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H A N D B O O K
PRE-TRANSACTION RESTRUCTURING
Baker & McKenzie
Pre-Transaction Restructuring Handbook
©Baker & McKenzie 2012 All rights reserved.
IMPORTANT DISCLAIMER: This Handbook is not intended to be a comprehensive exposition of all potential issues arising in the context of a pre-transaction restructuring, nor of the law relating to such issues. It is not offered as advice on any particular matter and should not be taken as such. The precedent documents included in the Handbook have not been prepared with any particular transaction in mind. Baker & McKenzie, the editors and the contributing authors disclaim all liability to any person in respect of anything done and the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or part of this Handbook. Before any action is taken or decision not to act is made, specific legal advice should be taken in light of the relevant circumstances and no reliance should be placed on the statements made or documents reproduced in this Handbook. This publication is copyright. Apart from any fair dealing for the purposes of private study or research permitted under applicable copyright legislation, no part may be reproduced or transmitted by any process or means without the prior permission of the editors.
Save where otherwise indicated, law and practice are stated as at 29 February 2008.
Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.
This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.
Table of Contents
Section 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2 Pre-transaction restructuring: Overview of key issues and process for managing the project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 3 Tax planning for the spun-off group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4 Tax planning for the separation steps: Which method of separation is best? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5 Separation methods: Business and asset sales and capital contributions of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6 Separation methods: Demergers and statutory spin-offs . . . . . . . . . . . . . . 43
Section 7 Separation methods: Reverse spin-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 8 Moving companies into the new structure: Sale vs. capital contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 9 Identifying the Most Effective Form of Entity for the Asset or Business Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
Section 10 Restructuring issues raised by branches and representative offices . . . . 144
Section 11 Employment considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
Section 12 Stock options and other equity compensation issues. . . . . . . . . . . . . . . . 160
Section 13 Intellectual Property Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Section 14 Transition services and other post-separation matters . . . . . . . . . . . . . . . 178
Baker & McKenzie Offices Worldwide. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
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Section 1 Introduction
The aim of this Handbook is to provide a reference tool for companies that may either be contemplating, or in the process of executing, a multinational spin-off or separation of a division, line of business or other assets into a separate corporate structure. The Handbook provides a guide to the process of identifying the legal and tax issues to be addressed in planning and implementing the restructuring on a global basis. These reorganizations and the related transactions are frequently transformational or “once in a lifetime” projects for a multinational group and one of the major challenges that a company will face is to look ahead to the final transaction and the end state of the group, e.g., the public listing of a division and anticipate early enough the requirements and needs of that final transaction and the resulting business.
The following chapters focus on a hypothetical parent company, having subsidiaries and branches in multiple foreign countries, that has identified a target line of business to be separated out from the company’s other businesses. The target line of business has assets and employees in many of these foreign jurisdictions, and, in each relevant jurisdiction, the target assets and employees are initially held by the same legal entities as the rest of the company’s business operations. Thus, for example, in each of twenty jurisdictions the company may have one or more subsidiaries, branches or other business presences, and the target assets are co-mingled in these local legal entities with the assets of the company’s other divisions. In our example, the company intends to establish a new holding company immediately below the ultimate parent company of the corporate group, and to transfer the target assets and employees into that holding company or into subsidiaries and branches beneath it. The eventual goal may be to sell the holding company to a potential buyer or investor, to distribute shares of the holding company to the ultimate parent company’s shareholders in a spin-off transaction, or to accomplish one of many other strategic business goals.
In broad-brush terms, the separation process involves:
• determining what type of corporate structure is best for the target business;
• determining the most tax and cost efficient and least disruptive way to separate out the target business’s assets;
• setting up the new corporate structure complete with subsidiaries, branches, and representative offices;
• identifying the assets, employees, intellectual property, liabilities, and other items that have to be moved, kept or shared;
• effecting the transfer while making sure that the operation of the business is not disrupted and all necessary licenses and permits are in place;
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• putting a process in place to settle any open questions about what assets and liabilities belong to which business unit; and
• putting in place agreements between the existing and spun-off businesses to address shared services, post-split transactions and ongoing business relationships.
The issues raised in this Handbook may apply to a parent company in any jurisdiction, though a number of examples highlight issues particularly relevant to companies headquartered in the United States.
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Section 2 Pre-transaction restructuring: Overview of key issues and process for managing the project
This Section provides an overview of the process that typically ensures success in managing global pre-transaction restructuring projects, and then provides a brief summary of the more common substantive issues companies are likely to encounter in planning and implementing such projects. Several of the key issues discussed in this overview are covered in more depth in subsequent Sections of the Handbook.
1. An Open and Interactive ProcessA large restructuring project raises issues of both process management and substantive expertise. Moreover, once a restructuring plan has been developed, practical implementation issues will often prove critical in determining how quickly the plan can be effected and how soon the benefits of the restructuring can be realized. In particular, human resource concerns, corporate and tax law issues, financial due diligence and all audit requirements regulatory approval and filing requirements should be built into the planning process itself, and not be left to the implementation phase, in order to avoid road-blocks that might otherwise delay or frustrate the realization of restructuring goals in many jurisdictions. Furthermore, the planning process should also extend to the structuring of ongoing business operations for the target line of business. The business that is being separated out should be run with the end goal in sight. So, for example, form customer agreements may need to be revised in order to ensure that they can be readily assigned, and entering into long-term contracts of any kind may need to be subjected to a special review process.
Outside advisors are typically used in this type of project because of their specialized experience and expertise, because a company’s permanent staff often is best used in other ways that relate more directly to the daily business operations of the company, and because confidentiality concerns may make it desirable to minimize the number of people within the company who are told about the proposed restructuring and the final transaction, particularly at the outset. However, internal staff are the best (indeed for the most part the only) source of the information that is critical to creating an effective implementation plan. In particular, they have the historical perspective of the operational, tax, financial corporate and business planning background of many of the existing structures and business operations, and ultimately must be sufficiently familiar with the separation plan so that they can both assist in its implementation and be in a position to manage and sustain the structure that results at the end of the process. It is vital to involve individuals in the process who have an intimate knowledge of the business operations being separated so that they can help identify the assets and people to be transferred and help identify key ongoing dependencies between the two corporate groups after separation. It is also important to bear in mind that individuals who are employed in the line of business being spun-off or
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separated out may have divided loyalties, as they may perceive their own interests as being more aligned with the separated business than with the remaining business. Measures may need to be taken to ensure that key decisions are reviewed and approved by a more neutral group, such as a steering committee.
Outside advisors and management must therefore work together to strike a balance that makes the best use of internal resources, but adds the particular experience, expertise, and additional resources of the outside advisors and relieves the strain on already scarce management time. Frequently, however, this balance is not struck and advisors and management adopt one of two extreme approaches: the “black box” approach whereby outside advisors gather data, disappear for some period of time, and then present proposals that can fail to take advantage of existing background knowledge possessed by management and, by excluding them from development of the plan, do not put management in a position to manage the end product; or the “shotgun” approach whereby outside advisors gather minimal data, and then subject management to a barrage of ideas that “might” work, which effectively puts too much of the onus on management to place the ideas into the context of their group’s actual circumstances (of which the advisors are unaware) and assess resulting risks.
Although there is no “one size fits all” restructuring process, a happy medium can often be achieved if it is first understood that identification of strategic objectives is predominantly a senior management task, and that designated key management personnel should continue to be involved in both a fairly comprehensive information gathering phase and in strategic and tactical decision making during the ensuing analysis phase. A core team with overall responsibility for the project comprising of the key functions, internal and external can be a very valuable project management tool. In addition, it is often necessary to involve the appropriate management personnel in the development of any financial models required to understand the tax impact of the ideas generated by the project team.
Ideally, there should be an interim evaluation of a draft plan to gather important feedback from the company on practical feasibility, risk appetite, and business impact, followed by at least one additional opportunity for the key constituents within the company to review and comment on the overall plan. The process can be broken down into seven phases:
• identification of strategic and key objectives;
• information gathering;
• preliminary analysis and overall plan development;
• initial evaluation of overall plan;
• final detailed steplist development;
• evaluation and approval of final detailed steplist;
• implementation of final detailed steplist; and
• ongoing assessment of continuing arrangements.
Each of these phases is explained in more detail below.
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1.1 Identification of Strategic and Key Objectives
The management team will need to determine the relative significance of achieving certain business goals and the timeline for the implementation and prioritize accordingly. It may be that certain regions of the world or key facilities warrant more urgent attention or require longer lead times for separation because of government approvals, and the restructuring would then proceed on the basis of a planned series of phases. Alternatively, it may be that what is required is a comprehensive solution that pursues all regions or facilities simultaneously with, to the extent possible, a single effective date for the entire restructuring. In many transactions, it is simply not possible to get every piece of the target business separated out by the time of a planned spin-off or other separation, but this can be dealt with by planning to put in place a master separation agreement addressing the obligation to transfer any remaining assets and operations at a later time. Naturally, the more comprehensive the initial plan, the more time it will take to move through the phases of the process.
The key issues to focus on include the following:
• is the end result known, i.e., is it a sale to a third party or investor group such that warranties will be an issue, or is it an IPO or spin-off?
• what are the company’s business goals and priorities in the restructuring?
• what are the company’s plans for employee transfers and workforce reductions, if any?
• what are the constraints on moving assets, entities and people, including operational, legal and other constraints?
• what are the tax and other costs of the separation, and who should bear those costs?
• what are the timing, internal and external to the group, and sequencing priorities?
• what are the ground rules for identifying what is to be separated and what is to stay, and who within the company has authority to resolve disputes over these matters?
1.2 Information Gathering Phase
This process must provide for planned, structured input from all relevant constituencies within the company, e.g., human resources, tax, general counsel’s office, strategic business development, sales and marketing, accounting, finance and treasury, real estate, stock administration and information systems. While this adds some time to the process of developing a plan, it will pre-empt problems that could otherwise arise in the implementation phase should a previously uncirculated plan prove unacceptable to one or more of these constituencies. The object of this phase is to develop a clear understanding of the goals of
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the restructuring project and to gather sufficient information and documentation about the entities and assets that are involved in the project in order to allow the planning and execution phases to proceed. The initial information gathering phase of a restructuring project typically involves seeking answers to the following questions:
• in which jurisdictions do the companies within the scope of the proposed restructuring operate?
• where are the revenues being earned?
• where are the taxes being paid?
• what are the tax attributes of the entities involved in the restructuring?
• where are the tangible assets?
• where are the intangible assets?
• what are the current transfer pricing policies?
• which entities hold the key customer and supplier contracts and are those contracts assignable?
Whilst thorough pre-planning information gathering is the preferred approach, in many pre-transaction restructurings it is not possible, wholly or in part, due to the need to keep details of the later transaction confidential at this stage and to keep the size of the internal team limited and on a “need to know” basis only. In order to address the limitations of restricted information early in the planning, a specific review of the data provided should be included as a step in the restructuring once confidentiality restrictions have been lifted.
1.3 Preliminary Analysis and Overall Plan Development
Once information has been gathered, it is necessary to conduct a preliminary analysis of that information in order to develop an overall restructuring plan. The focus in this phase is on planning a restructuring that achieves the identified goals in the most efficient manner from a tax, cost and corporate perspective. There will often be dual tax concerns: (a) to ensure that the new multinational corporate structure being created to receive the target business is set up in a way that minimizes the worldwide effective tax rate on the target business, and (b) to ensure that, where possible, the steps in the restructuring are free from income and capital gains taxes, while minimizing any capital duty, local transfer and documentary taxes. When these two concerns conflict, which one prevails will likely be determined by the key business objectives in a particular situation. The following tax concerns also often come to bear:
• the separation of the target business may be combined with a change in the intercompany commercial relationships of all or some of the pre-existing group companies so as to minimize taxes globally or fine-tune the tax results of the remaining operations;
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• the companies involved in the restructuring may have favorable tax attributes, such as net operating losses and unused foreign tax credits, and the restructuring should be conducted in a manner designed to preserve these attributes, where possible;
• the restructuring may be effected in a way to take advantage of existing tax attributes, such as using net operating losses in the existing corporate structure by triggering a taxable sale of assets to the new structure;
• in the United States, there may be opportunities for domestic state and local tax minimization planning; and
• there may be opportunities for minimizing other governmental costs (e.g., transfer tax, customs and VAT planning).
In the preliminary analysis phase, management and the outside advisors should consult with one another and develop an overview restructuring plan. To the extent possible at this stage, the plan should specify which of the existing corporate entities will be kept and which will be transferred to the new holding company. It should also, where possible, specify the method of separation (e.g., “Existing France Sarl will sell assets to New France Sarl,” or “Existing Brazil Ltda will demerge the target assets into New Brazil Ltda and then sell the quotas in New Brazil Ltda to Newco”). The overview document should be revised and expanded into a detailed steplist as the planning continues.
1.4 Initial Evaluation of Overall Plan
Once the high-level restructuring plan has been developed, it is important to have the key constituencies within the company evaluate the draft plan and provide input on any issues presented by the plan and any refinements that they wish to propose. Depending on the scale of the restructuring project, this evaluation may take place in a single meeting or over several days or weeks.
It is important to note that developing the overall restructuring plan is often an iterative process because, as more information is learned about the entities to be consolidated, new issues and opportunities may present themselves and the restructuring goals may change. As the goals change, more fact gathering may be required. With each iteration, however, the restructuring goals become more refined and more detailed.
1.5 Detailed Steplist Development
As the overall restructuring plan becomes more refined and is finalized, it should be expanded into a fully detailed list of each step necessary to execute the assigned tasks. The end product will be a complete plan for executing the assigned tasks with names of those responsible for each step and, in the case of documents, the identity of the signatories. Interdependencies and steps that must follow a certain order or require permissions, filings and the like should be noted on the steplist.
