accord tax ruling entre shire et le luxembourg - 2010

8/10/2019 Accord Tax Ruling entre Shire et le Luxembourg - 2010

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CLASSIFICATION

SHEET

Th

is document relates to the following request:

16July2010

References: CDT/SELL/N LKL/Q27l 0030M-GAHO

Client s) Fiscal

nu

mber s):

Shire Holding Europe N°2 S.a

r 1

- 2008/24/17428

Sh

ir

e Holdings Ire

land No2 Ltd,

Luxembourg

branch

- 2008 32 00163

1 Key topics: Profit Participating Facility

2. Name

of

the advisor : PwC

3.

Corporate group s nam

e,

or

fund sponsor: Shire Pie

4. Name

of

the

pro

ject:

SUREAtJ

lYtMPOstftON

SOC

l

J

~ I T R

5. Amount intended to

be

invested: more than USO 6.25bn

6. Date

of

receipt:



For

the attention

of

Mr

Ma

rius Kohl

Administration des Contributions Directes

Bureau d'lmposition Societe VI

18,

Rue du Fo1t Wedell

L-2982 Luxembourg

14July2010

BUREAU D IMPOSITION SOC. 6

t : = r . . I T R ~ E

16

JUIL 2010

References:

CDT

S

ELUNLKUQ27

0030M-GAHO

Shire Holding Europe N°2S.a r.1 2008/24/17428

Shire Holdings Ireland No2 L

td

, Luxembourg branch - 2008 32 00163

Dear Mr Kohl,

PricewaterhouseCoopers

Socic

te

a esponsabilite limit

ee

Reviseur d'entreprises

400, route d'Esch

B.P. 1443

L-1014 Luxembourg

Telephone

+352 494848-1

Facs imile

+352 494848-2900

www

.pwc.com/lu

info@lu p

wc.com

We discussed in our meeting dated 10 March 2010 the tax treatment applicable to the

transactions foreseen by our client. This letter aims at confirming the conclusions reached

during our meeting and will serve as a basis for the preparation of the tax returns of the

Luxembourg entities involved.

A. Background

A.I Restructuring

1. Shire group has a Luxembourg financing structure involving Shire Holdings Europe

N°2 Sari

(

SHES2 ) and Shire Holdings Ireland N°2 Ltd Luxembourg branch

( Lux PE ) (we refer to our letter dated 16 July 2008 referenced

SAD/JOMO/SELUQ2708127M-CDT and

14

January 2009 referenced

SAD/GAHE/SELIJBSLE/Q2708187M-CDT, hereafter referred to altogether as

the Letters ).

2. SHES2 and Lux PE are part of a tax unity and are involved in a lending activity

financed by borrowings on a consolidated basis for a global amount of more than

USO

6.25bn.

Catnnct

ti\ ~ v i . i o n n g n ~

l p.:n-rnmp1ahk:

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.. 11ongouwrncmenmlc n 95992)

R C.S l m ~ m b o u r ~ ll 65 477 Capi1nl . o c ~ 1 EUR 516 950 · TV LUl756+147



f R/c W 1fRHousf[roPERS

3. For internal and practical reasons, Shire Group contemplates

to

transform the loans

between

Lux PE

and Shire Holdings Ireland No 2 Ltd

( S

HIL

2 )

into a Profit

Participating Facility

( PPP')

with retrospective effect as from 1 January 2009 and

with an initial draw down

of

approximately USO 3.7bn

on

1 January 2009, a

second drawdown

of

approximately USO 2.6bn

on

9 January 2009 a

nd

further

draw downs as required.

4. In addition to its existing financing activity, SHES2 may in the future wish to

invest in money market funds generating inve

st

ment income

on

investment

operations.

rt

is proposed that the aforementioned PPF would also finance the

inves

tm

e

nt

in the money market funds.

5.

For

your information, you will find enclosed a description

of

the Shire Group in

Appendix 1, a chart

of

the final structure in Appendix 2

and

the tax analysis

of

the

PPF in Appendix 3.

A.2 Profit

Pa

rticipating Facility

6.

The

PPF will finance the lending activity

on

a consolidated basis between Lux

PE

and SHES2.

