Modern Wealth Management Tax Planning via the Netherlands March 30-31, 2010

Contents Company profile The Netherlands an attractive jurisdiction International tax opportunities via the Netherlands International tax opportunities via Belgium

Company profile

Company profile founded in 1999 license from Dutch national bank (among the first 13 trust offices) offices in the Netherlands (Maastricht) and Belgium (Brussels and Antwerp) middle sized trust company (13 employees) in-house international tax specialists direct involvement partners experience at BIG-4 tax offices (accounting, international tax law)

The Netherlands an attractive jurisdiction

The Netherlands an attractive jurisdiction Corporate income tax calculated in brackets (2010) Income tax rate - 200,000 20% excess 25,5%

The Netherlands an attractive jurisdiction Corporate income tax calculated in brackets No withholding tax on interest and royalties

The Netherlands an attractive jurisdiction Corporate income tax calculated in brackets No withholding tax on interest and royalties Reduced tax rate on dividend distributions Domestic rate 15% Tax treaties 0 – 10% EU parent/subsidiary directive 0% COOP structures 0%

The Netherlands an attractive jurisdiction Corporate income tax calculated in brackets No withholding tax on interest and royalties Reduced tax rate on dividend distributions Extensive worldwide tax treaty network internationally acknowledged as high quality never on black or grey list - 87 tax treaties - 10 in negotiation

The Netherlands an attractive jurisdiction Corporate income tax calculated in brackets No withholding tax on interest and royalties Reduced tax rate on dividend distributions Extensive worldwide tax treaty network Advance tax rulings from Dutch tax authorities tax authorities are open for discussion Maprima has good relationship with tax authorities - upfront tax rulings

The Netherlands an attractive jurisdiction Corporate income tax calculated in brackets No withholding tax on interest and royalties Reduced tax rate on dividend distributions Extensive worldwide tax treaty network Advance tax rulings from Dutch tax authorities no CFC legislation no capital tax / stamp duty

The Netherlands an attractive jurisdiction Favorable participation exemption regime - The Netherlands invented the participation exemption (introduced in 1893, hence more than 100 years ago) - Very high quality and has recently been improved even further - Full exemption from Dutch CIT of dividends and capital gains - No minimum holding period

The Netherlands an attractive jurisdiction Participation exemption applicable if: - share interest ≥ 5%, and - participation qualifies as active (trading, manufacturing), or - participation is a real estate company => no taxation required, investment can be located in offshore jurisdiction Functional currency => annual accounts and tax return can be reported in other currency than euro (e.g. RUR, USD) Limited partnerships - tax transparent (i.e. not subject to Dutch taxation) - subject to tax (i.e. entitled to Dutch tax treaty network / tax rulings)

The Netherlands an attractive jurisdiction Dutch Foundation separate legal entity purpose is to separate economic and legal ownership protection vehicle to avoid hostile takeovers Dutch NV can issue bearer shares (i.e. shareholders can be anonymous) Virtually no statutory audit The Netherlands have a long tradition in trust related work Trust offices are regulated by the Dutch central bank

International tax opportunities

International tax opportunities Holding company regime (basic / advanced model) COOP structuring Interest conduit company regime (basic / advanced model) Royalty conduit company regime (basic / advanced model) Bank transfer service company utilizing Dutch banking system Real Estate financing structures

Holding company regime

Holding company regime (current structure) Parent company Country of residence => 25% WHT dividend OpCo Country of investment

Holding company regime (basic model) Parent company Country of residence dividend Dutch holding company The Netherlands dividend OpCo Country of investment

Holding company regime (basic model) Ukraine Belarus Saving of 15-20% WHT Russian parent company Country of residence => 5% WHT dividend Dutch holding company The Netherlands => 0-5% WHT dividend OpCo Country of investment For OpCo’s residing within EU -> 0% WHT to the Netherlands

Holding company regime (advanced model) Parent company Country of residence => 25% WHT dividend OpCo Country of investment

Holding company regime (advanced model) Ukraine Latvia Estonia Saving of 20-25% WHT Russian parent company Country of residence => 0% WHT dividend Cyprus holding company Cyprus => 0% WHT dividend Dutch holding company The Netherlands => 0-5% WHT dividend OpCo Country of investment