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The final detailed step list also can fill a dual role, namely as it is a summary of all steps implemented it provides a work plan for the internal financial accounting team so that all steps are properly recorded in the accounting records of each entity.
1.6 Detailed Steplist Approval
As with the high-level restructuring plan, it is important to have the key constituencies evaluate the detailed steplist and provide input. Sometimes issues that were not apparent in the high-level plan become apparent when a person sees the detailed steps that will be taken and considers his or her role in implementing those steps.
2. Implementation of Detailed SteplistThere are various ways to manage the implementation of the detailed restructuring steplist. The specific approach will depend on the size of the project, the nature and geographical scope of the tasks involved, the management structure of the company (e.g., whether legal and finance teams exist in different geographical regions or whether key roles are centralized at the global headquarters), the nature of the end transaction (e.g., initial public offering, sale, or spin-off), and even the management styles and personalities of the individuals involved. The key to success in this phase is maintaining open and clear channels of communication about how the implementation is progressing, what issues are surfacing and making sure that there is a central decision maker available who can make executive decisions as and when required.
Throughout the execution phase, the detailed restructuring steplist serves to track the status of tasks. Regular scheduled status calls with the key project individuals at the company and the outside advisors keep the restructuring process on track, focus minds on any open issues, and allow advisors and management to help identify what, if anything, is holding up completion of a particular step and take action accordingly.
2.1 Ongoing Assessment of Continuing Arrangements
The separation of businesses rarely happens overnight; there is often an extended transition period during which the separated business continues to depend on the original business for services, such as accounting, finance, payroll processing, subleasing of office or manufacturing facilities and the like. Usually these services will be provided under one or more transition services agreements that call for a phasing out of services, and impose an obligation on the separated business to obtain its own facilities and source its own services by some fixed date in the future. As the separated business becomes more independent and its own business goals evolve, what was once an amicable transition arrangement can become more problematic. This may be particularly true if the spun-off business begins to deal with competitors of the original business. Another area of focus should be business joint ventures and how to transfer and transition these to the new group. Transitioning relationships can give an opportunity to revisit the terms of the joint venture and sufficient time should be allowed to effect as smooth a transfer as possible.
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Careful attention must therefore be paid by both parties to observing the terms of the transition services arrangements and to monitoring progress towards the agreed termination of these services. It may be desirable to form a transition team that can help resolve issues before they develop into disputes, and that can propose and monitor any changes to the transition arrangements that are necessary to fit the evolving needs of both parties.
3. Substantive Legal and Tax IssuesCertain legal and tax considerations frequently arise in pre-transaction restructurings. The discussion below is not intended to be exhaustive, as additional issues, particularly industry specific considerations and regulations, can also apply.
3.1 Due Diligence
As part of the information gathering phase of the transaction, the company will need to undertake an extensive due diligence investigation of each of the entities (e.g., subsidiaries, branches, representative offices) involved in the transaction in order to identify the target business assets, liabilities, contracts and employees to be allocated to the new corporate structure. This can be a complicated process because (a) the target business will usually be integrated with the company’s other businesses, (b) there may be “gray areas” as to whether specific assets belong with the target business or the company’s other businesses, (c) the target business may be dependent to some degree on resources and operations of the other businesses, and (d) the target business and the company’s other businesses may share certain assets. The allocation of assets between the company and the new entity that will receive the target business may be based on a number of different tests. One test, for example, would be that the new entity is entitled only to those assets that are “exclusively” used in the target business. Another test would entitle the new entity to those assets that are “primarily” or “significantly” dedicated to the target line of business. Identifying to what extent specific assets meet such a test can be a complex and painstaking process. Often, the company will prefer to retain as many of the shared assets as possible, but such an approach means that the target business will be less capable of being independent from the company and its market value may be discounted as a result.
Once the business assets to be separated out have been identified, most liabilities allocable to such assets will be readily identifiable. However, the allocation of other types of liabilities may be less clear. For example, contingent liabilities relating to “general corporate” matters, such as responsibility for securities law, antitrust and similar claims for pre-separation periods, may be more troublesome.
To avoid duplication of work, these lists of assets and liabilities should be developed throughout the restructuring so that they are readily available at the time of execution of local business transfer agreements, as a number of countries legally require very specific lists of assets and liabilities.
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Employees will also need to be allocated between the company and the target business. Generally, operational employees associated with the target business will be transferred with such business. Where general, corporate, administrative or other functions are centralized, a more difficult determination must be made to what extent, if any, personnel engaged in such functions will be transferred to the new corporate structure.
3.2 Evaluating Asset Transfers vs. Statutory Demergers
In many jurisdictions, local corporate laws provide for statutory demergers. In such jurisdictions, the alternative approaches of demerger versus asset sale should be compared to see which one best achieves the separation goals. Statutory demergers are often advantageous because the assets and contracts of the demerged business generally transfer automatically to the demerged entity, whereas individual transfers of assets and contracts pursuant to an asset sale can be cumbersome, e.g., there may be a requirement to register any change of ownership of assets, and in certain cases a third party or a governmental authority must approve the transfer of an asset or contract. Local demerger regimes often also have tax benefits. Indeed, even if the only benefit of the local statutory demerger regime is that the transaction is tax-free for local tax purposes, this benefit can be substantial. Demergers can take significantly longer than asset sales, however, and this must be factored into the decision making process.
A number of jurisdictions simply do not have demerger statutes that allow local companies to demerge. In these jurisdictions, the only choice available for separating out the target business is selling (or otherwise transferring) the target business assets from one company to the other. Jurisdictions that do not have demerger statutes tend to be common law countries such as Hong Kong, Singapore and the UK. These jurisdictions often allow for asset sales within a local group to occur without taxable gain, or do not tax capital gains, which means they achieve the objective of separating out the target business in a manner that is functionally equivalent to a demerger from a local tax perspective. However, this approach can require that the retained business is transferred to the new company, and that the target business will retain the pre-existing company. Moreover, an asset sale can usually be effected as a tax-free reorganization from a U.S. tax perspective.
3.3 Incorporating New Entities
In cases where businesses are inter-mingled in the same legal entities, a new corporate structure will need to be established to acquire the operations of the target business around the world. First, a new holding company would be set up immediately below the ultimate parent company of the corporate group. The new company will subsequently need to establish or obtain a presence in every jurisdiction in which it wishes to conduct activities after the separation. The form of such a presence would typically be a subsidiary or branch, either newly formed or acquired from the parent. Since the parent will continue to operate its other businesses throughout the world, it is likely that new subsidiaries or branches will need to be set up in numerous foreign jurisdictions. Unlike forming a Delaware
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corporation, which can be done in one day, forming a subsidiary in many jurisdictions can take weeks, if not months. Detailed information must be provided by the company with respect to the new entities to be formed, including such details as the amount of authorized and paid-in capital, registered address, identity and personal information of directors or managers, financial and accounting information, etc. In addition, many jurisdictions impose formalities not found in the U.S., such as minimum capital requirements and government review and approval mechanisms. Certain jurisdictions require government approval (e.g., Thailand) or registration (e.g., Argentina) of the foreign shareholder company before foreign ownership of the local company is permitted.
3.4 Keeping Assets vs. Keeping Subsidiaries
The company will need to make a determination on a case-by-case basis whether an existing local subsidiary will be transferred to the new corporate structure or whether a new subsidiary will be established and the target business assets transferred to the new subsidiary. If an existing subsidiary only owns assets related to the target business, then it is simpler to transfer the shares of that entity to the new group. Typically the target business will need to be separated out from the existing subsidiaries’ other businesses. If an existing subsidiary owns primarily assets relating to the target business and few assets relating to other businesses, it may be more efficient, both from a corporate and tax perspective, to transfer the shares of the existing subsidiary to the new structure, set up a new entity under the existing structure and transfer the relatively small proportion of other business assets from the existing subsidiary to the new entity. Certain other considerations may also weigh in favor of transferring an existing entity to the new group. For example, if an existing local subsidiary has a valuable license, permit, contract, or tax position that relates to the target business and cannot be easily transferred, it may be preferable to transfer the shares of that subsidiary into the new corporate structure. As mentioned above, to the extent such a subsidiary also houses operations relating to the company’s other businesses, the company would need to form a new entity in the local jurisdiction and the assets and liabilities relating to such other businesses would need to be transferred from the existing subsidiary to the new entity.
3.5 Permits, Foreign Investment and Regulatory Approvals
Regulatory consents may be required in connection with the transfer of licenses or special permits that might apply to the target and/or the company’s other businesses, as well as approvals related to a special status such as bonded warehouses and tax holidays. Such regulatory authorizations must be identified early in the process since effecting transfers of licenses and permits can require a long lead time may in some cases involve negotiations with government authorities and if not handled correctly have an adverse impact on the local business, e.g., obtaining new import and export licenses. Further, government grants and other special concessions may be lost upon a change of control or transfer of assets and advance planning and negotiation may be required to secure the continuation of such privileges. Separating the businesses of the company may impact not only the ability of the
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target business to qualify for special permits or status, but may also impact the ability of the remaining businesses of the company to retain special privileges or permits if, for example, headcount numbers are reduced due to the separation, thereby making it harder to meet government conditions for such privileges or permits.
3.6 Transferring Assets
Where the chosen local spin-off method requires the individual transfer of assets, local legal formalities must be observed to effect the transfer, and sometimes registration, of the legal ownership of the assets. The steps required will depend on local law and the type of assets involved. In many cases, a simple asset purchase and sale agreement will suffice to transfer title. In the case of some assets such as real property, automobiles or certain types of intellectual property, the change in legal title may have to be recorded with governmental or regulatory authorities. One example is in Russia, where a separate such transfer agreement for each vehicle must be registered with the government authorities. In certain jurisdictions, even a general asset transfer agreement may have to be filed with local authorities and may have to be drafted in local language. Bulk sales laws may apply to significant asset transactions with the effect that liabilities and creditors’ rights transfer by operation of law with the assets. Local insolvency and creditor protection laws also need to be taken into consideration (e.g., those prohibiting transactions at an undervalue). In addition, the asset transfer may give rise to issues of corporate benefit and directors’ fiduciary duties. Also, separate formalities are almost always required to effect the transfer of shares of subsidiaries.
A key issue in asset transfer jurisdictions is ascertaining the purchase price to be paid for the assets to be transferred. Often the interests from a tax, corporate law, accounting and treasury perspective will compete. For example, a sale by a subsidiary to its parent at less than market value may be an unlawful return of capital to the shareholder. However, a sale at market value may result in significant goodwill being recognized by the acquiring company for local tax and statutory accounting purposes which could limit the company’s ability to make distributions in the future.
3.7 Transferring Shares
In some cases the shares of an existing local subsidiary will be transferred to the new corporate structure (as opposed to a transfer of the target business assets to a new subsidiary). There are a number of different ways the shares can be transferred and the chosen method will often depend on the location of the subsidiary in the group structure. If the subsidiary is held directly by the ultimate parent company of the group, the parent can simply contribute the shares of the subsidiary to the holding company of the new group. One corporate law consideration of such a transfer is whether the company that is receiving a contribution consisting of shares has to issue new shares for local tax or company law reasons. If the subsidiary to be transferred is located several tiers down in the existing group structure and/or if its ultimate destination is several tiers down in the new
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group structure, transferring through each of the shareholding tiers may create considerable work. In such cases, it may be more efficient for the shares of the subsidiary to be sold to the new shareholder, in particular where there are local requirements for valuations and/or auditor reports. Sales of shares may, however, have different local and parent company tax implications that need to be evaluated.
3.8 Novating and Assigning Contracts
In a local asset sale or demerger, existing contracts such as distributor agreements, customer agreements, supplier agreements, office leases, equipment leases, service agreements, utility and telephone accounts and a host of other operational agreements will have to be transferred to the entity that is the recipient of the target business. In a demerger, these assignments often occur by operation of law, but in other cases, steps have to be taken to effect the novation or assignment. These steps may range from giving a simple notice of assignment to obtaining written consent from all parties to effect the novation of all of the rights and obligations under a contract to the transferee entity. It may be prudent, though not practically desirable, to review contracts, particularly key arrangements, in order to determine whether they are freely transferable or whether permission is required. Even in a demerger between affiliates it is advisable to review the third party contracts of both affiliates to determine whether they contain any provisions that may be triggered by the demerger, such as provisions giving the other party the right to terminate upon a demerger or change in control. In planning this review it is a good idea to bear in mind the end goals of the final transaction. For example, if the end-goal is a sale or spin-off, it may be important to also review the contracts to check whether that end event will trigger termination rights. Form customer contracts should also be reviewed and if necessary revised to ensure that they allow assignment or contain other provisions necessary to facilitate the planned restructuring.
3.9 Preserving Tax Attributes
Favorable local tax attributes, such as net operating losses or current year or carried forward tax losses (“NOLs”) can provide a permanent benefit to the company if preserved. In many jurisdictions, how a spin-off is executed will have an impact on whether the NOLs survive. For instance, in many jurisdictions, transferring the shares of a subsidiary may impact the survival of the NOLs (e.g., Germany). In other cases, a mere change in the business may be sufficient to restrict or eliminate the NOLs (e.g., the United Kingdom and Australia). Finally, in many countries it may be advisable to obtain an advance ruling with respect to the NOLs to confirm that the NOLs, or at least some portion of them, will survive the spin-off (e.g., France). In the UK, the degree of change which will result in loss of NOLs is less where there has also been a relevant change of ownership.
Other key attributes which must be identified early in the due diligence and planning process are tax holidays, tax incentives and other grants and benefits, as these can have a very influential effect on the detail of a reorganization.
