~~~~~~~~~---~~1~_fo~_IET_RC·_F.. 2Eo~ ~--J 6. Date of receipt:
2.
3. For the attention of Mr Marius Kohl
Administration des Contributions Direetcs
Bureau d'imposition Soci6tes VI
18, rue du Fort Wedell
L-2982 Luxembourg
December 16, 2009
References: CEED/Q6709003M-SAD
PEPP 2 S.A. (Project Rosebud) - 2005 2228 957
Contribution of loan receivables
Dear Mr Kohl,
PriccwatcrhouscCoopcrs
Socictc a rcsponsabilitc limitec
Rcviscur d'cntrcpriscs
400, route d'Esch
B.P. 1443
L..- 1014 Luxembourg
Tckphonc +352 494848-1
Facsimile +352 494848-2900
www.pwc.com/lu
info@lu.pwc.com
BUREAU D'IMPOSITION SOC. 61
EMTRtE
In our capacity of tax consultant of the above-mentioned client, please find below the tax
treatment applicable to the transactions foreseen/implemented by our client. This letter
aims at confirming the conclusions reached during our today meeting and will serve as a
basis for the preparation of the tax returns of the Luxembourg companies involved.
A. Description of operations
1. Rosebud Real Estate group (hereafter "Rosebud") (please refer to Appendix 1 for a
more detailed description of the group) is contemplating to reorganize the financing
position of one of its Luxembourg subsidiaries, PEPP 2 SA, holding company of
several Luxembourg entities.
2. PEPP 2 SA is currently held by Rose Real Estate BY, a Dutch company held by
Rosebud Properties (Europe) Ltd. (Israel), which itself is held by Rosebud Real
Estate Ltd. (Israel) (hereafter "Rosebud Israel"). PEPP 2 SA currently holds against
Kamola BY, a Dutch indirect subsidiary of Rosebud Israel a loan receivable bearing
interest at a rate of 5.5% p/a of approximately EUR 14,700,000 (including accrued
interest). PEPP 2 SA also holds against GRAD BV 2 loan receivables in the global
amount of EUR 6,200,000 (including accrued interest) both bearing interest at a rate
of 11 % p/a. These 3 loan receivables will be hereafter referred to as "The Loan
Receivables". Please refer to Appendix 2 for a simplified chaii of the group.
R.C.S Luxembourg ll 6S 477 - lVA LUl7564447
4. 3. The following steps arc contemplated to be carried out:
Step 1 - PEPP 2 SA will incorporate a Belgian fully taxable company in the form of
an Sprl or an SA (hereafter "New BclCo") with minimum capital;
Step 2 - Shortly after Step 1, PEPP 2 SA will contribute to New BelCo the Loan
Receivables at their fair market value, which is not different from their accounting
value.
4. New BelCo will issue shares with nominal value to Rose Real Estate BY
5. The above described transactions will be carried out before December 31, 2009.
B. Applicable tax regime
8.1 Step 1 - Incorporation of New BeICo with minimum capital
6. PEPP 2 SA will incorporate and own almost 100% of a New BelCo (Rose Real
Estate BY holding nominal value) that will be a Belgian fully taxable resident
company.
B.1.1 Corporate income tax and Municipal Business tax consequences
7. As an Sprl or SA, New BelCo will fall within the scope of Article 2 of the EU
Parent/Subsidiary Directive. Moreover, PEPP 2 SA will hold almost 100% of the
shares in New BelCo. Thus, dividends and capital gains emanating from New BelCo
will be tax exempt in the hands of PEPP 2 SA, pursuant to the provisions of Article
166 of the Luxembourg Income Tax Law ("LITL") and the Grand Ducal decree of
December 21, 2001 for the application of Article 166 LITL provided that the 12-
months holding requirement is met, and will be subject to the recapture rules as
defined in such articles. Please refer to Appendix 3 for a detailed description of the
conditions and application of the Luxembourg participation exemption regime for
dividends and capital gains.
