Merger - Case StudyMerger - Case StudyDubrovnik, 26 September 2008Dubrovnik, 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-Corp GE2-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-Corp GE2-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 LawFrom 1995 – 2000 PwC Hanover, 1999 qualification as tax advisoraccording to German lawFrom 2000 – 2005 PwC Czech Republic, Brno/Prague, Leader of the German tax deskFrom 2005 – 2006 Leitner & Leitner, Czech Republic, PartnerSince 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

sten.guensel@ebnerstolz.dePhone: +49 711 2049 1258Fax: +49 711 2049 3258

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

mark.mcgarry@saffery.comPhone: +44 207 841 4063Fax: +44 207 841 4100

Ebner, Stolz & Partner locations in Germany, over 540 employees

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