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3.10 Minimizing Corporate and Shareholder Level Income Taxes
In the transactions undertaken to spin-off the target business, it may be important to avoid, or at least minimize, foreign income taxes. Foreign income taxes can be imposed on the local entities with respect to the transfer or disposition of their assets. Similarly, income taxes can be imposed on the shareholders in connection with stock transfers or distributions. If structured properly, foreign corporate level income taxes can often be avoided either by separating out the target business through a demerger, if available, or through the local form of separation with group relief. Stock transfers, on the other hand, may be exempt from income tax due to the appropriate double tax treaty, an EU Directive, or local law. It is also important to consider who will pay any taxes that are triggered. For example if they are triggered for the local subsidiary and that subsidiary is being transferred to the spun-off group (i.e., in the scenario where assets are being bought back from a subsidiary that is spinning off), this may affect the value of the subsidiary and hence the value of the spun-off group of companies, or may run counter to representations and warranties being made in a master separation agreement.
3.11 Transfer Taxes, Stamp Taxes and Real Estate Taxes
Many countries have stock transfer or stamp taxes on the transfer of shares (e.g., Hong Kong and Singapore at 0.2%). Although such taxes are generally small, they are generally not creditable against income taxes and thus create a real out-of-pocket cost to the company. For the same reason, capital taxes and documentary taxes should be avoided whenever possible. Steps should be taken to avoid or minimize these taxes, and exemptions will often be available for intra-group transactions. It is important to bear in mind that transactions which appear to be exempt initially because the transfer is intra-group, could later become taxable or dutiable when the acquiring entity is spun-off and the group affiliation is broken. Some countries, such as Austria, tax the transfer of real estate where the entire issued share capital of a company is transferred, which can result in tax arising both with respect to a share transfer and the subsequent demerger. Note that stamp duty relief in the UK for intragroup transfers will be lost if the transferee leaves the group within a specific period, but can be preserved if the assets to be retained on a split-up of a company are transferred to another group company that stays within the original group.
3.12 Foreign Tax Planning Opportunities
A variety of foreign tax planning opportunities may arise in connection with any foreign business separation. For instance, in many jurisdictions there will be an opportunity to obtain a tax basis increase or “step up” in the assets of the local company transferring its assets, sometimes without any local tax cost. It may also be possible to leverage the recipient company with debt in connection with the business separation. The interest deductions can then be used to reduce the local tax base. In addition, if the parent is the lender, the principal repayments can generally be used to repatriate earnings without income tax and without withholding tax.
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3.13 Severance and Restructuring Costs
Most business separations result in some employee severance or other restructuring costs. In most jurisdictions, provided appropriate precautions are taken, these costs are deductible for local income tax purposes. There are nevertheless a number of strategic considerations that should be taken into account when deciding when and how to incur restructuring costs such as those arising from the elimination of employees. Domestic and foreign tax consequences are among these strategic considerations.
3.14 Employment Law Considerations
In the United States, most employees do not have employment contracts and are not members of unions. In general, such “at will” employees can be dismissed, or the terms of their employment can be changed, with relative ease. In many foreign jurisdictions, on the other hand, workers have significantly more rights, and in many cases, any purported waiver of such rights is invalid. If an employer changes an employee’s working conditions or terminates an employee in connection with a business separation, the employee may be entitled to compensation or reinstatement. Furthermore, any changes made to the terms of employment may simply be ineffective, allowing the employee to demand the old terms at any time. In addition, depending on the jurisdiction and the number of employees, there may be a works council, union or similar representative body to consider. Such bodies may have a right to be formally notified of, and in some cases, approve the plans for the local spin-off before they are implemented, and it may be a significant violation of local law to make changes in the management of the local company or undertake a spin-off transaction without formally consulting with them. It should also be noted that transferring substantially all of the assets of one entity to another can result in the automatic transfer of employees along with their existing terms of employment.
3.15 Stock Option and Other Equity Compensation Issues
The company will need to consider how to treat employees of the target business who are entitled to stock options and other equity compensation. In addition to U.S. securities law implications of granting stock options to employees of the target business, many foreign law issues will need to be addressed, including strict filing and other requirements that must be met before stock options may be granted or exercised. Further, the effect of the transactions on different classes of employees needs to be addressed as there can be real cash costs to individuals triggered in certain circumstances.
3.16 Intellectual Property Issues
Intellectual Property (“IP”) frequently gives rise to the most challenging issues in a spin-off or divestiture due to the intangible nature of IP, the varied legal regimes that apply to different forms of IP and the use of specific IP throughout an organization. The continued use in the operation of the target business of IP such as trademarks, trade names, patents or
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other technology owned by the parent will have to be accommodated through assignment or license agreements between the company and the new holding company of the target business. Identifying and allocating IP to be transferred with the target business as well as shared IP is not an easy task and is often complicated by the fact that rights to use third party IP may also need to be assigned. The assignment of rights to any such third party IP is more involved due to the need to obtain consent from the IP owner prior to the assignment. It is important to identify any restrictions or impediments on the use or transfer of the relevant IP owned or licensed by the company early in the planning process. Note also that moving IP between companies, particularly when the movement is offshore, can trigger significant tax costs.
3.17 Appointing Directors and Officers
The persons to serve as the directors, managers and officers of the subsidiaries that make up the new corporate group should be identified early in the separation process. These individuals will typically represent the interests of the new company during the planning and implementation phases of the separation and in doing so may realize that their interests and loyalties are not in complete alignment with the parent company. This can create delicate situations in which the management of the new group may find itself negotiating terms of the agreements relating to the separation with the management of the parent while they are still employed by the parent. Another issue to bear in mind when selecting new directors and officers is that it is preferable to avoid having the same individuals sign on both sides of the transaction. This can be done by taking care not to appoint the same individuals that are serving as directors/officers of the existing subsidiaries as directors/officers of their new counterpart entities. If the target business is ultimately spun-off, the company may want to appoint new directors and officers immediately prior to the spin-off. Implementing such a change of directors and officers cannot be done instantaneously in many countries and therefore requires advance planning.
3.18 Waiting Periods and Notices
In many jurisdictions, government or tax clearances are required prior to the demerger of local entities. Even in jurisdictions where government clearances are not required, public notices may be necessary and statutory waiting periods often apply. These formalities can delay the business separation. Accordingly, it is important to identify the jurisdictions where immediate separation is desired so that the required applications and notices can be filed as soon as possible. In cases where statutory or practical delays in implementing the spin-off are likely to occur, alternative strategies may be available to minimize operational inconvenience or tax exposure, such as having one company operate the other’s business under a management contract during the interim period, or selling the assets with a subsequent demerger, and making the demerger retroactive for tax and/or accounting purposes under local law. In any case of significant delay, these alternatives should be explored.
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3.19 Corporate Compliance Status
As part of the spin-off transaction, it is important to identify any deficiencies with the corporate compliance status of the entities spinning off assets and it may be necessary to take corrective action before the business separation can be started or concluded. For example, if the entities involved in the spin-off have not complied with their annual corporate filing or other maintenance requirements, it will typically be necessary to correct these deficiencies before any significant business separation steps, such as demergers, can be undertaken. Business separations may be delayed because the entities that are spinning off assets have not been properly maintained and there is a need to create statutory accounts, hold remedial annual meetings and make the necessary delinquent tax and corporate filings. Any deficiencies found may need to be logged for later disclosure to a potential buyer or public shareholders.
3.20 Branches and Other Business Registrations
It is important not to overlook any branches, representative offices and other business registrations of entities involved in the business separation. In many cases, it would be a mistake to simply demerge a subsidiary on the assumption that any branches of the demerging entity will automatically result in branches of the new entity. Many government authorities view a branch as being a branch of a specific entity and the recipient of the demerged business will have to register a new branch to account for its assets and activities in the branch jurisdiction. Similar complications can ensue if it is assumed that shares of subsidiaries will automatically transfer when the original parent company undergoes a demerger. Effecting the local registration of branches or legal transfer of shares of subsidiaries can be problematic if not planned in advance.
3.21 Corporate Approvals
Business separations typically involve extraordinary or non-routine transactions (e.g., selling a significant portion of a subsidiary’s assets to an affiliate). The individual directors or officers of the entities involved may not have the necessary corporate authority to effect such transactions. Therefore, it is often necessary to consult applicable local law and the articles or other constitutional documents of the entities involved to determine if the proposed transactions are subject to any corporate restrictions and to then take appropriate steps to authorize the transactions, such as adopting board resolutions, shareholder resolutions or amending the articles. Thorough documentation recording corporate decisions assists in memorializing the intentions of the parties and can be helpful where the transactions are reviewed as part of accounting or tax audits.
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Section 3 Tax planning for the spun-off group
1. IntroductionWhen setting up a new multinational corporate structure in the context of a pre-transaction restructuring, opportunities arise to minimize the worldwide effective tax rate of the business that is being separated out. Management and tax counsel should therefore start the tax planning for the new structure at an early stage. It may, for example, be advantageous to set up a shareholding structure that allows for tax efficient repatriation of earnings from foreign subsidiaries or branches to the ultimate shareholder. Other examples of opportunities arising at the time a new corporate structure is set up are creating a global group cash management function, setting up a tax efficient structure for the use of IP, and implementing efficient sales or distribution models (supply chain management). All of these are potentially helpful in minimizing the new group’s global effective tax rate.
One of the first relevant tax questions in the planning exercise is whether the legal ownership of the subsidiaries should be centralized in one or more holding companies. The use of finance and royalty companies should also be considered. By using holding, finance and royalty companies located in the right jurisdictions, withholding taxes on certain categories of income (dividends, interest, royalties) may be reduced under tax treaties, EU Directives and domestic law (e.g., participation exemption).
The legal form of the foreign entities in the new structure is not only relevant from a legal point of view, but also from a tax perspective. In general, a company has access to the tax treaty network of its country of residence, while a branch or a representative office in principle does not have such access (excepting EU branches of EU resident companies). However, branches in low-tax countries may be useful to minimize the effective tax rate of the group. An alternative is to make use of hybrid entities or partnerships that qualify as companies from one country’s perspective and as disregarded (transparent) vehicles from another country’s perspective. The US “check-the-box” entity classification rules facilitate such planning.
If the target business is engaged in the sale and distribution of products, consideration should be given to the most efficient supply chain model for the new structure from a legal and tax perspective (e.g., a distributor, commissionaire or agent model). In this respect, VAT/GST should be taken into account in order to minimize compliance burdens and to avoid or reduce cash flow losses and non-recoverable tax. Also, customs duty planning opportunities should be taken into consideration.
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2. Holding CompanyWhen choosing the location for a holding company, several factors should be taken into account. The factors of key importance can be divided into tax and non-tax advantages.
The tax advantages which can be offered by a holding company in a specific jurisdiction depend mainly on features of domestic law, applicable tax treaties, or EU legislation. Examples of particular provisions in domestic law that are relevant to the operation of holding companies are: (a) low tax rates; (b) reduced withholding tax rates on dividends, interest and royalties; (c) availability of a participation exemption; (d) possibility to apply tax consolidation; (e) thin capitalization rules; (f) CFC legislation; (g) tax benefits for expatriates; and (h) advance rulings practice with domestic tax authorities.
In addition to the tax advantages of a jurisdiction, other non-tax factors may also be relevant such as: the legislative and political framework of a jurisdiction, its geographical position and its logistics and communications infrastructure.
2.1 Participation Exemption
In general, under the participation exemption dividends received by a holding company from qualifying subsidiaries, and capital gains realized on the disposition of shares in such subsidiaries, may be (wholly or partly) exempt from tax. Capital losses and interest expense may be deductible at the level of the holding company under certain circumstances. Examples of countries where some form of participation exemption is available are: Belgium, Denmark, Luxembourg, the Netherlands, Spain, the United Kingdom, and Switzerland.
2.2 Tax Treaties and EU Directives
Under tax treaties and certain EU Directives, the domestic withholding tax rates of a jurisdiction can be reduced if certain conditions are met.
By setting up a holding company in one of the EU Member States, a group may also benefit from EU Directives, such as the Parent-Subsidiary Directive and the Interest and Royalty Directive. Pursuant to these Directives, dividends, interest and royalties distributed between qualifying EU companies are exempt from withholding taxes.
2.3 Tax Consolidation
In a tax consolidation regime, participating companies (the members) can consolidate their corporate income tax position. The most common advantage of a tax consolidation regime is the possibility to set off profits and losses among the members. Furthermore, members of a consolidated tax group can avoid realization of income or gains on transactions within the group. Tax consolidation is also often used as a tax planning tool to set off interest on acquisition financing against operating income from the acquired company. Denmark,
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Luxembourg, the Netherlands, the United Kingdom, and Spain each have tax consolidation regimes for holding companies and their subsidiaries. The conditions and advantages of each of these regimes vary.
A tax consolidation regime for VAT also may be available in some countries. However, different rules and conditions apply than those that apply for corporate income tax purposes.
2.4 Repatriation Techniques
A key benefit of a holding company is to collect profits repatriated by its subsidiaries and possibly repatriate all or part of such profits to its shareholder. Generally three repatriation techniques are commonly used: (a) profit distributions (dividend); (b) return of capital; and (c) capital gains on the disposition of shares.
Repatriation techniques often combine elements of profit distribution and return of capital, such as a buy-back of shares by a company from its shareholders, a repayment of share premium, a reduction of the par-value of shares, or a dissolution and liquidation of a company. Depending on the jurisdiction of the repatriating company and the recipient company, the dissolution or liquidation of a company may be treated in whole or in part as one of the three main types of repatriation techniques. For example, a repayment of share premium or a reduction of the par value of shares may in many jurisdictions be considered a dividend distribution to the extent that the distributing company has retained earnings. This may, for instance, result in dividend withholding tax on the distribution. From the perspective of the recipient, the very same transaction may be treated partly as dividend income and partly as a divestment of the original amount invested. Some repatriation techniques, such as buy-backs or dissolutions, may be treated partly as a capital gain or a capital loss in the hands of the recipient. Since some jurisdictions do not extend their participation exemption to capital gains, this distinction may be relevant.