B.1.2 Net Wealth tax consequences
8. As mentioned above, New BelCo will fall within the scope of Article 2 of the EU
Parent/Subsidiary Directive. Moreover, PEPP 2 SA will hold almost 100% of the
shares in New BelCo. Thus, the shares held by PEPP 2 SA in New BelCo will be tax
exempt in the hands of PEPP 2 SA, pursuant to Paragraph 60 of the Valuation Act.
Please refer to Appendix 3 for a detailed description of the conditions and
application of the Luxembourg participation exemption regime for Net Wealth Tax.
B.2 Step 2 - Contribution of the Loan Receivables to New BelCo in exchange for
new shares in New BelCo
9. The contribution of the Loan Receivables to New BelCo will only have balance sheet
impact since the Loan receivables will be replaced by an increase of the same amount
of the value of the shares in New Bel Co.
(2)
5. B.2.1 Corporate income tax and Municipal Business tax consequences
10. As mentioned in 8.1.1 above, the shares in New Be.ICo will benefit from the
participation exemption reg1me for dividends and capital gains. Thus, the increase of
the value of the shares in New BelCo will not have any impact from a corporate
income tax and municipal business tax perspective and any dividends or capital gains
emanating from New BelCo will remain tax exempt pursuant to the provisions of
Article 166 of the Luxembourg Income Tax Law ("LITL") and the Grand Ducal
decree of December 21, 2001 for the application of Article 166 LITL provided that
the 12-months holding requirement is met, and will be subject to the recapture rules
as defined in such articles.
B.2.2 Net Wealth tax consequences
11. As mentioned in B. l.2 above, the shares in New BelCo will benefit from the
participation exemption regime for net wealth tax purposes. Thus, the increased value
of the shares in New BelCo will be tax exempt from a net wealth tax perspective
pursuant to Paragraph 60 of the Valuation Act.
(3)
6. We remain at your disposal should you need any further information and would like to
thank you for the attention that you will give to our letter.
Yours sincerely,
k '/---........'._ u/. J...r~~~/") N -
Sarni Douenias
Partner
Appendices
Appendix l:
Appendix 2:
Description of the group
Simplified chart of the group
Carine Epardaud
Senior Advisor
Appendix 3: Luxembourg pruticipation exemption regime
171is tax agreement is based on !he fac/s as presented to PricewaterhouseCoopers Sari as at the date the advice was given. 171e
agreement is dependenl on specific facts and circumstances and may not be appropriate to any par~y other than the onefor which it was
prepared. 711is lax agreeml'nl was prepared with only !he interests of PwC Tel Aviv 's Client. Roseb11d Real Es tale in mind. and was 1101
planned or carried 0111 in con1e111pla1ion of any 11se by any other party. Pricewaterho11seCoope1:5 Sal"i. its panners. employees and or
age111s. neither owe nor accepl any duty of care or any responsibility to any other party. whether in contract or in tori (inc/11ding without
limitation, negligence or breach of s1at11t01y duty) however arising, and shall not be liable in respect of any loss, damage or expense of
whatever na111re which fa ca11sed to any other party.
(4)
7. Description of the group
A Simplified holding structure
Free Float
17.7%
Interested
Institutionals
17.5%
ROSEBUD
Real Estate
B Description of the group
Avi Ben Sira
73%
Alon USA
Appendix 1
Biran I Wiessman
49.8%
39.2%
Alon
Dor Alon
70.5%
Blue square
80%
Blue square
Real Estate
1. Rosebud Real Estate (hereafter "Rosebud") is an Israeli group currently mostly held
by The Biran I Wicssman Group and Mr. Ben Sira, which have taken control in 2002.
Since then, Rosebud has become a leader in real estate investment and development
with an impressive track record of added value to shareholders. Globes, Israel's
leading business newspaper, named Rosebud Real Estate Ltd. as one of the top public
real estate companies of 2007.