COOP structuring

Holding company regime (COOP model) COOP is a cooperative association much like a partnership No dividend withholding tax Unlimited access to EU Directives and Dutch tax treaty network Only one jurisdiction, thus easy to manage and limited annual maintenance costs Alternative for Cyprus structures Tax treatment and tax base guaranteed by Dutch tax authorities through upfront ruling Easy exit

Holding company regime (COOP model) Parent company Country of residence => 25% WHT dividend OpCo Country of investment

Holding company regime (COOP model) Parent company Country of residence dividend Dutch COOP The Netherlands dividend OpCo Country of investment

Holding company regime (COOP model) any country incl. tax haven Saving of 20-25% WHT Russia parent company Country of residence => 0% WHT dividend Dutch COOP The Netherlands => 0-5% WHT dividend OpCo Country of investment OpCo’s residing in EU -> 0% WHT to the Netherlands

Interest conduit company

Interest conduit company (basic model) Group company Country of residence loan => 15% WHT interest OpCo Country of investment

Interest conduit company (basic model) Group company Country of residence interest loan Dutch conduit company The Netherlands loan interest OpCo Country of investment

Interest conduit company (basic model) Latvia Ukraine Estonia Saving of 10% WHT Russian company Country of residence loan => 0% WHT interest Dutch conduit company The Netherlands loan => 5% WHT interest OpCo Country of investment OpCo’s residing in EU -> 0% WHT to the Netherlands

Interest conduit company (advanced model for CIT purposes) Tax haven Finance company => little or no taxation interest loan The Netherlands Dutch conduit company => moderate taxation (0.10%) loan Interest Country of investment OpCo => full deduction

Royalty conduit company

Royalty conduit company (current structure) Group company Country of residence ip / trademark => 15% WHT royalty OpCo Country of investment

Royalty conduit company (basic model) Group company Country of residence royalty ip / trademark Dutch conduit company The Netherlands ip / trademark royalty OpCo Country of investment

Royalty conduit company (basic model) Latvia Ukraine Estonia Saving of 15% WHT Russian company Country of residence => 0% WHT royalty ip / trademark Dutch conduit company The Netherlands ip / trademark => 0% WHT royalty OpCo Country of investment OpCo’s residing in EU -> 0% WHT to the Netherlands

Royalty conduit company (advanced model for CIT purposes) Tax haven IP holder => little or no taxation royalty ip / trademark The Netherlands Dutch conduit company => moderate taxation (2.5%) ip / trademark royalty Country of investment IP user => full deduction

Bank transfer service company

Bank transfer service company (utilizing Dutch banking system) Russian and non European clients with high volume or time critical transactions often use Dutch BV’s to make use of the Dutch banking system The Netherlands have no currency control measures Dutch banking system is highly reliable No delays in payments

Real Estate Financing Structures

Real Estate Financing Structures (essence of permanent establishment) Dutch company owns real estate in Russia Real Estate qualifies as a permanent establishment (PE) under Dutch/Russia DDT - rental income subject to Russian CIT One legal entity, therefore all transactions (interest, repayments) between Dutch Company and PE will be ignored - no WHT on interest, royalty and dividends Dutch Company The Netherlands Real Estate Russia 41

Real Estate Financing Structures (basic structure) Russian FinanceCo + interest deduction at Russian Real EstateCo interest pick-up at Russian FinanceCo => No advantage from group perpective loan interest Russian Real EstateCo -/- Real Estate 42

Real Estate Financing Structures (Dutch loan alternative) Russian Real EstateCo Real Estate 43

Real Estate Financing Structures (Dutch loan alternative) Finance company Real Estate in Russia qualifies as a permanent establishment (PE) and is subject to Russian CIT Interest deduction of Dutch Real EstateCo is allocated to PE and is deductible in Russia Tax haven loan Dutch conduit company loan The Netherlands Dutch Real EstateCo Real Estate Russia 44

Real Estate Financing Structures (Dutch loan alternative) Finance company Interest payments from PE to Dutch Real EstateCo are ignored due to one legal entity -> no interest WHT Tax haven loan Dutch conduit company loan The Netherlands Dutch Real EstateCo interest Real Estate Russia 45

Real Estate Financing Structures (Dutch loan alternative) Finance company Interest payments from PE to Dutch Real EstateCo are ignored due to one legal entity -> no interest WHT Distributing rental profits from PE to Dutch Real EstateCo are ignored due to one legal entity -> no dividend WHT Tax haven loan Dutch conduit company loan The Netherlands Dutch Real EstateCo rental profits Real Estate Russia 46