Furthermore, legal restrictions may influence the choice for certain repatriation techniques. Examples are statutory waiting periods for liquidation or for the reduction of the par value of shares, minimum equity requirements, or the requirement in many civil law jurisdictions that a company may not perform a buy-back of its own shares if a certain number of months have lapsed since the end of the fiscal year without adopting the statutory accounts.
In summary, when contemplating repatriation techniques, careful consideration should be made to assess if the holding jurisdiction allows flexible and tax-efficient profit repatriation.
3. Financing CompanyIf it is anticipated that funds will be needed to finance the working capital of the foreign entities of the group, the new structure may use a company that raises funds from the international capital market (for example, in the form of a bond or note issuance) or from group entities, which funds are lent on to the foreign group entities. The ideal location of a finance company depends on a number of tax and non-tax factors.
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First, interest payments to and from a finance company ideally should not be subject to withholding taxes. The jurisdiction where the finance company is resident for tax purposes should not levy withholding tax on interest to be paid to the related or third party lenders. Furthermore, withholding tax, if any, imposed on interest payments received by the finance company from its borrowers should be reduced under applicable tax treaties. A financing company generally reports as its taxable profit a relatively modest margin between inbound and outbound interest flows. Therefore, a withholding tax burden on inbound interest generally creates a non-creditable tax burden, which may decrease the tax-effectiveness of the financing company. Given these considerations, the jurisdiction of the finance company should more than anything else provide for an extensive treaty network.
Secondly, if the interest paid by a finance company is tax deductible, then the finance company will be subject to corporate income tax on only a small arm’s-length spread, which sometimes may be secured by means of a tax ruling. Consequently, the statutory corporate income tax rate of the jurisdiction of the finance company is of less importance, as it will be levied on a relatively modest portion of the income of the group. In some jurisdictions, the finance company needs to have a certain amount of substance and equity, and should incur risk on its financing transactions.
Other points worthy of attention are currency exchange regulations, central bank reporting requirements, and the communication and banking infrastructure of a jurisdiction.
4. Intellectual Property Planning / Royalty CompanyIP planning focuses on where the IP of a multinational group, such as patents, copyrights or know-how, should be located within the group and how the remunerations to use such IP (e.g., royalties) should flow through the structure, including the use of a royalty intermediary company.
The decision where to locate the company owning the IP depends on a number of considerations. A key consideration is the current value of the IP and the potential for this value to increase/decrease significantly in the future. Also important are the nature and magnitude of the investments (e.g., R&D expenses) expected to be made to maintain or improve the IP. The attractiveness of a potential IP holding jurisdiction depends in part on (a) whether capital gains are taxed upon a sale of the IP; (b) whether it is possible to deduct currently rather than capitalize R&D expenses; and (c) whether, if capitalized, the resulting intangible asset can be amortized for local tax purposes. Obviously, one should avoid transferring IP that currently has a low value, but which is expected to increase substantially in value, to a jurisdiction with a high corporate income tax rate. Generally, companies owning IP are therefore located in low-tax jurisdictions.
The IP rights can be licensed from the company owning the IP to an intermediary company that subsequently sublicenses the rights to another related or third party company. Similar to a finance company, the advantages of a royalty intermediary are no (or reduced) withholding
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taxes on the royalty payments and the fact that the royalty company is only taxed on a small arm’s-length spread (the margin between the royalties received and the royalties paid).
It is important to consider where to locate the direct and/or indirect ownership of the shares in the IP company. Many jurisdictions will deny the benefits of a participation exemption with respect to the direct or indirect ownership of shares in an IP company, or use anti-base erosion legislation to tax the income of IP companies directly or indirectly owned by a holding company in their jurisdiction. Such legislation may undermine the efficiency of a holding company regime and thereby neutralize the tax benefits of the IP company. Therefore, the tax regime of an IP company and its location within a multinational group should be carefully reviewed in order to avoid triggering adverse tax consequences in another part of the group.
5. Sales/Distribution StructuresIn the event that the target business consists of unincorporated foreign sales operations using an office space and employees, it is very likely that these sales activities give rise to a taxable permanent establishment in that jurisdiction. A company with a permanent establishment will be subject (as non-resident taxpayer) to corporate income tax in the jurisdiction where it performs such sales activities. Therefore, it is often preferable to establish a subsidiary in each sales jurisdiction. Even if a separate subsidiary is used, flow-through treatment for U.S. tax purposes will still be available under the U.S. entity classification (i.e., the check-the-box) regulations provided that the correct type of corporate entity is used.
Historically, local sales subsidiaries usually operated as full-blown distributors. More sophisticated supply chain models are now being used. As an alternative to the classic distributor model, a local sales entity may act for a base company (often established in Ireland or Switzerland) as (a) a sales representative or agent that does not have authority to conclude contracts, (b) a limited risk distributor, or (c) a commissionaire.
5.1 Agent
When operating as an agent (i.e., a sales representative, not a legal agent), the foreign entity solicits sales orders in its territory in the name of and for the account of its principal. Consequently, the function of an agent is reduced to being an intermediary. Its function is merely to provide information about products, market the product to potential customers, and otherwise solicit sales orders. To customers, it will be clear that they enter into an agreement with the principal and not with the local sales company. As long as the foreign subsidiary has no power to, and does not in fact, bind the principal, it should not constitute a permanent establishment of the principal. The foreign subsidiary should receive an arm’s-length fee from the principal for its activities in promoting the products in its jurisdiction.
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From a VAT/GST compliance perspective, this type of sales agent structure may be burdensome, since it is the principal who is considered to make the supplies that are subject to the tax VAT/GST. This may result in registrations and compliance obligations in various countries for the principal.
5.2 Limited Risk Distributor
Under this model, the foreign company (the distributor) purchases the product from its supplier (the principal) and subsequently sells the products to the local customers. The distributor contracts with local customers, takes legal title to the product in question, and enters in its books the sales revenue derived from selling that product to the local customers. As the distributor contracts on its own account, and its actions neither bind nor purport to bind the principal, it typically does not constitute a permanent establishment of that entity.
The distributor can be either a full risk distributor (classic model) or a limited risk distributor. A full risk or ‘fully-fledged’ distributor usually purchases and distributes the products, exercising all related functions and bearing full economic risk (such as price risk, volume risk, foreign exchange risk, bad debt risk, warranty risk and product liability risk), in its own name and for its own account. A limited risk distributor only purchases and sells the products, and only assumes those risks necessary to its sales function.
Under a limited risk distributor scenario, the profit margin will be lower than under a full risk distributor scenario due to the fact that fewer functions and less entrepreneurial risk are assumed by the local entity. Under the limited risk structure, certain business risks and functions are transferred to the principal, which is commonly located in a low-tax jurisdiction (e.g., Switzerland). The reduced risk borne by, and limited functions carried out by, a limited risk distributor generally justify a reduced remuneration for the distributor in the high-tax jurisdiction. This reduces the overall tax burden in a profit situation (but not in a loss-making situation).
From a VAT/GST point of view, the local distributor is treated as a buy-sell entity in the supply and distribution chain. This generally implies that the non-resident principal should not have any registration and compliance requirements in the distributor’s country. Generally, this is regarded as a beneficial situation.
5.3 Commissionaire
A commissionaire does not conclude sales contracts in the name of the principal, but in its own name, even though it sells on behalf, and for the account, of the (undisclosed) principal. As a consequence, the foreign company does not legally bind the principal, but legally binds itself vis-à-vis the customer. A commissionaire resembles a buy-sell distributor in that it generally sells and invoices goods in its own name, although a commissionaire generally sells at prices fixed by its principal rather than by itself. As
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distinguished from an ordinary commission agent, a commissionaire acts in its own name, and therefore may be able to sign contracts with customers without causing its principal to have a permanent establishment.
A commissionaire is a legal concept that only exists in civil law jurisdictions, such as France, Germany and The Netherlands, and not in common law countries such as the United Kingdom, although an undisclosed agency can be created in common law jurisdictions to mirror some of the legal characteristics of a commissionaire. Most civil law jurisdictions accept that the commissionaire does not constitute a permanent establishment of its principal, because the commissionaire contracts in its own name (a characteristic of a buy-sell distributor). Accordingly, its actions should not result in the principal being subject to corporate income tax in the jurisdiction in question. That said, to minimize the permanent establishment risk, a commissionaire must be careful not to act outside the scope of its authority, must refrain from purporting to bind its principal, and must earn an arm’s length commission. An undisclosed agent in a common law jurisdiction exercising contracting authority in its own name but on behalf of its undisclosed principal will create a permanent establishment for the principal.
Generally the VAT/GST treatment of a commissionaire is similar to that of a distributor because the local commissionaire is regarded as a buy-sell entity. Although this has clear advantages from a VAT/GST compliance point of view, in ERP systems it may be hard to implement the deemed sale between the principal and the commissionaire as it is not in line with legal (and commercial) reality.
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Section 4 Tax planning for the separation steps: Which method of separation is best?
1. IntroductionThe primary tax concerns in planning the implementation of a pre-transaction restructuring is to ensure that, where possible, the steps in the restructuring are free from income and capital gains taxes in any jurisdiction, while also minimizing any capital duty, local transfer and documentary taxes.
1.1 Tax Planning Opportunities
At an early stage of the separation process, management and their tax advisors should consider how the target business’s assets can be separated and transferred to the new structure in the most tax-efficient and least disruptive way. A variety of foreign tax planning opportunities may arise in connection with any global separation transaction. For instance, in many jurisdictions there will be an opportunity to obtain a tax basis increase or “step up” in the assets of the target business, sometimes without any local costs. It may be possible to leverage the new structure with additional debt in connection with the transfer of the target business. This reduces the cash outlay required from a buyer, and the interest deductions can be used to reduce the local tax base. In addition, if the parent company is the lender, the principal repayments can generally be used to repatriate earnings without income tax and without withholding tax.
In general, the most straightforward and least time-consuming way to proceed, such as a sale of assets, may not be the most attractive route to follow from a tax perspective. Other separation methods, such as legal demergers, may take more time but also usually yield a better tax result.
1.2 Preserving Tax Attributes
In many cases, local subsidiaries have valuable tax attributes, such as net operating losses (“NOLs”). Preserving these tax attributes is an important goal of any restructuring project. Favorable tax rulings that were obtained for a certain legal entity usually may not be transferred to another legal entity without prior approval from the tax authorities. Furthermore, local tax laws often contain anti-avoidance legislation which can limit the transfer of existing NOLs from one company to another. The separation of the target business should be carefully planned in order to preserve the ability to use existing NOLs against profits of either the existing company or the new company in a separation.
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2. Separation Methods The separation of the target business’s assets and transfer to the new structure can be effected in different ways depending on local tax and legal constraints and the facts of the particular transaction. If all or part of the target business in a country consists of business assets, as opposed to shareholdings, these assets can be transferred to the new structure by sale, contribution or demerger. Alternatively, if the target business consists of a company or companies wholly owning the target business assets (and no non-target business assets), the shares in these companies can be transferred to the new structure by distribution, contribution or sale.
2.1 Asset Transfer
Often the most straightforward method of separating the target business from one of the existing companies to the new structure is simply to transfer the target business assets to a new company. This transfer will take the form of either a sale or a contribution of assets or a business.
If the target business assets are sold, the transaction should, if possible, be structured as follows: (1) the shareholder of the existing company housing the target business contributes cash or a promissory note to the capital of a new subsidiary company that has been incorporated to receive the target business, (2) the new company uses the cash or note to purchase the target business assets from the existing company, and (3) the existing company distributes the cash or note to its shareholder, either as a dividend or a return of capital, with the consequence that the cash or note moves in a complete circle and returns to its origin. This “circular flow” can often be disregarded for U.S. tax purposes and the remaining steps typically can qualify as a “tax-free” reorganization from a U.S. tax perspective. In some cases, it may not be possible to distribute the cash or note from the existing company because of local rules impacting the amount of available distributable reserves. If the consideration for the purchase of the target business assets does not move in a complete circle, then it will not be disregarded for U.S. tax purposes and the United States likely will view the transaction as a “taxable” asset sale with potentially negative U.S. tax consequences to the existing company and its direct or indirect U.S. shareholders.
The target business assets should generally be sold by the existing company for an arm’s length purchase price. For local tax purposes, a sale of assets typically triggers a capital gain or loss (based on the difference between the book value/tax basis and fair market value) for the selling company, unless a tax exemption applies. In order to mitigate the tax consequences of an internal restructuring, the laws of the jurisdiction of the selling company may provide for roll-over relief. In case of roll-over relief, the acquiring company may enter the acquired assets on its balance sheet at their previous book value. The taxation of a capital gain is therefore deferred. Roll-over relief generally only applies if certain conditions are met. Such requirements may include that the assets are transferred in exchange for shares, constitute a business or an independent part thereof or that the transfer is not solely tax driven. In EU jurisdictions, the provisions for roll-over relief are
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modeled on the EU Merger Directive. If no roll-over relief applies, the selling company realizes a capital gain (or loss), and the acquiring company accounts for the purchased assets (including goodwill, if any, which can be capitalized separately) at the arm’s length price agreed upon. The assets can subsequently be depreciated by the acquiring company. Sometimes a capital gain may be desirable to effectively use NOLs that would be lost in any case due to a change in control. In that case, the subsequent possibility to amortize the assets on a stepped-up basis effectively results in a transfer of the losses to the new structure.