2. Rosebud is a significant real estate arm of the Biran I Wicssman Group, a leading
Israeli investment group with major holdings in the energy, retail, and real estate
sectors. The total market value of the group's listed companies is over EUR 900
million, with an annual turnover exceeding €5.5 billion. The major holdings of the
Biran I Wicssman Group arc:
Alon USA Energy, Inc. (NYSE: ALJ) owns and operates 5 sour and heavy crude oil
refineries in Texas, California, Oregon and Louisiana, with an aggregate crude oil
throughput capacity of approximately 255,000 barrels per day. Alon USA is the
second largest asphalt producer west of the Mississippi River. The company operates
approximately I, 100 branded FINA gasoline stations and is the largest licensee of 7-
Elcvcn with 300 convenience stores.
(5)
8. Dor Alon (TASE: DRAL) is the fourth largest gasoline chain in Israel with 160
stations and convenience stores. Dor Alon is a major player in the liquid petroleum
gas (LPG) market and is the exclusive importer and leading distributor to the
industrial, institutional, and private sectors.
Blue Square (NYSE: BSI and TASE: BLSQ) is the second largest retail company in
Israel with approximately 200 supennarket stores.
3. The Group is known in Eastern and Western European real estate markets for its
expertise in identifying investment opportunities, investment appreciation, and real
estate projects development. Over the past 3 years, Rosebud has been doing business
in Gcnnany, France and Switzerland, mainly in the acquisition, leasing, and capital
appreciation of more than 450,000 square meters of commercial and residential
properties that have stable cash flows with reputable covenants. The Company has
also launched a development project in Romania on which more than 250,000 square
meters of commercial and residential properties will be constructed, and has realized
investments in France and the USA.
4. Rosebud is present in Luxembourg with several holding companies held by PEPP 2
Luxembourg Sari, ie EDF 1 Sari, Pessac Sari, Meylan Sarl, La Boisse Sarl, Rosebud
Investments Sari and PEPP 1 Sari (the latter held at 12%, the remaining 78% are held
directly by Rose BV).
(6)
9. Appendix 2
Simplified chart of the group
Rosebud Real Estate
Projects (2005) Ltd.
(Israel)
Rosebud Real Estate
Ltd.
(Israel)
I
Rosebud Properties
(Eruope) Ltd.
(Israel)
··-·-·-·-·-·-·-·-·-·- ·-·-·-·-·-·-·-·
Rose Real Estate
B.V.
(N.L.)
.-------"----.
Kamola B.V.
(N.L.)
I
I
I
I . - I •
EUR 14.7 mio
I ..
• ' ·, EUR 14.7 mio
'---------'I
I '
'
EUR 6.2 mio
-----r---...._
I
PEPP2 S.A. GRAD B.V.
I
I
I
I
I
(Luxembourg) (N.L.)
; . - . -·-·-. - . -{-·- . - · - . -· - . -· - ·-· -1-----._..,._'~---------1
I I
I I , . -
_ - -·"EuR6.2mio
· -·-·-·-·-·~- -·-·-·-·-·~ ·-.... -·-·-·-·
New BclCo
(Belgium)
!. . - · - ·-
'
I
Luxembourg Sari
subsidiaries
I
-
PEPP IS.A.
(Luxembourg)
(7)
10. Appendix 3
Participation exemption regime
l. Participation exemption regime for dividends received
Dividends received by a Luxembourg fully taxable resident company should, in principle,
be subject to corporate income tax and municipal business tax at the aggregate rate of
28.59% for the year 2009 (for Luxembourg city), potentially reduced to 25.5% in future
years.
