1. IFA UK Branch Report 2013 Subject 1: the taxation of foreign passive income for groups of companies James Anderson and Alex Jupp Presentation to the UK Branch, September 2012

2. IFA UK Branch Report 2013, subject 1 | 2 Skadden, Arps, Slate, Meagher & Flom (UK) LLP Beijing Boston Brussels Chicago Frankfurt Hong Kong Houston London Los Angeles Moscow Munich New York Palo Alto Paris San Francisco São Paulo Shanghai Singapore Sydney Tokyo Toronto Vienna Washington, D.C. Wilmington Focus of Subject 1 Groups of companies Profits of non-domestic / foreign entities Passive investments Low-taxed “Intellectual systematisation of a quotidian problem”

3. IFA UK Branch Report 2013, subject 1 | 3 Skadden, Arps, Slate, Meagher & Flom (UK) LLP Structure of UK Branch Report Overview General anti-avoidance rules Specific / targeted anti-avoidance rules (excluding CFC provisions) CFC provisions Tax treaty / EU considerations

4. IFA UK Branch Report 2013, subject 1 | 4 Skadden, Arps, Slate, Meagher & Flom (UK) LLP Overview UK taxation of cross-border groups –Direct tax on foreign profits (e.g. CFC) –At-source tax on foreign-earned income (e.g. withholding) –Indirect tax impact from foreign-earned income (e.g. transfer pricing adjustments in the UK) Policy indicators –Global v territorial: the shift –CFC better but safeguards remain –Tightening of other passive income safeguards: QEB What is “passive” income? –Not a term of art in UK tax –Some artificial distinctions are needed

5. IFA UK Branch Report 2013, subject 1 | 5 Skadden, Arps, Slate, Meagher & Flom (UK) LLP Structure of UK Branch Report Overview General anti-avoidance rules Specific / targeted anti-avoidance rules (excluding CFC provisions) CFC provisions Tax treaty / EU considerations

6. IFA UK Branch Report 2013, subject 1 | 6 Skadden, Arps, Slate, Meagher & Flom (UK) LLP General anti-avoidance rules Statutory –General anti-abuse rule –Effect on the centre ground of tax planning? –Supplementary to TAARs –Application to treaties? –The Panel “Judicial” Not limited to foreign, passive, low-taxed income of groups of companies –Use in the CFC context? –Artificial gateways to the GAAR?

7. IFA UK Branch Report 2013, subject 1 | 7 Skadden, Arps, Slate, Meagher & Flom (UK) LLP Structure of UK Branch Report Overview General anti-avoidance rules Specific / targeted anti-avoidance rules (excluding CFC provisions) CFC provisions Tax treaty / EU considerations

8. IFA UK Branch Report 2013, subject 1 | 8 Skadden, Arps, Slate, Meagher & Flom (UK) LLP Specific / targeted anti-avoidance rules Subject 1-specific: –Withholding obligations –Transfer pricing / thin cap –Anti-arbitrage –Worldwide debt cap –Incentives as reverse TAARs? Dividend exemption, patent box,… –Common feature: potential impact on ETR of group Other TAARs - too many to mention all of them… –Unallowable purposes –Transactions in securities

9. IFA UK Branch Report 2013, subject 1 | 9 Skadden, Arps, Slate, Meagher & Flom (UK) LLP Structure of UK Branch Report Overview General anti-avoidance rules Specific / targeted anti-avoidance rules (excluding CFC provisions) CFC provisions Tax treaty / EU considerations

10. IFA UK Branch Report 2013, subject 1 | 10 Skadden, Arps, Slate, Meagher & Flom (UK) LLP CFC provisions (1) Subject 1 deals with: –Groups of companies –Profits of non-domestic / foreign entities –Passive investments –Low-taxed CFC provisions: the primary focus… …but only Part 9A TIOPA

11. IFA UK Branch Report 2013, subject 1 | 11 Skadden, Arps, Slate, Meagher & Flom (UK) LLP CFC provisions (2) History and current policy Transactional / jurisdictional approach What is a (C)FC? What amounts to control? What about low-tax? Targeted jurisdictions – white/grey/black lists?

12. IFA UK Branch Report 2013, subject 1 | 12 Skadden, Arps, Slate, Meagher & Flom (UK) LLP CFC provisions (3) Attribution to the domestic taxpayer –Corporation tax assumptions –CFC gateways –“Safe” harbour(s) –Application to internal situations? “Subject 1” entity-level exemptions: –Qualifying loan relationships exemptions –The ETE –Low profits exemptions Remaining exemptions – entity- and shareholder- level

13. IFA UK Branch Report 2013, subject 1 | 13 Skadden, Arps, Slate, Meagher & Flom (UK) LLP CFC provisions (4) Relieving mechanisms: –impact of CFC-level taxes and losses –double / multiple CFC taxation (case study) –disposal of CFC shares? –dividends from a CFC

14. IFA UK Branch Report 2013, subject 1 | 14 Skadden, Arps, Slate, Meagher & Flom (UK) LLP Structure of UK Branch Report Overview General anti-avoidance rules Specific / targeted anti-avoidance rules (excluding CFC provisions) CFC provisions Tax treaty / EU considerations

15. IFA UK Branch Report 2013, subject 1 | 15 Skadden, Arps, Slate, Meagher & Flom (UK) LLP Tax treaty / EU considerations Double non-taxation Treaties overriding domestic anti-avoidance? EU rules overriding domestic anti-avoidance? Can Vodafone 2 be read into Part 9A TIOPA?

16. IFA UK Branch Report 2013, subject 1 | 16 Skadden, Arps, Slate, Meagher & Flom (UK) LLP Thank you.

17. IFA UK Branch Report 2013 Subject 1: the taxation of foreign passive income for groups of companies James Anderson and Alex Jupp Presentation to the UK Branch, September 2012