Instead of selling the target business assets, the existing local company may be able to incorporate a new subsidiary (instead of the parent company or new holding company incorporating the new subsidiary), contribute the target business assets to its new subsidiary and then distribute the shares of the new company to its shareholder. This transaction will often qualify as a “tax-free” reorganization from a U.S. tax perspective. The assets may be contributed at fair market value and in those cases would in principle create a basis step-up for local tax purposes. The contribution may trigger capital tax in certain jurisdictions, but certain exemptions could be available. The local tax consequences of the distribution of the shares of the new company are addressed in Section 2.2 below.
Specific attention must be paid to the transfer of a business activity that is not so much a set of individual assets as an operation based on certain long-term contracts with third parties and other group companies. An example would be the sales operation of a limited risk distributor company. In these situations, the tax authorities may try to claim that such a transfer of business activities gives rise to a deemed transfer of goodwill, resulting in a taxable gain in the amount of the goodwill. In many instances, a key defense mechanism against such a deemed transfer of goodwill is a timely and properly documented termination of long-term agreements within the group in accordance with applicable terms and notice periods.
When the target business assets are sold, in principle value added tax (VAT) or goods and services tax (GST) will be due on each separate asset transferred. However, some countries have special schemes when assets are sold as part of a going concern. The applicability and the conditions for such schemes vary from country to country. Ongoing VAT issues must also be considered when separating businesses as there can be significant practical impacts for companies if they have to change their VAT number, such as the time it takes to obtain a new number, changing invoices and potential disruption to VAT audits.
Sale of stock is generally subject to VAT/GST in the country where the stock is physically stored. Sale of stock as part of the separation restructuring may therefore trigger local VAT/GST. In order to avoid or minimize cash flow losses or irrecoverable tax at the level of the purchaser, VAT/GST registrations should be initiated before or very soon after the stock is transferred.
Finally, certain assets, such as real estate, may be subject to stamp duty, transfer tax or similar levies, although an exemption may be available under the laws of certain jurisdictions, notably for transfers within a corporate group. It is important to consider, however, whether subsequent planned transactions, such as an eventual disposition or
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spin-off of the target business, will later disqualify the company from such intra-group exemptions or trigger a claw-back of the transfer tax exemption. Real estate transfer taxes can be significant in certain jurisdictions, for example, in Germany the RETT is 3.5% of the purchase price of the real estate (or, in the case of an indirect purchase, the tax assessment value of the real estate) and they may be triggered more than once in a restructuring as assets and shares are moved around. Real estate and other transfer taxes also raise the issue of obtaining a defensible valuation for the asset being transferred, and appropriate lead time should be allowed to obtain a valuation.
2.2 Demerger and Reverse Spin-Off
A statutory demerger or spin-off is the opposite of a legal merger and can usually be effected without triggering corporate income tax liabilities. This type of transaction will typically also qualify as a “tax-free” reorganization from a U.S. tax perspective. In instances where most of the target business assets are already located within an existing company, it may be more efficient to spin-off the minority of the assets that are not target business assets. In such cases, the non-target business assets are demerged into an entity that will remain with the existing group in a transaction referred to as a reverse spin-off.
2.3 Share Transfer
The separation of the target business in a particular country may involve the transfer of shares of an existing group company. As noted in Section 2.1 above, the sale or contribution of target business assets to a new company is usually only necessary if the existing company has operations relating to both the target business and the retained business. If an existing company only owns target business assets, then there is no need for a sale or contribution of assets, and instead it will be necessary to either distribute, contribute or sell the shares of the existing company in order to make it a member of the new corporate group.
From a corporate law perspective, an upstream distribution of shares can be achieved either by declaring a dividend in kind out of distributable reserves or by way of a capital reduction, the latter likely being a more cumbersome, time-consuming and costly procedure. A distribution of shares in a company can give rise to tax consequences in the country of incorporation of the distributee, the distributor and/or the distributed company. First, the distribution may be taxable in the jurisdiction of the company receiving the distribution. The distributee may be treated as receiving taxable dividend income. Second, in the country of incorporation of the distributor, the distribution may be subject to withholding tax and could also be treated as a taxable disposal of the shares. The disposal of shares in principle results in a taxable capital gain or loss for the shareholder of the transferred company. In some countries, the gain may be exempt from tax depending on the facts of the circumstances. If no exemption applies, the capital gain on the shares could be deferred in case roll-over relief applies, which functions similarly to roll-over relief in the context of an asset transfer as discussed in Section 2.1 above. If gain is recognized
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on a share distribution, the acquiring company is generally not allowed to capitalize any available goodwill separately. The goodwill has to be capitalized as part of the participation and can consequently not be depreciated. Finally, the distribution may be taxable in the jurisdiction of incorporation of the company being distributed. The transfer of legal ownership in the distributed company may be subject to local transfer taxes, notarial fees and/or registration fees. There may also be capital gains tax on a non-resident shareholder disposing of shares in a company incorporated in the jurisdiction. The taxing rights of the local jurisdiction may be limited under double tax treaties entered into with the jurisdiction in which the company making the distribution is resident, but this is not always the case. Mexico, for example, taxes non-resident shareholders disposing of shares in Mexican companies and the Mexico-Germany tax treaty allows the Mexican tax authorities to tax gains arising on a disposal of Mexican shares by a Germany company.
Certain jurisdictions, for instance France, South Africa and Switzerland, impose tax on gains arising on the transfer of shares in property rich or real estate holding companies. The transfer of real estate or real estate companies may also be subject to a real estate transfer tax in certain jurisdictions. In the Netherlands, for example, a transfer tax of 6% applies to the acquisition of real estate situated in the Netherlands, certain rights related to Dutch immovable property (e.g., leasehold) or, in some cases, on shares constituting a substantial interest in a Dutch real estate company. Certain exemptions may be available for transfer tax purposes (such as a business merger exemption). In the case of Austria, any transfer of the entire issued share capital of an Austrian company to a single shareholder is subject to a real estate transfer tax that applies to the value of any property that the company owns.
Many countries have stock transfer or stamp taxes. Although these transfer taxes may appear to have a small nominal rate, in many cases they are not a deductible cost in the jurisdiction in which they are incurred and are not creditable in a parent jurisdiction because they are not income taxes, making them a real out-of-pocket cost to the company. In many jurisdictions, relief from transfer or stamp taxes is available where the transfer qualifies as a tax-free reorganization. Particular care should always be taken to analyze the conditions necessary in the relevant jurisdiction to qualify for relief from transfer or stamp taxes. For example, the transfer of a company incorporated in New South Wales, Australia is subject to a 0.6% stamp duty, but relief is granted where the transferor and transferee company have been associated for at least 12 months prior to the transfer.
3. Opportunities to Create LeverageA sale of shares and/or assets to a group company as part of a separation transaction may be utilized to achieve certain ancillary benefits. For example, where the original acquisition has been substantially funded by debt, the borrowing company may not have sufficient domestic tax capacity to absorb deductions for the entire financing costs. A primary objective in this situation is to enable maximum tax relief to be obtained in those jurisdictions that have companies with significant tax capacity. This can be achieved by
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having the borrowing company sell shares in subsidiaries and/or assets to relevant local subsidiaries with tax capacity.
It is important to examine whether local law will permit a deduction with respect to interest paid in connection with a debt incurred in such a manner. Some countries disallow the deduction under certain circumstances. For example, Singapore does not permit deductions for debts incurred to acquire assets that produce income that is not taxable in Singapore. This includes shares in Singaporean and foreign companies. However, it is possible to obtain a deduction for debt incurred to purchase a Singaporean business. In many jurisdictions, deductions are not permitted for debt which is incurred for the sole purpose of creating tax deductions. A pre-transaction restructuring that is effected in anticipation of the divestiture of a business in the near future may provide a sufficient commercial business purpose for this type of planning.
Other techniques that can be used to create tax deductible interest in a local jurisdiction may include declaring a dividend and leaving the dividend amount outstanding as a debt or undertaking a capital reduction with the payment left outstanding as a debt. In other jurisdictions, however, such interest could be non-deductible by reason of anti base-erosion provisions.
The sale of assets and/or shares across the group also provides an opportunity to rationalize or make more tax efficient the group’s intercompany debt position. For example, a company may assign an intercompany receivable as consideration for the purchase of assets or shares.
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Section 5 Separation methods: Business and asset sales and capital contributions of assets
Although a number of countries have statutory spin-off or demerger procedures that will allow a company to spin-off assets or transfer a business by operation of law (see Section 6 below), where such statutory procedures are not available or not appropriate, the assets or business will have to be separated from the remaining businesses and transferred to the new structure by way of a business transfer or sale of individual assets and liabilities. Even where statutory methods are available, an asset or business sale may still be the most desirable approach.
1. Principal FeaturesThe principal features of a business or asset sale are:
• flexibility;
• speed;
• privacy (usually);
• no statutory procedure;
• no requirement for accounts; and
• assets and liabilities to be transferred must be clearly identified.
In general, a business or asset sale has the advantage of being very flexible. In an asset sale, specific assets can be “cherry picked” to be transferred to the new corporate structure. Similarly, a business sale allows for the transfer of a specific business, i.e., a defined group of assets and liabilities which constitute a distinct business in preparation for a spin-off or sale to a third party or retention by the group after the sale of other businesses to a third party.
The main attraction of a business or asset sale is that they can be completed relatively quickly. The documentation required to implement these types of transfers is generally less extensive than that required for a statutory spin-off or demerger. For example, accounts and regulatory filings are not necessary and in most jurisdictions a basic asset or business purchase and sale agreement is all that is required to effect the transfer (in addition to corporate approval documentation). Although, as discussed below in more detail, early consideration must be given to how the business or assets to be transferred will be valued.
Another possible attraction is that asset sales are usually private intra-group transactions implemented with a private sale agreement. Thus, the terms of the sale, and the identity of the assets and liabilities being transferred, can be kept confidential and generally do not have to be vetted by third parties.
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One potential drawback of a business or asset sale is that the items being transferred or the items being retained should ideally be identified very clearly and carefully, in contrast to a spin-off or demerger where the specific business is transferred in its entirety by operation of law. The precise identification of the assets or business to be transferred is of utmost importance to ensure that the appropriate items are retained by the company or transferred to the new structure.
A further drawback of the business or asset sale approach is that it is more likely to require third party consents and notifications, such as the need to notify or seek permission from contracting parties for the assignment of contracts.
2. Differences Between Business Sale v. Asset SaleIn many jurisdictions, the terms business sale and asset sale are used synonymously. The two process can, in some jurisdictions, have important differences, however. The key differences between a business sale and an asset sale relate to the following considerations: (a) tax, (b) employees, and (c) documentation.
2.1 Tax
The corporate tax consequences of a transfer will be different depending on whether the transfer involves specific “cherry-picked” assets or an entire business. Furthermore, the VAT treatment of the transfer may vary between a business transfer, which is usually considered to be a transfer of a going concern and therefore exempt from VAT, and a transfer of a collection of individual assets, which is likely to be subject to VAT at the applicable local rate.
In addition, many jurisdictions have rules with respect to the transfer of tax liabilities that may influence the structure of the business or asset transfer. For example, in Italy, the purchaser of a business becomes jointly and severally liable with the seller for all debts of the business as reflected on the accounts of the seller at the time of the transfer, together with any tax liabilities. An asset sale may therefore be preferable to a business sale as it would allow the parties to isolate the new corporate structure from liabilities of the retained business, which may be of particular concern if the new corporate structure will be sold to a third party. Similarly, in the United States, a number of federal and state tax statutes provide that certain tax liabilities will pass to the purchaser upon the transfer of a business. These nuances may have a significant influence on the choice between a business transfer and an asset sale and should be borne in mind during the planning stages of the transaction, with particular regard being paid to the sensitivities of a potential third party purchaser.
2.2 Employees
Whether a transaction is considered a business sale or a sale of individual assets can also have employment consequences. In the EU where a “business” is transferred, this is very likely to be considered a transfer of an “undertaking” (effectively an EU employment law
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definition of a business). Where there is a transfer of an “undertaking,” then the contractual rights and benefits of individuals employed by the company immediately prior to the transfer are transferred automatically by operation of law to the buyer without modification. This has the benefit of not requiring the consent of the individual employees to the change of their employer, but it does bring with it obligations of prior notification and, in certain circumstances, consultation and additional protection for the rights of the transferring employees. As whether an undertaking is being transferred is a question of fact, the individual circumstances of each transaction need to be considered. However, as the purpose of the EU legislation is to protect employees, it is difficult to structure a transaction in a way that would have the effect of prejudicing the rights of the employees, and it is possible to have transaction which is considered to be a sale of individual assets, but which is also a transfer of an undertaking and thus provides protection to the employees. So, aggressive planning is not recommended in the EU in this area.
Additionally, in some jurisdictions, like South Africa, for example, employees’ rights must be transferred by way of separate agreement appended to the business sale agreement in order for the business transfer to be valid. Therefore, it is essential that additional local formalities are reviewed in advance to ensure they are properly observed.
Further discussion of employment law issues is set out in Section 11, below.
2.3 Documentation
In many jurisdictions, a business sale and an asset sale will be documented in much the same format. However, in some jurisdictions, specific documents are required for the two separate methods and such documentary requirements must be carefully observed to ensure that the correct form of transfer is effected.
For example, in France there are three types of procedures by which to transfer a business or certain specified assets:
• Asset sale. An asset sale requires very thorough identification and documentation of the assets to be transferred, is generally used to “cherry pick” certain specified assets and is not available where a party wishes to transfer an economic function as a going concern. The documentation for this type of transfer involves extensive schedules identifying the assets that are being transferred.