However, Article 166 of the LlTL provides for the exemption of the dividends if the
following conditions are fulfilled:
(1) the distributing company is:
and
a collective entity falling under article 2 of the amended version of the Parent I
Subsidiary Directive; or
a Luxembourg resident joint-stock company, which is fully taxable and does
not take one of the forms listed in the appendix to the paragraph I 0 of article
166 LITL; or
a non-resident joint-stock company that is fully liable (in its state of residence)
to a tax corresponding to Luxembourg corporate income tax;
(2) the beneficiary company is:
and
a Luxembourg resident collective entity, which is fully taxable and takes one of
the forms listed in the appendix to the paragraph 10 of article 166 LITL; or
a Luxembourg resident joint-stock company, which is fully taxable and does
not take one of the forms listed in the above-mentioned appendix; or
a domestic permanent establishment of a collective entity falling under article 2
of the amended version of the Parent I Subsidiary Directive; or
a domestic permanent establishment of a joint-stock company that is resident in
a State with which Luxembourg has concluded a double tax treaty; or
a domestic permanent establishment of a joint-stock company or of a
cooperative society which is a resident of a EEA Member State (other than a
EU Member State);
(3) at the date on which the income is made available, the beneficiary has been holding
or undertakes to hold, directly, for an uninterrupted period of at least 12 months a
participation in the share capital of the subsidiary of at least 10% or with an
acquisition price of at least EUR 1.2 million. lf the participation is held through a
tax-transparent entity falling under § 1 of article 175 LITL, this will be regarded as
direct participation proportionally to the interest held by the Luxembourg holding
company in the tax-transparent entity.
(8)
11. A further benefit of the system by comparison with the one applicable in other countries is
the ability to deduct related expenses (e.g. interest charges incurred in financing the
shares). Ncvct1hclcss, according to the general principle in LITL which denies the
deductibility of expenses connected to exempt income, any expenses incu1Tcd during the
year in which a dividend is received and which are connected to the exempt participation
may only be deducted insofar as they exceed the exempt dividend for the year in question.
Additionally, if a write-down in the value of the participation has been booked as a
consequence of the distribution of dividends, this write-down will not be deductible up to
the amount of the exempt dividend.
2. Par ticipation exemption regime on capital gains
Capital gains realised by Luxembourg fully taxable resident companies on the disposal of
shareholdings should in principle be subject to corporate income tax and municipal
business tax at the aggregate rate of 28.59% for the year 2009 (for Luxembourg city),
potentially reduced to 25.5% in future years.
However, the Grand-Ducal decree of 21 December 2001 for the application of Article 166
of the LITL provides that capital gains realised from the disposal of shareholdings are tax
exempt if the following conditions arc fulfilled:
( l) the subsidiary is:
a collective entity falling under article 2 of the amended version of the Parent I
Subsidiary Directive; or
a Luxembourg resident joint-stock company, which is fully taxable and does
not take one of the forms listed in the appendix to the paragraph l 0 of article
166 LJTL; or
a non-resident joint-stock company that is fully liable (in its state of residence)
to a tax corresponding to Luxembourg corporate income tax;
(2) the beneficiary company is:
and
a Luxembourg resident collective entity, which is fully taxable and takes one of
the forms listed in the appendix to the paragraph 10 of article 166 LITL; or
a Luxembourg resident joint-stock company, which is fully taxable and does
not take one of the forms listed in the above-mentioned appendix; or
a domestic pcnnanent establishment of a collective entity falling under article 2
of the amended version of the Parent I Subsidiary Directive; or
a domestic pennanent establishment of a joint-stock company that is resident in
a State with which Luxembourg has concluded a double tax treaty; or
a domestic permanent establishment of a joint-stock company or of a
cooperative society which is a resident of a EEA Member State (other than a
EU Member State);
(3) at the date on which the alienation takes place, the beneficiary has been holding or
undertakes to hold the respective participation for an uninterrupted period of at
(9)
12. least 12 months, and during this period the participation held does not fall below
l 0% or an acquisition price of less than EUR 6 million. If the shares are held
through a tax-transparent entity falling under § 1 of article 175 LITL, this
requirement must be fulfilled not by the tax transparent entity itself, but by the
beneficiary, proportional to the interest held by the latter in the tax-transparent
entity.