The

income generated

by

the lending activity could either

be

reinvested in Financing Investments (as described in the

PPF

Agreement)

or

invested in Participations Investme

nt

s (as described in the PPF Agreement). In that

case,

an

amount corresponding to the amount reinvested will

be

deemed to have

been repaid

by

Lux

PE

and draw down under the

PPF

in case

of

reinvestment in

Financing Investments or reinvested in Lux PE 's branch capital

in

case of

reinvestment in Paiticipations Investments. The

PPF

will

have

the following

characteri

st

ics:

PPF

Amount

PPF

facility

o

US bn

Currency USD

Remuneration

0.5 fixed interest + variable interest (1

00%

of the adjusted

pr

ofits°'

of

SHES2

Je

s a margin

•

Maturity date

Date

on

which SHES 2 makes a final disposal (by way

of

assignment,

sa

le, liquidation or otherwise) of 100

of

the

Financing Investments which shall not exceed 49 years from

the date

of

the execution

of

the Agreement.

Risk level Limited rec

ou

r

se

( I) Variable interest is eq

ual

to adjusted profit after the fixed interest on

the

PPF p

1in

cipal amount and after deduction of losses and the

direct and

indi

rect costs related

to

the financing activity

of

SHES2

(2) Margin percentage will depend on the income/gain derived from the lending activity (i.e under the first draw-down equal to

approximately USO 3.7bn.

the

margin will be 1/32 : as front the second draw·down

of

USO 2.6bn occurring on 9 January 2009. the

margin will he 1/64 ) please see B2

2)



B Applicable Luxembourg tax regime

B.1 Potential investment in US money market fund

7. SHES2

may

in the future consider investing in money market funds, especially in

the US.

8. In order

to

do

so, SHES2 would use funds from its financing activities which it

will

re

-invest in the said market funds.

9. The income received by SHES2

on

the said investment will

be

dividends, interest

or capital gains depending on the legal form

of

the fund and will be subject to tax.

B.2 Lending activity financed by borrowings on a

co

nsolidated basis

10

Lux

PE

and

SHES2

wou

ld have,

on

a consolidated basis, a lending activity

(including possible investment in US money market funds), financed by

borrowings (PPF). Please refer

to

our analysis in Appendix 4 concerning the

qualification

of

the

PPF as

debt.

11. Given the limited risks on these activities, a minimum profit margin reflecting the

financing activity

of

the Luxembourg entities (i.e. Lux

PE

and SHES2) should

amount to 1/32% from I January 2009 to 9 January 2009, the outstanding amount

on-lent being

over

USD 3.7bn, and

to

1/64%

of

the outstanding amount on-lent as

from 9 January 2009 to the extent the amount

of

the debts and receivables involved

in the transaction exceeds USD 6.25bn. Such margin will

be

taxed each year at the

standard Luxembourg tax corporate income tax, municipal business tax

and

net

wealth tax.

12 The

income deriving from SHES2 financing activity (including possible investment

in

US

money market funds) could be re-lent to group companies ( Financing

Investments as defined the PPF agreement)

or

re-invested in participations

(

Participation Investments as defined the

PPF

agreement).

13. In case

of

increase of the Financing investment through relending

of

the income

deriving from SHES2 financing activity, the fixed and the variable interest under

the PPF

due by

Lux

PE

to

its head office but not paid should be treated as being

repatriated to its head office and immediately reallocated to the Lux

PE

under a

new drawdown.

14

In order to respect the consolidated financing arTangements, the interest on

Financing Investments due by Lux PE to its head office but not paid should be

treated as being repatriated to its head office and immediately reallocated to Lux

PE

in a form of branch capital

if

the interest received by SHES2 has been reinvested in

Participation Investments.

(3)



15

Similarly, in case all or part o the Financing Investment would have been repaid

and reinvested in Participation Investments, a co1Tesponding amount under the PPF

will be deemed to be repaid and converted into branch capital, to respect the

consolidated financing arrangements.

16. On the disposal o the financing investments financed by the PPF,

in

the case where

a capital loss would be realized at the level of SHES2 upon the disposal of the

investments, based on the Limited Recourse Clause o the PPF between SHIL2 and

Lux PE, Lux PE would only

be

liable to repay its debt towards SHIL2

up

to the

realised amount of the investments and would therefore realize a gain on the PPF.

17.

In this case Lux

PE

would be

in

a situation similar to the situation o a company

benefitting from a hidden capital contribution. The Luxembourg administrative

doctrine defines indeed the hidden capital contribution

as

the granting o an

advantage between related persons that is motivated by shareholding s

relationship

•

18. Based on the above, from a tax point o view, any net profit within the tax unity

as

a consequence

o

the application

o

the Limited Recourse Clause n the PPF should

be seen as resulting

in

a hidden branch contribution granted by SHIL2 to Lux PE.