• Convention de successeur. This process does not allow the seller to transfer a going concern, but is a more straightforward statutory procedure by which all the assets that are the means to carry on a certain business are transferred. A convention de successeur assumes that all assets are transferred, however, a party can identify certain assets to exclude or certain liabilities to include. This is subject to the restriction that tax and employee liabilities cannot pass under a convention de successeur. The documentation for a convention de successeur is more straightforward than for an asset sale and may be preferable in situations where
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the company desires to transfer all assets of a business function. However, this option is only available where the business is not continuing on the same terms, and requires registration with the French tax authorities.
• Business transfer. A business transfer allows for the transfer of a going concern and means that the business in its entirety is transferred, removing any requirement to identify specific assets. However, the drawback with this procedure is that additional documentation such as balance sheets and evidence of the last three years of turnover must be attached to the business transfer agreement. The most significant drawback of a business transfer in France is the requirement of a 1 month creditor notice period, after the expiration of which creditors of the business have 20 days to oppose the transfer.
As these examples illustrate, it is essential in some jurisdictions to review all of the options available in order to select the most appropriate and effective solution for the company’s circumstances. These issues should be addressed as early as possible to minimize the risk of additional delay and costs due to changes to the plan later in the process.
It should also be noted that some jurisdictions provide for “bulk sales” laws or automatic transfer of liabilities when an asset sale takes place. This is particularly true in certain U.S. states and in various Latin American countries. These laws are intended to regulate the sale of large quantities of assets outside the ordinary course of business so as to prevent the seller from defrauding creditors. If such laws do exist in a jurisdiction where it is intended to implement the separation by way of an asset transfer, be aware that a future third party buyer may require an indemnity against such liabilities and the asset transfer agreement should provide for this protection. In many U.S. states, a bulk sale will not have effect against any creditor of the business unless the seller has complied with the terms of the Uniform Commercial Code. This involves obligations such as furnishing a list of creditors to the purchaser that must be maintained for 6 months and sending a notice to all creditors at least 10 days before the sale takes place. These issues should be considered when deciding how to structure the separation in a particular jurisdiction as they may affect logistics and timing.
3. Main issuesThe following Section highlights the key considerations to take in to account prior to embarking upon a business or asset sale. Commonplace issues include:
• what to transfer?
• what entity?
• due diligence
• documentation
• purchase price and valuations
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• consents
• transfer taxes
3.1 What to Transfer
Obviously, the first step is to identify the assets that will be retained by the company and the assets that belong to the target business and will be separated out into a new structure and, at a later date, spun-off or sold to a third party. This requires careful review and identification of the assets that are essential to the retained business(es) and the target business. Following this, it will be important to properly document the transfers.
It is likely that certain assets may be required by both businesses and a business decision must therefore be made as to the precise scope of assets to be separated from the company’s retained business. This can be especially important with respect to real estate or employees and certain sharing arrangements may have to be considered so that each business can continue to operate effectively in the near and long term.
Similarly, it is of utmost importance to ensure that liabilities are either transferred or retained appropriately. Liabilities must be reviewed carefully to identify exactly to which business or asset they relate. Generally where an asset transfers, the corresponding liability should also transfer, though consideration must be given to the end goal for the separation, such as the effect of including liabilities upon the value or purchase price of the target business. Again, this will have to be documented carefully (with indemnities where appropriate) in order to avoid any later complications.
It is worth noting that, although the identification of what should be transferred is a very obvious issue, this often gives rise to significant problems in practice, for example, if those planning the spin-off do not have the intimate knowledge of the target business that is required to correctly identify which assets go with which business.
3.2 What Entity?
One of the first decisions that must be made is whether to maintain the retained business or assets in the existing entity or whether to transfer them to a new corporate vehicle. One of the main considerations in making this decision will be the tax implications of the transfer, which are discussed in more detail in Section 4, above.
Before effecting the transfer of the business or assets to be separated, the appropriate vehicle for housing the business or assets must be identified, be it a subsidiary, branch or representative office. This will involve various considerations including timing, capital requirements, the scope of the local operations and applicable local regulations, all of which will have an effect on the logistics and cost of the transfer. Another contributing factor will be the existence of historic liabilities in the transferring corporate entity. Clearly when planning this type of transaction, due care must be given to a potential future purchaser’s sensitivities to the existence of liabilities in the corporate structure. A future purchaser
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will primarily be concerned with inherent tax liabilities, but litigation and environmental concerns may also be significant factors. To mitigate these issues, the starting preference is that the business to be transferred is placed into a new vehicle.
3.3 Due Diligence
In order to identify the assets and liabilities to be transferred, some level of due diligence must clearly be conducted. However, it is advisable that a more focused due diligence review be carried out, particularly as the transfer may ultimately involve a third party. The commercial importance of due diligence is to protect the remaining businesses of the company from inadvertently transferring out any desired assets or retaining any unwanted liabilities. It will also be essential, if preparing a disclosure letter or schedule in relation to a third party sale, that the seller properly understands the consequences of granting requested warranties and indemnities and is able to negotiate from the strongest possible commercial position.
It is important when undertaking the due diligence exercise to collect appropriate copies of all relevant information and create easily accessible files. During this process, care may need to be taken in relation to alerting employees to the potential spin-off or other restructuring prior to a public announcement. A party may want to consider collecting the information under the auspices of an internal audit/internal review in order to minimize the risk of alerting employees to the proposed plan and creating unnecessary disturbance. Alternatively, it may be preferable to be open with a core team of employees as to the process in order to obtain their best cooperation. Employment considerations are reviewed further in part 3.5 of this Section.
A due diligence review, if executed poorly, can be a costly, time consuming and difficult process. Planning for the due diligence should therefore be done in advance and the review should be conducted in the context of the ultimate goals of the spin-off to avoid duplication of work.
A full review may include the following:
• corporate information – specifically, constitutional documents, status of corporate filing obligations, and up-to-date corporate information, such as identity of shareholders and directors, registered address;
• financial – review of accounts, regulatory filings, audit representation letters;
• foreign investment regulation – consideration of what approvals or consents are required and identification of any conditions, ongoing restrictions or repayment;
• banking and financing arrangements, including collateral agreements and bond indentures;
• taxation – consideration of tax rulings, tax holidays and consents, and obtaining details of any ongoing tax audits or disputes;
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• employment – review of standard contractual terms and working practices and procedures, potential difficulties/consequences of terminating senior employees, details of arrangements with unions or other employee representatives, terms of lay offs or redundancies;
• property – investigation of title to real property and of all leases and other licenses including details of material permits, easements and other rights on which the use of the property is dependent and of any disputes with landlords, neighboring owners, local authorities and enforcement agencies;
• business/operational – review of all necessary business licenses, permits, material assets and market position, as well as operating problems, including product returns, antitrust and customer complaints;
• significant business contracts – examination of all joint venture, shareholder, share or business acquisition or disposal, consortium, partnership, distribution, agency and other non-ordinary course of business contracts, as well as key customer and vendor contracts;
• IP – review of all intellectual property (i.e., trademarks, service marks, trade names, patents, designs, copyrights, domain names, computer software, know-how and other similar rights) used by the business, consideration of IP owned by the business and IP licensed to it and a review of any related complaints, disputes or challenges;
• legal proceedings and disputes – specifically material litigation; a more extensive investigation will be required where the business has significant product liability exposure;
• pension and other employee benefit plans and arrangements, taking into consideration both unfunded liabilities and the potential for problems and delays in splitting up funded arrangements;
• insurance policies – a review to ensure that the material properties are covered by the appropriate type and amount of insurance and if there is sufficient product liability, employer’s liability, business travel, key man or director’s and officer’s insurance, as appropriate; and
• environmental – specifically any licenses or permits relating to storage, handling, processing, discharge or transport of materials, substances or waste and any history of environmental problems or liabilities.
3.4 Documenting the Business/Asset Transfer
In addition to detailed due diligence, it is important when preparing to undertake a pre-transaction restructuring to consider the necessary documentation and the desired goals. Not only will asset/business transfer agreements need to be prepared, but frequently third
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party consents, sub-licenses and permits will have to be obtained. It is vital to remember that these spin-off documents may be scrutinized by third parties and, in due course, that they may be challenged if not executed on arms’ length terms.
Prior to undertaking a business transfer or asset sale the following should be drafted, obtained, negotiated or ruled unnecessary as appropriate:
• purchase agreement;
• due diligence report and/or disclosure letter;
• accountant’s or valuer’s report;
• corporate approvals;
• schedule of inventory and other assets;
• schedule of employees and pension arrangements;
• new service contracts;
• contract assignment notices and consents;
• tax clearances;
• certificates of title for real estate, leases or licenses; and
• environmental reports.
Of course the necessity for any of these documents will depend upon the structure of the business transfer or asset sale and the particular type of business or assets being transferred.
Business Transfer Agreement / Asset Purchase AgreementWhen planning a business transfer or asset sale in the context of a pre-transaction restructuring, one of the tensions that arises is that, although the transaction will take place in an intercompany context, the parties must remain focused on future plans, e.g., an IPO, third party sale or separate structure for other business reasons. As a result, the key commercial terms and precise allocation of assets are likely to be more important than in a straightforward intercompany transaction where the plan is to keep both the retained and transferred business within the group. As discussed earlier, careful consideration must be given to ensuring the assets are clearly identified and are neither transferred nor retained inadvertently.
Purchase Price and Valuation ReportsEarly consideration should also be given to the basis upon which the purchase price for each transferring business will be determined and the need for valuation reports. The starting principle will be that business or assets should be transferred at their “fair market value.” The methods of calculating this value will depend on the nature and industry of the
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business being transferred and these are usually a range of methodology available. The information required by valuation experts can be extensive and the implementation deadline of a spin-off can easily be put in jeopardy by the valuation process. Therefore, it is key that any required valuations are identified early in the separation process, that the progress of such valuations is monitored proactively and sufficient time is built into the implementation timetable for the values to be reviewed before they are incorporated into the separation documents. This review is particularly important where the assets being transferred at this stage, will then be transferred to a third party buyer. As future tax consequences and the potential impact upon later negotiations should be factored into the reorganization at this stage.
Corporate ApprovalsSelling a significant portion of a company’s assets to an affiliate is usually considered an extraordinary or non-routine transaction. The directors or officers of the entities involved may not have the necessary corporate authority to effect such transactions. Therefore, it is necessary to consult applicable local law and the articles or other constitutional documents of the entities involved to determine if the proposed transactions are subject to any corporate approval requirements and to then take appropriate steps to authorize the transactions, such as adopting board and/or shareholder resolutions. Ensuring that the appropriate corporate approvals are undertaken and documented is also important for purposes of creating a clear evidentiary trail that a third party purchaser can rely on.
Practical Legal ConsiderationsA number of jurisdictions require business transfer or asset purchase agreements and ancillary documents to be notarized locally upon execution. This means that the company will either have to arrange for signatories to travel to the appropriate jurisdiction or, more likely, to put in place appropriate powers of attorney or proxies. Certain jurisdictions may also require legalization of documents or an apostille, which will involve additional time. Notarization and legalization requirements should therefore be identified and addressed as early as possible in the process to ensure that they do not jeopardize target dates for implementing the separation.
3.5 Consents and Registration Requirements
Another important area to consider relates to the third party consents or registration requirements that must be complied with before the business or asset sale can be effected. Potentially applicable consents/registrations may include:
• third party consents for contract assignments, e.g., customer and supplier consents;
• third party consents relating to real estate or leases;
• transfer and registration of IP rights, domain names, etc.;
• notification and consent of employees;
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• transfer of pension rights; and
• transfer and registration of business permits, licenses or grants.
Set forth below is a more detailed discussion of the types of consents and registrations most likely to be required.
Assignment of ContractsMinimizing business disruption is an important objective in a separation or spin-off transaction. Therefore, identifying the contracts to be transferred and developing procedures for “transferring” contractual relationships to the new entity must be a key element of the separation plan. Although many contracts will include a requirement for third party consents to be obtained in advance of an assignment to a third party, legal issues should not overwhelm business considerations. Identifying the key contracts of the business is of primary importance. Then, the company must consider whether the separation will give key customers or suppliers an opportunity to improve their commercial position. If so, then a proactive plan must be developed to ensure the continuity of those key contracts, without saddling the separated business with damaging fiscal or commercial terms.
Although not without risk, it may often be sensible from a business perspective to deal in a less burdensome manner with third parties that are not key to the business or those that can be relied upon to remain with the business after a separation. This would mean, for example, simply notifying a third party of the contract assignment without seeking consent, even though consent may be required under the strict terms of the contract. This procedure does not constitute a valid legal assignment; however, in many circumstances, the vast majority of third parties will continue their relationship without any adverse consequences.
Leases / Real PropertyA key determination for both the retained and separated businesses will be what office or manufacturing space and other premises will be required in the future. Once this has been determined, a review of the legal and practical steps needed to secure the space for each entity will be necessary. Leases should be reviewed thoroughly to identify what landlord consents may be required and whether sub-leases will be permitted and, if so, on what terms. Consideration must also be given to the longer term in order to identify which party will be responsible for extraordinary costs such as early surrender of the lease and restoring the property upon the termination of the lease. If the separated businesses require the same premises and need to share them going forward, the request for consent should be undertaken as early as possible in order to avoid any undue delays. Institutional landlords lack the commercial incentive to move quickly, and can be notoriously slow in responding. As well as third party consents, the allocation of responsibilities (such as maintenance and liability for repairs) should also be made well in advance.
41Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 5 – Separation Methods: Business and Asset Sales
In many countries, additional documentation other than the business/asset transfer agreement will be required to transfer legal ownership of real property. Again, where properties will be shared for an interim period, careful consideration should be given as to the plan for retention or transfer of the property. This may be extremely important where employees are involved as relocation may cause employment issues if employees are expected to move sites.