A recapture system exists, under which the exempt amount of the gain is reduced by the
sum of expenses connected with the participation (such as financing cost and write-downs
in the value of the participation), to the extent that they have reduced the taxable base of
that year or previous years. Basically, an effect of this rnle is that the capital gain realised
will become taxable up to the amount of the aggregate expenses and write-downs deducted
during the respective and previous years in relation to the participation.
The purpose of the system is to avoid the taxation vacuum which could result if the
deductibility of expenses and write-downs connected to the participation was to be allowed
whereas the income arising from the participation was to be tax exempt.
NB: Whereas this system is (in the worst case scenario) tax neutral from a direct tax
perspective, this might not necessarily be the case with respect to the contribution to the
Chamber of commerce. The basis for the computation of the Chamber of commerce fee is
indeed, to date, the taxable result before carry forward losses.
(10)
13. 3. Participation exemption regime for net wealth tax
Resident companies in Luxembourg are subject each year to net wealth tax, at the rate of
0,5%, assessed on I January of each year on the basis of the net operating assets,
determined in accordance with the Property and Securities Valuation Act (hereafter the
"Act").
Paragraph 60 of this Act provides that certain participations may be excluded from the net
operating assets as long as:
(1) the subsidiary is:
a collective entity falling under article 2 of the amended version of the Parent I
Subsidiary Directive; or
a Luxembourg resident joint-stock company, which is fully taxable and docs
not take one of the forms listed in the appendix to the paragraph 4 of §60 of the
Act (sec enclosure); or
a non-resident joint-stock company that is fully liable (in its state of residence)
to a tax corresponding to Luxembourg corporate income tax.
(2) the holding company is:
and
a Luxembourg resident collective entity, which is fully taxable and takes one of
the forms listed in the appendix to the paragraph 4 of §60 of the Act; or
a Luxembourg resident joint-stock company, which is fully taxable and docs
not take one of the forms listed in the above-mentioned appendix; or
a domestic permanent establishment of a collective entity fall ing under article 2
of the amended version of the Parent/ Subsidiary Directive; or
a domestic permanent establishment of a joint-stock company that is resident in
a State with which Luxembourg has concluded a double tax treaty; or
a domestic pemrnnent establishment of a joint-stock company or of a
cooperative society which is a resident of a EEA Member State (other than a
EU Member State);
(11)
14. (3) the direct participation held represents at least 10% of the share capital of the
subsidiary or has an acquisition price of at least EUR 1.2 million at the end of the
operational year preceding the key date for the determination of the taxable base of
the company for net wealth tax. If the participation is held through a taxtransparent
entity falling under § 1 of article 175 UTL, this will be regarded as
direct participation, proportionally to the interest held by the Luxembourg holding
company in the tax-transparent entity.
In the case where the participation is exempt from net wealth tax in application of the
above mentioned mies, the debts contracted for the financing of the participation are not
deductible for the purpose of the calculation of the taxable base for net wealth tax.
(12)
15. LE GOUVERNEMENT
DU GRAND-DUCHE DE LUXEMBOURG
Administration des contributions dircctes
Bureau d'imposition
Societes 6
For the attention of Sarni Douenias
PricewaterhouseCoopers
400, route d'Esch
B.P. 1443
L - 1014 Luxembourg
Companies involved : PEPP 2 SA (Project Rosebud). - Tax number 2005 2228 957
December 16, 2009
Dear Sir,
Further to your letter dated December 16, 2009 and referenced CEED/Q6709003M-SAD
relating to the transactions that the group Rosebud Real Estate. would like to conduct, I find the
contents of said letter to be in compliance with current tax legislation and administrative
practice.
It is understood that my above confirmation may only be used within the framework of the
transactions contemplated by the abovementioned letter and that the principles described in
your letter shall not apply ipso facto to other situations.
18, rue du Fort Wedell
Luxembourg
Tel.: (352) 40.800-3118
Fax: (352) 40.800-3100
Adresse postale
L-2982 Luxembourg
.impotsdirocts.public.lu