B 3 Debt/equity ratio

19.

Considering that Lux PE and SHES2 are involved in a lending activity financed by

bo1Towings on a consolidated basis on one hand and that Lux PE s liability is

towards its head office on the other hand, no debt/equity ratio will apply in the

hands of

Lux PE.

I

Elude

lic;calc

sur

r lmp )l

Sur

le Rcvcnu des

Co

llc

ctivites. Guy Ilcintl. Janvier 1999, p.

6Kss.

4)



f R c

EWA1fRJ-tousE roPERS

We

remain at your

disposal shou ld you need

any fu

r

ther

information

and

would like

to

thank

you

for the attention

that

you will give to

our request

Yours

sincerely,

~

Catherine Dupont

Partner

Appendices

Appendix

1:

Description

o

Shire Pie gro

up

Appendix

2: Final chart structure

Appendix 3: Tax treatment of the PPF

Geetha

Hanumantha

Rao

Senior Manager

This

rax

agreement is hosed on the farts as presented

to

Pricewate

rho11seCoopers

S.a r.I. as m the date the advire was

1•1 11. The

agreem( llt is

dep< 1ulent

011 specific facts and rircumstanres and 111ay ot he appropriate to another

parry

than the one for w/1irh it u·as

prepared.

711is

tax agreement as prepared

with

only the i111erests of Pricewc11e111ouseCoopers l.LP s Clie11t. Shire Pharmacewicals

Group

Pie

in mind. anti was 1101 planned

or

rarried out in contemplationofany use hy any

01her

parly. PricewaterhouseCoopers S.a r.I .

its partners, l lllflloyees and or age111s. neither owe nor acrept any d11ty

of

rore or any responsihility to any other party. wheth rin

con

tra

ct or in rt i11c/11di11g wi1ho111

limiration,

negligence or breach of sta111101y duty) howei·er arising. mu/ shall 1wt be /iah/e in

respect

of

my loss. damage or expense

of

whote

ve

r

11m11re

wh

ich is caused to any other pony.

5)



Appendix

DESCRIPTIONOF SIDRE PL GROUP

l

Founded in 1986, Shire

is

a rapidly growing global specialty biopharmaceutical

company, headed, since 23 May 2008, by Shire pie.

2

The Shire Group markets products to defined customer groups and

is

organized into

two divisions: Specialty Pharmaceuticals ( SP ) and Human Genetic Therapies

( HGT ). Shire's HGT division focuses on single mutation genetic diseases and

the science that offers hope to those who suffer from such rare conditions as Hunter

syndrome, Fabry disease, Gaucher disease, Sanfilippo Syndrome and

metachromatic leukodystrophy. Through it s SP division, Shire focuses on small

molecule medications within the therapeutic areas of Attention Deficit

Hyperactivity Disorder ( ADHD ), where it maintains a leadership position and

gastrointestinal disease, among others.

3. Shire has a global sales and marketing infrastructure with a broad portfolio of

products which are marketed in over

50

countries worldwide. The group has its

own direct marketing capability in over 25 countries including the US, Canada,

UK, Republic of Ireland, France, Germany, Italy and Spain and also covers the

other significant pharmaceutical markets indirectly through distributors in Austria,

Denmark, Finland, Japan, Norway, Russia, Singapore, South Africa, South Korea

and Thailand.

4. With corporate headquarters in Dublin, Ireland ( Shire pie ), Shire's primary

operational sites on the

US

are in Chesterbrook, Pennsylvania in respect of its SP

division and Lexington, Massachusetts in respect of its HGT division. Shire's UK

operations are based in Basingstoke, Hampshire. Shire has almost 4,000 employees

worldwide.

5. Shire has revenues for the full year 2009 of USD 3,008 million. The group aims, by

2015, to have

50

% of its sales coming from outside

of

the traditional US and

European markets. M&A activity of the Group during the last ten years has resulted

in seven completed mergers and acquisitions.

6. Today, as a global specialty bio-pharmaceutical company listed on the London and

NASDAQ exchanges, Shire is one

of

the fastest-growing pharmaceutical

companies in the world.

It

is a company with a portfolio of top-sell ing products and

promising late-stage development candidates.

(6)



FIN L

CH RT

STRUCTURE ABRIDGED)

usoo

US market

fund

SHIL 2

Ire)

SHES2

Lux)

Shire Group

Companies

PPF USD

[6.25bn)

Tax unity

Loans - USO [6.25bn]

Appendix 2

7)



Appendix 3

Tax treatment

o

the PPF

A Tax classification of the PPF as debt

l.