Intellectual PropertyPlease see Section 13 for a discussion regarding the transfer of intellectual property and related registration requirements.
Employees/PensionsIssues relating to both employment rights and pensions rights of any employees involved in a business or asset transfer must be addressed. In Europe, upon a transfer of an undertaking or business, certain employee rights will be transferred automatically to the new company. Employees will often also have a right to be consulted for a set period of time (depending upon the size of the workforce) and will be protected for a certain period from dismissal in connection with the transfer. These matters should be analyzed well before the transfer takes place to ensure that all obligations are fulfilled on a timely basis and that no liabilities are inadvertently incurred. In addition to having notification obligations, entities in a number of jurisdictions are likely to have works councils, unions or employee representatives with more specific consultation requirements. These must all be complied with to avoid penalties being imposed. In the Netherlands, for example, a works council even has the power to seek judicial reversal of a transaction where the works council is not properly consulted. See Section 11 for further discussion of these issues.
In addition to legal requirements, consideration must also be given to managing employee expectations and the transparency of any planned transfers. To ensure that the workforce remains cooperative, it is advisable for the human resources department of the company to be intimately involved with the planning process. As separation plans are developed and reviewed, it is likely that employees will have to be updated regularly as to the effects of the proposals on their future working environment, not just in relation to large scale proposals such as downsizing, but also in relation to smaller issues such as relocation and re-employment with different business units. This will be especially important in cases where employee consent is required prior to the transfer.
Many countries require that employees are provided with similar pension and other benefit entitlements post-transfer as those enjoyed pre-transfer. This may involve a deed of adherence to existing pension plans or in some cases the establishment of a new pension plan. Under certain German pension schemes, pension rights can only be transferred to certain specific pension entities. These can take time to set up and may delay matters if not dealt with at the outset of the separation process.
42 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 5 – Separation Methods: Business and Asset Sales
Permits, Licenses and GrantsAdditional approvals to transfer or obtain licenses, permits or grants from government agencies and departments may be required in connection with a separation transaction. In many jurisdictions, business licenses and permits are required to operate a business and should be reviewed for assignment and registration requirements. It is possible that certain of these permits may be required by both businesses. If so, the possibility of sharing arrangements should be reviewed as this may be more time and cost efficient than obtaining duplicate permits. The need for environmental permits, visas and work permits should also be evaluated prior to the transfer to avoid any complications at a later date.
A business separation can also impact import and export permits and procedures, as well as customs arrangements. When establishing a new entity a detailed plan should be developed to ensure that obtaining new permits etc does not adversely affect the day to day trading of the transferring business.
The terms of any government grants and incentives should be examined in light of the proposed transaction, as it is not unusual for these to contain termination and/or claw-back provisions that may be triggered by an asset transfer or a reduction in the size of the business operations or workforce. Government permission can often be negotiated where such provisions exist.
3.6 Transfer Taxes
The applicability of transfer taxes will depend on the manner in which the separation transaction is effected. Transactions involving the transfer of shares or assets by way of a sale will normally be subject to transfer taxes where such taxes exist (albeit that relief may be available to reduce or eliminate such transfer taxes). Even if the business or asset transfer would normally be exempt from transfer tax as an intra-group transaction, in a pre-transaction restructuring, the plan to eventually separate the new structure may mean that minimum holding periods may not be satisfied and tax will be payable. Please see Section 4 for a further discussion of the tax issues.
43Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Section 6 Separation methods: Demergers and statutory spin-offs
In many jurisdictions, local corporate laws provide for some form of statutory demerger. In these jurisdictions, such demerger procedures should be considered as an alternative to asset sales or contributions when determining which structure would most efficiently achieve the spin-off goals. Please refer to the summary chart beginning on page [62] for a brief overview identifying local corporate laws that provide for demerger procedures and what is involved in such procedures. For comparisons of the various demerger laws from a tax perspective, please refer to the chart beginning on page [56].
While the terminology may vary from jurisdiction to jurisdiction, the company laws of most civil law jurisdictions provide for a procedure by which certain assets and liabilities of an existing entity are transferred by operation of law to one or more newly established or existing entities. In some jurisdictions, such a procedure is called “spin-off.” In these jurisdictions, following the transfer of the assets and liabilities from the original company to the spun-off company/ies, the shares of both the original and the spun-off companies are held by the same shareholder, with such shareholder typically having to surrender a number of shares, or an amount of capital, in the original company equal to the percentage of assets transferred to the spun-off company/ies. In other jurisdictions, the laws make a distinction between a (i) a “demerger” or “split-up” in which, following the transfer of assets and liabilities, the original entity ceases to exist and the businesses are continued by one or more new entities (the “demerging entities”), and (ii) a “partial demerger” or “split-off” in which the original entity remains in existence and continues one or more lines of business while one or more new or existing entities continue the demerging lines of business. To simplify this discussion, we refer to all of the above procedures collectively herein as “demergers,” but the legal differences between these types of transactions can be critical and should not be overlooked.
Where local corporate laws provide for statutory demergers, the tax laws of such jurisdictions will always allow for such a transaction to be structured as tax-free from an income tax and value added tax (VAT) perspective, provided that the demerger meets certain conditions. For example, statutory demergers in Brazil are exempt from income tax and VAT as long as there is no physical transfer of assets. A demerger, however, may still be subject to other taxes, for example, real estate transfer taxes (e.g., in Germany). Further, in many jurisdictions, demergers do not enjoy tax-free treatment if the demerged business is divested to a third party prior to the expiration of a waiting period (e.g., two years in Australia, three years in France, and five years in Germany).
Tax rulings are typically available, and obtaining such tax rulings is often advisable to ensure that the tax authorities agree that the conditions for tax-free treatment are met, in particular in situations where it may not be quite clear that the demerging business is indeed a separate line of business from the demerged business.
44 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
From a tax point of view, another advantage to the tax-free treatment of demerger in some jurisdictions is that it can be made retroactive for tax and sometimes also accounting purposes. Where a demerger may be made retroactive, special attention should be paid to time constraints. For example, in the Netherlands, the earliest retroactive date for tax and accounting purposes is the beginning of the current fiscal year. In other jurisdictions, a demerger may be made retroactive for tax purposes only within a specific window of time (e.g., eight months after the beginning of the current fiscal year in Germany).
From a corporate perspective, the most important advantage of a demerger versus a transfer of assets to an existing or newly formed subsidiary is that in a demerger procedure the contracts, assets and liabilities allocated to the demerging entity are transferred by operation of law. Even though a proposed demerger typically has to be published and/or notified, creditor consents or renewals of regulatory licenses (e.g., business licenses and industry specific licenses) may not be required in connection with a demerger procedure, whereas such consents or renewals would certainly be required in case of a transfer of assets.
Although most demerger procedures are not particularly complicated, they typically take several months to complete. A demerger will normally require local management (i.e., the board of directors) of the demerged and demerging entity/ies to execute demerger proposals. Such demerger proposals usually involve the preparation of balance sheets of the demerged and demerging entities and the certification of such balance sheets by a third party auditor or appraiser. This process alone may take several weeks if not months. In most jurisdictions, the board of directors is free to select third party auditors or appraisers. There are, however, jurisdictions, where the auditor or appraiser has to be appointed by a local court (e.g., in France and Italy), which typically adds another few weeks to the overall timing for completion of the demerger.
The courts with jurisdiction over the demerged and demerging entities usually have to approve the proposed demerger, either prior to or following shareholder approval of the transaction. The corporate laws of many jurisdictions further require the demerger to be published or otherwise notified to the creditors of the demerged entity and permit the demerged entity’s creditors to object to the demerger within a certain period of time (e.g., four weeks in the Netherlands, 45 days in Mexico and two months in Italy). The demerger will become effective only once court approval (in the absence of any creditor objections) and shareholder approval have been obtained and the demerger has been registered by the relevant commercial registry. Given the above procedural requirements, it is not surprising that most demerger procedures take at least 2-4 months to complete.
Many jurisdictions (e.g., Belgium, Germany and Sweden) allow the demerger procedure to be simplified in case of intra-group demergers. The conditions necessary for a simplified demerger should be met in most pre-transaction restructurings involving global enterprises. The time saved in implementing simplified demergers (approximately 4-6 weeks) makes them an even more appealing alternative to a transfer of assets.
45Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
In other jurisdictions, a demerger may the preferred alternative even though it takes several months to implement, due to local law requirements that can complicate and delay a transfer or sale of assets to a newly formed entity. In Japan, for example, appraisals or audits are not required in connection with a demerger but are required in the case of an asset sale, and have to be conducted by a court-appointed appraiser, if the recipient Japanese K.K. is less than 2 years old at the time of the transfer.
In some jurisdictions, labor or regulatory requirements may complicate the completion of a demerger. In many European jurisdictions, for example, the works council of the demerged entity has to be consulted with regard to a demerger. Although works councils typically are not able to prevent a demerger from being completed against their objection, in certain jurisdictions the employees allocated to the demerging entity may not be transferred to the demerging entity against their will. In such cases, the objecting employees have to remain employed by the demerged entity and possibly terminated by the demerged entity, which can be a costly undertaking. The transfer of employees as part of an asset sale is subject to similar consultation requirements.
Other regulatory hurdles to overcome in order to implement a demerger may be related to local tax issues. In Brazil, for example, the demerged entity has to obtain tax clearance certificates from various tax authorities, which can take time depending on the tax compliance status of the demerged entity.
In many jurisdictions, demergers may not be desirable because the demerging company remains liable for the debts of the demerged company for a certain period of time (e.g., in Hungary). Similarly, in such jurisdictions, third party creditors may successfully obtain guarantees from the demerging company for debts of the demerged company, rendering the demerger alternative a less attractive precursor to a spin-off to a third party.
Whether a demerger procedure turns out to be the best separation method will always depend on many factors, most importantly time constraints. Further advantages and disadvantages may be summarized as follows:
Advantages of Demerger
• tax-free treatment (if conditions under local law are met)
• transfer of contracts, assets and liabilities by operation of law
Disadvantages of Demergers
• time consuming
• preparation of interim financial statements
• appraisal/audit procedures (including court-appointed appraiser in some cases)
• complexity of demerger procedure
46 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
In summary, on the pro side, demergers can typically be structured tax-free and, therefore, are the preferred separation method from the point of view of tax advisers. Also, in demergers, contracts, assets and liabilities associated with the demerging business transfer by operation of law, significantly simplifying the process for separating the assets of the demerging business from the retained business.
The reason many companies ultimately decide not to proceed with demergers is that the procedures for effecting demergers are typically quite complicated and time consuming, sometimes taking several months longer to complete than other separation methods. In many transactions, in particular divestitures to third parties, tax savings may have to be sacrificed due to urgency of the transaction. Often, there is simply not sufficient time to obtain tax rulings and engage an appraiser or have an appraiser appointed by the court, as required in some jurisdictions. Preparing interim financial statements, which may be required if the demerger is planned to occur during the later parts of a fiscal year, enduring idle periods during creditor waiting periods, or obtaining tax clearance certificates may also often lead to the conclusion that there is not enough time to proceed with a demerger.
47Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
SU
MM
AR
Y O
F S
TATU
TOR
Y D
EM
ER
GE
RS
/SP
LIT-
OFF
S (P
AR
T I:
TAX
ATIO
N)
1.
AM
ERIC
AS
Cou
ntry
Is
a d
emer
ger /
spl
it-of
f ta
x-fre
e?
If a
dem
erge
r / s
plit-
off i
s ta
x-fre
e, is
suc
h de
mer
ger
/ spl
it-of
f sub
ject
to
cond
ition
s?
Can
a ru
ling
with
resp
ect
to th
e ta
x co
nseq
uenc
es
of a
dem
erge
r / s
plit-
off b
e ob
tain
ed?
May
a d
emer
ger /
spl
it-of
f pro
cedu
re b
e m
ade
retro
activ
e fo
r acc
ount
ing
and
tax
purp
oses
?
Can
loss
es b
e tra
nsfe
rred
fro
m th
e tra
nsfe
rrin
g /
dem
ergi
ng c
ompa
ny to
the
rece
ivin
g / n
ew c
ompa
ny?
Arg
entin
aYe
sYe
s, m
ultip
le c
ondi
tions
in
clud
ing
min
imum
sh
areh
oldi
ng p
erio
d af
ter
dem
erge
r, re
quire
men
t for
sp
lit-o
ff en
tity
to m
aint
ain
sam
e ac
tiviti
es a
nd
dem
ergi
ng e
ntity
to c
ondu
ct
an a
ctiv
e bu
sine
ss.
Yes
Yes
Yes,
if th
e de
mer
ger i
tsel
f qu
alifi
es a
s ta
x-fre
e.
Bra
zil
Yes
Yes,
if th
ere
is n
o ph
ysic
al
trans
fer o
f goo
ds a
nd
equi
pmen
t.
Yes
No
No,
and
in a
dditi
on th
e N
OLs
of t
he d
emer
ging
en
tity
will
be
canc
elle
d in
pro
porti
on to
the
net
wor
th tr
ansf
erre
d up
on th
e de
mer
ger.
Can
ada
Yes
Yes,
mul
tiple
con
ditio
ns
appl
y fo
r var
ious
taxe
s.Ye
sN
o
No
Chi
leYe
s, s
tatu
tory
dem
erge
rs a
re
tax
free
and
do n
ot tr
igge
r in
com
e ta
x, V
AT o
r oth
er
sale
s ta
xes.
Onl
y so
me
nota
rial,
regi
stra
tion
and
publ
icatio
n fe
es w
ill ap
ply.
