Corporate and Tax Specialist Group Overview to Portuguese Holding Companies Hong Kong, 4 October 2008

Contents 1. Background and Legal Structure 2. Major Taxation Issues 3. Corporate Income Tax rates in EU 27

A special legal regime was established by law for holding companies (Sociedades Gestoras de Participações Sociais or “SGPS”), Decree-Law No. 495/88, September 30 (Amended by Decree-Law No. 318/94, December 24 and by Decree-Law No. 378/98, November 27) The sole purpose of a holding company is the management of holdings in other companies as an indirect way of exercise of economic activities.  It is considered an indirect way of exercise of economic activities whenever (i) the holding is owned for more than one year and (ii) direct or indirect ownership of at least 10% of the capital with voting rights. 1. Background and Legal Structure

In addition to that SGPS’ are allowed to render technical and management services to its daughter companies (ownership of more than 10% of the capital) or if a subordination agreement has been executed. Portuguese holding companies may be incorporated as private limited companies, sole proprietorship private limited company or corporations. 1. Background and Legal Structure

Type AdvantagesDisadvantages CORPORATE FORMS Private limited company (“Lda.”) Smaller amount of capital of EUR 5, For the purpose of obtaining credit or capital for investment this type of company has a lesser degree of credibility. Minimum of 2 Shareholders (quotaholders) or one Shareholder, a sole proprietorship private limited company (“Sociedade Unipessoal”). Quotas represent the company’s capital not shares. Purchase and Sale of Quotas can be done by private agreement and then registered at the Commercial Registrar Office. Appointment of at least one director (residents or non residents in Portugal). Stock corporation (“S.A.”) More degree of credibility before e.g. financial institutions for the purposes of obtaining credit or capital for investment. Minimum of 5 shareholders on the incorporation agreement. Shares represent the company’s capital. Non-voting preferred shares may be issued up to a maximum of 50% of the share capital. Higher amount of the minimum capital of EUR 50, For higher amounts of capital a Board of Directors composed of a odd or even number of Directors. Subject to audit from a Chartered accountant. Redeemable preferred shares may also be issued provided they are fully paid up. For capital of less than EUR 200,000.00, the company needs only one Director (residents or non residents in Portugal).

2.1. Elimination of Double Economic Taxation on the Distributed Profits, and 2.2. Taxation of Capital Gains Corporate Income Tax (“CIT”). 2. Major Taxation Issues

2.1. Elimination of Double Economic Taxation on the Distributed Profits: According to Article 31,1 of the Tax Incentive Statute (“EBF”), the SGPS may deduct to its taxable profits all received dividends if the daughter company (payer): (a)has its registered office or effective management in Portugal and is subject to, and not exempted from Corporate Income Tax or is subject to Special Tax on Games or fulfills the criteria of Article 2 of the Directive 90/435/CEE, July 23, and, (b)holding is constantly owned during the last year before the payment of dividends or if the participation is after maintained during the necessary time to complete the period of one year.

2.2. Taxation of Capital Gains: Period of ownership of the holding: Ownership less than one year Ownership more than one year Ownership more than 3 years losses on the sale do not contribute for the calculation of profit, and, capital gains and financial costs for the acquisition do contribute for the calculation of profit of SGPS. SGPS capital gains and losses on the sale of holdings and financial costs for the acquisition do not contribute for the calculation of profit of holding companies (tax free), unless some special circumstances would arise. capital gains and losses on the sale of holdings and financial costs for the acquisition do not contribute for the calculation of profit of holding companies (tax free).

2.2. Taxation of Capital Gains: i.Ownership period is less than one year: Example: In 2004, ABC SGPS sells its holdings in Arundel Company with a capital gains of 1 M EUR, and sells its holdings in Bacon Company with losses of 0.5 M EUR, both holdings owned for less than one year. Financial costs for those acquisitions were 100,000 EUR. The profit of ABC SGPS is 0.9 M EUR (1M EUR – 100,000 EUR), taking in consideration that the losses with the holding on Bacon Company cannot be deducted to ABC SGPS profit.

2.2. Taxation of Capital Gains: Special circumstances: (a) acquisition of holdings to entities with special relations; (b) acquisition of holdings to entities domiciled, registered office or effective management in a low tax jurisdiction referred in the Administrative Rule list if owned for less than three years; (c) acquisition of holdings to entities resident in Portugal subject to a special regime of taxation if owned for less than three years; or (d) the seller has resulted from the change of type of company (different from an SGPS) that occurred before the completion of a three years period from the date of chance until the date of sale of the holdings.

2.2. Taxation of Capital Gains: ii.Ownership period is more than one year: Example: The above special circumstances do not arise and in 2004, and SGPS Zeta sells its holdings in Creation Company with a capital gains of 0.5 M EUR, and sells its holdings in Denion Company with losses of 1 M EUR, both holdings owned for more than one year. Financial costs for these acquisitions were 250,000 EUR. The total amount of losses of SGPS Zeta is 0.75 M EUR (1M EUR + 250,000 EUR – 0.5 M EUR), but taking in consideration that the losses and capital gains cannot be deducted the profit of SGPS Zeta is 0 EUR. Alternatively, if the assets have been owned for one year and reinvestment of all capital gains is made, during the last year, the same year or until the end of the second year, the SGPS may deduct (50) fifty per cent of the capital gains to its profit.

2.2. Taxation of Capital Gains: iii.Ownership period is more than three years: SGPS capital gains and losses on the sale of holdings and financial costs for the acquisition do not contribute (tax free) for the calculation of profit of holding companies, despite the circumstances.

2.3. CIT rates in EU 27:

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