According to the commentaries to the income tax law (commentaries included in

Projel de Loi No 571 (1955) on the former article

4

LITL (now article 9

LITL) on income from participation, where a profit paiticipating facility bear a

minimum fixed interest rate, payable even when the company is in a loss position,

and provided the principal amount

of

the facility is repayable before the

reimbursement of the company's share capital, a profit participating facility should

continue to be treated as debt

fo

r Luxembourg tax purposes.

Th

e same treatment should apply to a branch.

2. In the case at hand, the fixed interest will accrue without taking into consideration

whether SHES2

or

Lux PE are

in

pro

fi

t or loss position. Consequently, the

PPF

will

be qualified as debt for both net wealth tax and income taxes purposes, and interest

thereon will

be

deductible under the same conditions as apply to fixed interest debt.

B Classification

o

PPF payments as interest

3. Authors have examined the question whether the definition of dividend given f

the Luxembourg income lax law could include payments accounted for as interest .

Taking a contrario the key criteria used to define a payment as dividend, we can

conclude that the following criteria should be refen-ed to in order to define a

payment as interes t:

• No entitlement to the ongoing profit (including the profit reserves); and

• No entitlement to the liquidation proceeds.

4. Under this interpretation, the payment

of

an

amount which is not directly related to

the entire profit

of

the borrower, nor to the liquidation proceeds, is not considered

as a dividend.

5. Ba

se

d on the above, considering the tax unity globally, since the variable interest

on the PPF will be dependent on the profit realized before Luxembourg tax of

SHES2, and not profit after tax, the variable interest will be qualified as interest and

not as a repatriation of profit between the Lux PE and its head office.

2

A

Steichen. Pn.\:is

Ile

llroit fisca l Ile

I

ntrcp

ri

sc . Editions Sai

nt P:iul

.

§

70 I ct seq

p 345

ct

\Cq

(8)



C . Deductibility of the remuneration paid to PPF holder

6. 100 of all interest paid on the

PPF

will, in principle, be tax deductible in

accordance with article 45

I)

LITL, unless article 45 (2) LITL

or

article 166 (5)

LITL is applicable.

D Payment of remuneration free of Luxembourg dividend

withholding tax

7. Article 146 I) 3 LITL provides for the application

of

a withholding tax upon

payment

of

interest arising from participating bonds

or

other similar securities.

Interest payment may be subject to a 15 dividend withholding tax

on

this ground

if

the following conditions app l

y:

• The loan is structured in the form of a bond or other similar security; and

• Aside from the fixed interest, a supplementary interest varying according to

the amount

of

distributed profits is paid, unless the supplementary interest is

linked to a corresponding decrease in the fixed interest.

8. On the contrary, interest payments related to PPF are not subject to a specific

dividend withholding tax.

9. For the PPF described, the debt instrument is structured

as

a participating loan (and

not as a profit participating bond), and the participating interest does not depend on

distributable profit. Therefore, interest on the

PPF

will not be subject to any

dividend withholding tax.

lO.

Based on the above analysis, no dividend withholding tax on investment income

will be due on interest paid under the PPF (neither on the grounds of article 146 (1)

3 LITL nor of article 146 1) 2 LITL).

9)



L G

OUVER

NEMENT

DU GR ND-DUCHE DE LUX EMBOURG

Administration des

contribu

tions dlrectes

Bureau d imposition

Societes 6

For the attention

o

atherine Dupont

PricewaterhouseCoopers

400, route d Esch

B.P. 1443

L - 1014 Luxembourg

Companies involved:

Shire Holding Europe N°2 S.a r

-

2008/24/17428

Shire Holdings Ireland No2 Ltd, Luxembourg branch - 2008 32 00163

Dear Madam.

16 July 2010

Further to your letter dated 16 July 2010 and referenced CDT/SELL/NLKL/Q2710030M-GAHO

relating to the transactions that the group Shire Pie 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 above-mentioned letter and that the principles described in

your letter shall not apply ipso facto to other situations.

8, rue du Fort Wedell

Luxembourg

Tel.:

(352) 40.800-31 8

Fax: (352) 40.800-3100

Adresse postale

L-2982 Luxembourg

Site Internet

www.lmpotsdirects.publi

c

lu

accord tax ruling entre shire et le luxembourg - 2010

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