Merger - Case Study Dubrovnik, 26 September 2008

Agenda I.Introduction case study II.Available options III.Merger under EC-Directive IV.Issues for further discussion V.Invitation – Overview for EC-countries

I. Introduction case study German based operations Request for group restructuring by a board consisting of Swiss, German and UK managers Target: UK-GAAP should be applicable No harm for existing contracts

A CH-Corp GE-Corp GE2-Corp 100 % UK-Holding Status quo

A CH-CorpGE2-Corp 100 % UK-Corp Target structure PE

II. Available main options Asset deal Merger under EC merger directive Merger by using SE-vehicle

Asset deal Simple and easy to administrate Winding up of remaining shelf company Approval by clients and contractual partners required

Asset deal – taxation in Germany No special tax relief available Capital gains subject to German corporate and trade tax generally Transfer of participations exempt Agreement(s) subject to transfer pricing rules

Asset deal – taxation in UK Distribution Income distribution from an overseas company - taxable Tax credit for German tax Possible capital distribution – substantial shareholding exemption Hold 10% Parent company – member of trading group Subsidiary – trading company

Merger by using SE-vehicle Available since Oct 2004 Requires at least one Incorporation Legal succession No process of winding up required Allows movement of seat within EC SE-form as suitable for daily business?

SE-Merger – taxation in Germany Transaction treated tax-wise as transfer of assets at market value An application can be filed for transfer of assets at book value, if the German entitlement to tax future capital gains in case of a sale would not be excluded nor limited by the merger = Tax relief for assets remaining in a German PE Exemption for transfer of shares applies

SE-Merger – taxation in the UK Distribution of assets and disposal of shares in GE Corp Distribution in the course of winding up Substantial shareholding exemption applied to gain on shares in GE Corp

SE-Merger – taxation in UK An SE is formed by a merger of companies Each merging company must be resident in a member state The companies must not all be resident in the same state Transferee company must issue shares to transferor’s shareholders BUT not where transferee (UK–Corp) is the shareholder and Company Law prevents Bona fide commercial reasons Not scheme for avoidance of tax

Merger by using SE-vehicle – certain UK legal issues UK-Corp would take the form of SE by re- registration Merger documentation approved at General Meetings Consultation process for employees – special negotiating body Court approval

Merger without using SE-vehicle Available since Jan 2008 (at latest) No Incorporation, but 2 Limiteds sufficient Legal succession No process of winding up required Does not allow movement of seat – but pending ECJ-case “Cartesio” (C-210/06) Same tax rules as for SE-Merger = Tax relief for assets remaining in a PE

III. Merger under EC-Directive 2005/56/EC EC Directive 2005/56 provides the frame Implementation into local legislation Phases: (1)Preparation (2)Decisions (3)Execution For details see road map (attachment)

IV. Issues for further discussion Utilization of tax losses Permanent establishment Timing – Retroactively?

A CH-CorpGE2-Corp 100 % UK-Corp Permanent establishment? PE ???

V. Invitation – Overview for EC-countries Road map (as start and target country) Major tax impacts Timing issues Contacts

Thanks for your attention

Sten Günsel Professional background: University of Halle/Wittenberg School of Law, Mandatory Legal Clerkship – Focus on Tax Law From 1995 – 2000 PwC Hanover, 1999 qualification as tax advisor according to German law From 2000 – 2005 PwC Czech Republic, Brno/Prague, Leader of the German tax desk From 2005 – 2006 Leitner & Leitner, Czech Republic, Partner Since 2006 Ebner, Stolz & Partner, Stuttgart – works in his capacity as tax advisor and attorney Main Areas of Focus: International taxation, Expatriate taxation, Tax structuring, Transfer pricing, Central and Eastern Europe Business Sectors: Investment - Service - Distribution – Manufacturer - Automotive German Tax advisor – Attorney at Law Phone: Fax:

Mark McGarry Professional background: Mark is a qualified chartered accountant, specialising in corporation tax. Mark also advises charities on direct tax matters. He possesses particular expertise in transactional tax matters, cross border issues and tax structuring. Tax Partner Phone: Fax:

Ebner, Stolz & Partner locations in Germany, over 540 employees Kiel Hamburg Hanover Berlin Munich Leipzig Stuttgart Reutlingen Frankfurt

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