Real Estate Financing Structures (Dutch loan alternative) Finance company Dutch Real EstateCo is effectively not subject to CIT tax in the Netherlands No interest WHT on interest payments to Dutch conduit company Tax haven loan Dutch conduit company loan The Netherlands interest Dutch Real EstateCo Real Estate Russia 47

Real Estate Financing Structures (Dutch loan alternative) Finance company Dutch Real EstateCo is effectively not subject to CIT tax in the Netherlands No interest WHT on interest payments to Dutch conduit company Only small pick-up at Dutch conduit company (interest spread) No interest WHT on interest payments to Finance company No CIT tax on interest in Tax haven Tax haven loan interest Dutch conduit company loan The Netherlands Dutch Real EstateCo Real Estate Russia 48

Real Estate Financing Structures (Dutch loan alternative) Finance company Full interest deduction in Russia No interest and dividend WHT in Russia Marginal tax base in the Netherlands No interest WHT in the Netherlands No CIT tax in Tax haven Tax haven loan Dutch conduit company loan The Netherlands Dutch Real EstateCo Real Estate Russia 49

Real Estate Financing Structures (Dutch loan alternative) Finance company Full interest deduction in Russia No interest and dividend WHT in Russia Marginal tax base in the Netherlands No interest WHT in the Netherlands No CIT tax in Tax haven Tax haven loan Dutch conduit company loan The Netherlands Dutch Real EstateCo Any country Real Estate 50

Real Estate Financing Structures (Dutch capital alternative) Finance company Real Estate in Russia qualifies as a permanent establishment (PE) and is subject to Russian CIT Interest deduction of Dutch Real EstateCo is allocated to PE and is deductible in Russia Any country Dutch conduit company Dutch Real EstateCo The Netherlands Real Estate Russia 51

Real Estate Financing Structures (Dutch capital alternative) Finance company Interest payments from PE to Dutch Real EstateCo are ignored due to one legal entity -> no interest WHT Any country Dutch conduit company Dutch Real EstateCo The Netherlands interest Real Estate Russia 52

Real Estate Financing Structures (Dutch capital alternative) Finance company Interest payments from PE to Dutch Real EstateCo are ignored due to one legal entity -> no interest WHT Distributing rental profits from PE to Dutch Real EstateCo are ignored due to one legal entity -> no dividend WHT Any country Dutch conduit company Dutch Real EstateCo The Netherlands rental profits Real Estate Russia 53

Real Estate Financing Structures (Dutch capital alternative) Finance company Dutch Real EstateCo is financed through a hybrid loan A hybrid loan is considered equity in the Netherlands Repatriation of funds via dividend distributions - dividend income received at Dutch conduit company is tax free Any country Dutch conduit company hybrid loan dividend Dutch Real EstateCo The Netherlands Real Estate Russia 54

Real Estate Financing Structures (Dutch capital alternative) Finance company Dutch conduit company is financed through capital Repatriation of funds either via repayment of capital or via dividend distributions - WHT on dividends depends on DTT - Repayment of capital is tax free Any country capital/dividend capital Dutch conduit company Dutch Real EstateCo The Netherlands Real Estate Russia 55

Real Estate Structuring (Dutch capital alternative) Finance company Dutch Real EstateCo is effectively not subject to CIT tax in the Netherlands Dutch finance company is not subject to CIT tax in the Netherlands Any country capital Dutch conduit company hybrid loan Dutch Real EstateCo The Netherlands Real Estate Russia 56

Real Estate Structuring (Dutch capital alternative) Finance company Full interest deduction in Russia No interest and dividend WHT in Russia No CIT in the Netherlands No interest WHT in the Netherlands No need to involve Tax haven Any country capital Dutch conduit company hybrid loan Dutch Real EstateCo The Netherlands Any country Real Estate 57

Questions

Modern Wealth Management Tax Planning via Belgium March 30-31, 2010

Contents Belgian risk capital deduction Principal / agent structures (commercially motivated) Principal / agent structures (tax motivated) Other Belgian opportunities Questions

Risk capital deduction Belgian Risk capital deduction

General introduced in 2006 3 objectives - abolishing differential tax treatment between equity and liabilities - lowering effective CIT burden - alternative instrument for Coordination Centre deduction of fictitious interest cost calculated over equity 4.473% ‘small’ companies are entitled to deduction of 4.973% - employees ≤ 50 - annual turnover ≤ € 6.25 mio - balance total ≤ € 3.125 mio

Example Latvian tax treatment Latvian finance company has equity of € 2,500,000 Assets are lent to group companies at 5% interest CIT rate in Latvia is 15%

Simplified structure loan interest Latvian finance company Latvian/foreign subsidiary

Commercial income (5% x € 2,500,000) = € 125,000 CIT in Latvia Commercial income (5% x € 2,500,000) = € 125,000 = taxable income € 125,000 CIT rate 15% Taxation € 18,750 (effective tax rate 15%)

Implementing Belgian finance company Latvian finance company has equity of € 2,500,000 Incorporation of Belgian finance company Capital contribution in Belgian finance company Assets are lent to Latvian or foreign group company at 5% interest Risk capital deduction 4.973% CIT rate in Belgium in 33.99%

Belgian finance company Capital contribution Latvian company interest Belgian finance company Latvian /foreign subsidiary loan

Taxation in Belgium Commercial income ( 5% x € 2,500,000) = € 125,000 Less: capital risk deduction (4.973%) -/- 124.325 Taxable income € 675 CIT rate 33.99% Taxation € 229 (effective tax rate 0.18%)

Advantage Belgium / Russia Latvia Gross income € 125,000 Tax -/- 18,750 Net income € 106,250 Belgium Gross income € 125,000 Tax -/- 229 Net income € 124,771 Annual advantage € 18.521

Benefits Belgian finance company easy to implement / dissolve low effective tax burden (can be as low as 0%) minimum equity € 1,000,000 annual benefit starting from € 5,000 and increasing exponentially

Principal / agent structures (commercially motivated)

Principal / agent structures (commercially motivated) Principal located in low tax jurisdiction => little or no CIT Agent located in the Netherlands or Belgium => clients are unaware of location principal => clients are only dealing with Dutch / Belgium company => agent is located respectable jurisdiction => low taxation on the basis of resale minus method

Principal / agent structures (current structure) Trading company Republic of China Seychelles / BVI Clients Russia, Europe, USA Clients may prefer not to deal with an offshore company

Principal / agent structures (Belgian or Dutch agent) Trading company Republic of China Seychelles / BVI Clients Russia, Europe, USA

Principal / agent structures (Belgian or Dutch agent) Principal Republic of China Seychelles / BVI Agent Belgium or Netherlands Clients Russia, Europe, USA Clients are dealing directly with Belgian or Dutch agent

Principal / agent structures (Belgian or Dutch agent) Agent Belgium or Netherlands Clients Russia, Europe, USA Clients are dealing directly with Belgian or Dutch agent and are unaware of the principal located in offshore jurisdiction

Principal / agent structures (tax motivated)

Belgium / Hong Kong structures Belgium as parent company of Hong Kong company => no withholding tax on dividend distributions to Belgium => only 1.7% effective Belgian CIT on dividends received Belgium as subsidiary of Hong Kong company => no withholding tax on dividend distributions to Hong Kong one of the few Western countries concluded DTT with Hong Kong => elimination of permanent establishment risk attractive to establish a sales company in Belgium => resale minus ruling of 0.75 – 2.5%

Hong Kong - US (current structure) Hong Kong USA Trading company Republic of China Hong Kong Clients USA

!!! Hong Kong - US (current structure) Trading company Republic of China Hong Kong !!! PE USA Clients USA may acknowledge permanent establishment => Hong Kong company subject to US tax

(Belgian sales office) Hong Kong - US (Belgian sales office) Trading company Republic of China Hong Kong Clients USA

Hong Kong - US (Belgian sales office) Trading company Republic of China Hong Kong Belgian sales office Belgium => Resale minus ruling 0.75 – 2.50% over sales Clients USA Mitigating risk of USA acknowledging permanent establishment => due to DTT Hong Kong/Belgium respectively Belgium/USA

Hong Kong - US (Belgian sales office) Trading company Republic of China Hong Kong Belgian sales office Belgium => Resale minus ruling 0.75 – 2.50% over sales Europe Russia Ukraine Clients USA Mitigating risk of USA acknowledging permanent establishment => due to DTT Hong Kong/Belgium respectively Belgium/USA

Other Belgian fiscal opportunities patent income deduction (6.8% taxation on R&D related royalties) no taxation on capital gains

Questions

Free feedback on feasibility of intended structures via the Netherlands or Belgium Contact: info@maprima.com