No
Yes,
alth
ough
in g
ener
al
this
is n
ot n
eces
sary
. S
ever
al ru
lings
hav
e be
en
issu
ed b
y th
e C
hile
an
Inte
rnal
Rev
enue
Ser
vice
in
this
rega
rd.
No
No
Mex
ico
Yes
Yes,
mul
tiple
con
ditio
ns
incl
udin
g as
set t
ests
and
m
inim
um s
hare
hold
ing
perio
ds fo
r sha
reho
lder
s of
th
e de
mer
ged
entit
y.
Yes;
how
ever
it c
an ta
ke a
lo
ng ti
me
to o
btai
n a
rulin
g.N
oYe
s, in
pro
porti
on to
the
net w
orth
tran
sfer
red.
Uni
ted
Sta
tes
(Del
awar
e la
w)
N/A
. U.S
. law
doe
s no
t pr
ovid
e an
y st
atut
ory
proc
edur
e fo
r a d
emer
ger,
spin
-off
or s
plit-
off.
N/A
N/A
N/A
N/A
Vene
zuel
aN
o
N/A
Yes
N/A
N/A
48 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
2.
ASI
A PA
CIF
ICC
ount
ry
Is a
dem
erge
r / s
plit-
off i
n yo
ur ju
risdi
ctio
n ta
x-fre
e?
If a
dem
erge
r / s
plit-
off i
s ta
x-fre
e in
you
r jur
isdi
ctio
n,
is s
uch
dem
erge
r / s
plit-
off
subj
ect t
o co
nditi
ons?
Can
a ru
ling
with
resp
ect
to th
e ta
x co
nseq
uenc
es
of a
dem
erge
r / s
plit-
off b
e ob
tain
ed?
May
a d
emer
ger /
spl
it-of
f pro
cedu
re b
e m
ade
retro
activ
e fo
r acc
ount
ing
and
tax
purp
oses
?
Can
in a
dem
erge
r /
split
-off
proc
edur
e lo
sses
be
tran
sfer
red
from
the
trans
ferr
ing
/ dem
ergi
ng
com
pany
to th
e re
ceiv
ing
/ ne
w c
ompa
ny?
Aus
tralia
Yes,
with
resp
ect t
o in
com
e ta
x.
Yes,
num
erou
s co
nditi
ons
appl
y.Ye
sN
oN
o
Chi
naYe
s, w
ith re
spec
t to
inco
me
taxe
s an
d de
ed ta
x.
It m
ay b
e po
ssib
le w
ith
resp
ect t
o La
nd V
AT, V
AT,
Sta
mp
Dut
y an
d B
usin
ess
Tax.
The
tax-
free
treat
men
t is
only
ava
ilabl
e if
the
asse
ts,
liabi
litie
s an
d sh
areh
olde
rs’
equi
ty o
f the
pos
t-div
isio
n en
terp
rises
be
book
ed
at b
ook
valu
e of
the
pre-
divi
sion
ent
erpr
ise.
Ther
e is
no
unifo
rm
prac
tice.
Man
y lo
cal t
ax
auth
oriti
es a
re re
luct
ant
to is
sue
a ru
ling
in th
is
rega
rd.
No
Yes,
and
oth
er ta
x at
tribu
tes
as w
ell.
Hon
g K
ong
N/A
Hon
g K
ong
law
doe
s no
t pro
vide
any
sta
tuto
ry
proc
edur
e fo
r a d
emer
ger,
spin
-off
or s
plit-
off.
N/A
N/A
N/A
N/A
Japa
nN
o, a
dem
erge
r / s
plit-
off
is, i
n pr
inci
pal,
a ta
xabl
e ev
ent.
How
ever
, tax
es c
an
be d
efer
red
if ce
rtain
co
nditi
ons
are
met
.
Yes,
cer
tain
con
ditio
ns
need
to b
e m
et.
Yes
No
No.
How
ever
, if a
dem
erge
r / s
plit-
off i
s a
qual
ified
se
para
tion-
type
cor
pora
te
sepa
ratio
n si
mila
r to
mer
ger a
nd c
erta
in
cond
ition
s ar
e m
et, N
OLs
ca
n be
tran
sfer
red.
Mal
aysi
aN
/A G
ener
ally,
Mal
aysi
an
law
doe
s no
t pro
vide
any
st
atut
ory
proc
edur
e fo
r a
dem
erge
r, sp
in-o
ff or
sp
lit-o
ff.
N/A
N/A
N/A
N/A
Phi
lippi
nes
Yes,
but
ther
e ar
e m
inim
al
regi
stra
tion
and
loca
l tra
nsfe
r tax
es.
Ther
e is
al
so d
ocum
enta
ry s
tam
p ta
x on
the
issu
ed s
hare
s of
sto
ck.
Yes,
mul
tiple
con
ditio
ns
incl
udin
g sh
areh
olde
r tes
ts.
Imm
edia
te s
ale
follo
win
g th
e de
mer
ger m
ay
jeop
ardi
ze th
e ex
empt
ion.
Yes
No
No
49Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
a d
emer
ger /
spl
it-of
f in
your
juris
dict
ion
tax-
free?
If
a de
mer
ger /
spl
it-of
f is
tax-
free
in y
our j
uris
dict
ion,
is
suc
h de
mer
ger /
spl
it-of
f su
bjec
t to
cond
ition
s?
Can
a ru
ling
with
resp
ect
to th
e ta
x co
nseq
uenc
es
of a
dem
erge
r / s
plit-
off b
e ob
tain
ed?
May
a d
emer
ger /
spl
it-of
f pro
cedu
re b
e m
ade
retro
activ
e fo
r acc
ount
ing
and
tax
purp
oses
?
Can
in a
dem
erge
r /
split
-off
proc
edur
e lo
sses
be
tran
sfer
red
from
the
trans
ferr
ing
/ dem
ergi
ng
com
pany
to th
e re
ceiv
ing
/ ne
w c
ompa
ny?
Sin
gapo
reN
/A S
inga
pore
law
doe
s no
t pro
vide
any
sta
tuto
ry
proc
edur
e fo
r a d
emer
ger,
spin
-off
or s
plit-
off.
N/A
N/A
N/A
N/A
Taiw
anYe
sN
o
Yes
No
Yes,
bot
h N
OLs
and
ot
her t
ax a
ttrib
utes
can
be
tran
sfer
red
to th
e re
ceiv
ing/
new
com
pany
.Th
aila
ndN
/A T
hai l
aw d
oes
not
prov
ide
any
stat
utor
y pr
oced
ure
for a
dem
erge
r, sp
in-o
ff or
spl
it-of
f.
N/A
N/A
N/A
N/A
50 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
3.
EUR
OPE
AN
D M
IDD
LE E
AST
Cou
ntry
Is a
dem
erge
r / s
plit-
off i
n yo
ur ju
risdi
ctio
n ta
x-fre
e?
If a
dem
erge
r / s
plit-
off i
s ta
x-fre
e in
you
r jur
isdi
ctio
n,
is s
uch
dem
erge
r / s
plit-
off
subj
ect t
o co
nditi
ons?
Can
a ru
ling
with
resp
ect
to th
e ta
x co
nseq
uenc
es
of a
dem
erge
r / s
plit-
off b
e ob
tain
ed?
May
a d
emer
ger /
spl
it-of
f pro
cedu
re b
e m
ade
retro
activ
e fo
r acc
ount
ing
and
tax
purp
oses
?
Can
in a
dem
erge
r /
split
-off
proc
edur
e lo
sses
be
tran
sfer
red
from
the
trans
ferr
ing
/ dem
ergi
ng
com
pany
to th
e re
ceiv
ing
/ ne
w c
ompa
ny?
Aus
tria
Yes,
if th
e re
gula
tions
of
the
Aus
trian
Tax
R
estru
ctur
ing
Act
(U
mgr
ündu
ngs-
steu
erge
setz
) app
ly.
Yes,
the
shar
ehol
der (
s)
need
s to
hol
d th
e de
mer
ged
entit
y fo
r at l
east
tw
o ye
ars.
Yes,
but
it is
not
lega
lly
bind
ing
(onl
y bi
ndin
g ac
cord
ing
to th
e pr
inci
ple
of g
ood
faith
).
Yes,
up
to 9
mon
ths
retro
activ
ely.
Yes,
und
er c
erta
in
cond
ition
s.
Bel
gium
Yes,
bot
h fo
r cor
pora
te
inco
me
tax
and
VAT.
Fo
r cor
pora
te ta
x, th
e ex
empt
ion
is s
ubje
ct to
ce
rtain
con
ditio
ns.
Yes,
in p
artic
ular
, the
ex
iste
nce
of le
gitim
ate
need
s of
a fi
nanc
ial o
r ec
onom
ic n
atur
e fo
r the
de
mer
ger /
spl
it-of
f.
Yes
Yes,
sub
ject
to c
erta
in
cond
ition
s (in
pra
ctic
e re
troac
tivity
of m
ore
than
7
mon
ths
is u
nlik
ely
to b
e ac
cept
ed).
Yes,
if th
e de
mer
ger i
s ta
x-fre
e, th
e N
OLs
can
be
trans
ferr
ed in
pro
porti
on to
th
e ne
t wor
th tr
ansf
erre
d.
Cze
ch R
epub
licYe
s. D
emer
gers
are
als
o no
t sub
ject
to V
AT, s
tam
p du
ty, c
apita
l tax
, tra
nsfe
r ta
x or
sim
ilar d
utie
s.
No
No
Yes,
for a
ccou
ntin
g an
d co
rpor
ate
inco
me
tax
purp
oses
.
Yes,
but
onl
y to
loss
es
incu
rred
afte
r May
1, 2
004.
Egy
ptYe
s, p
rovi
ded
that
the
Com
pany
is re
-eva
luat
ed
on th
e bo
ok v
alue
at t
he
time
of th
e de
mer
ger.
Yes
Yes
No
Not
cle
ar.
Fran
ceYe
s (n
o co
rpor
ate
inco
me
tax,
no
VAT
and
min
imal
re
gist
ratio
n du
ty o
f E
uro
375)
.
Yes,
mul
tiple
con
ditio
ns
incl
udin
g bu
sine
ss a
ctiv
ity
requ
irem
ent a
nd m
inim
um
shar
ehol
ding
requ
irem
ent.
Yes
Yes,
bac
k to
the
open
ing
date
of t
he c
urre
nt fi
scal
ye
ar o
f the
ent
ities
be
nefit
ing
from
the
cont
ribut
ion
of a
sset
s an
d lia
bilit
ies.
Yes,
if th
e de
mer
ger i
tsel
f is
tax
free
and
subj
ect t
o ce
rtain
oth
er c
ondi
tions
.
51Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is a
dem
erge
r / s
plit-
off i
n yo
ur ju
risdi
ctio
n ta
x-fre
e?
If a
dem
erge
r / s
plit-
off i
s ta
x-fre
e in
you
r jur
isdi
ctio
n,
is s
uch
dem
erge
r / s
plit-
off
subj
ect t
o co
nditi
ons?
Can
a ru
ling
with
resp
ect
to th
e ta
x co
nseq
uenc
es
of a
dem
erge
r / s
plit-
off b
e ob
tain
ed?
May
a d
emer
ger /
spl
it-of
f pro
cedu
re b
e m
ade
retro
activ
e fo
r acc
ount
ing
and
tax
purp
oses
?
Can
in a
dem
erge
r /
split
-off
proc
edur
e lo
sses
be
tran
sfer
red
from
the
trans
ferr
ing
/ dem
ergi
ng
com
pany
to th
e re
ceiv
ing
/ ne
w c
ompa
ny?
Ger
man
yTh
e de
mer
ger/s
plit-
off i
s ta
x fre
e w
ith re
spec
t to
inco
me
tax
and
VAT.
It is
not
tax
free
for
purp
oses
of r
eal e
stat
e tra
nsfe
r.
Yes,
num
erou
s co
nditi
ons
incl
udin
g bu
sine
ss te
st a
nd
anti-
abus
e pr
ovis
ions
.
Yes,
alth
ough
a ru
ling
is n
orm
ally
sou
ght w
ith
resp
ect t
o th
e co
nditi
ons
requ
ired
to b
e m
et fo
r a ta
x fre
e de
mer
ger/s
plit-
off.
Yes,
up
to 8
mon
ths
for
inco
me
tax
purp
oses
.N
o, fo
r leg
al, a
ccou
ntin
g,
wag
e ta
x an
d VA
T pu
rpos
es.
No
loss
es c
an b
e tra
nsfe
rred
to th
e re
ceiv
ing/
new
com
pany
. Dem
erge
r/sp
lit-o
ff pr
oced
ure,
a p
ro
rata
por
tion
of th
e ta
x N
OL
of th
e tra
nsfe
ror a
re
canc
elle
d.N
o lo
sses
of t
he tr
ansf
eror
ar
e ca
ncel
led
in a
dro
p-do
wn
proc
edur
e, w
hich
ca
n al
so b
e co
nduc
ted
tax-
free.
Hun
gary
A de
mer
ger/s
plit-
off i
s no
t sub
ject
to c
orpo
rate
in
com
e ta
x, V
AT o
r sta
mp
duty
, pro
vide
d th
at th
ere
is n
o re
valu
atio
n of
ass
ets
durin
g th
e de
mer
ger/
split
-off.
No
Yes
No
NO
Ls o
f the
tran
sfer
ring/
dem
ergi
ng c
ompa
ny m
ay
be c
arrie
d fo
rwar
d to
the
rece
ivin
g/ne
w c
ompa
ny.
NO
Ls in
curr
ed in
200
4 an
d th
erea
fter m
ay b
e ca
rrie
d fo
rwar
d w
ithou
t any
tim
e lim
it. T
ime
limita
tions
on
carr
y fo
rwar
ds m
ay a
pply
to
loss
es in
curr
ed b
efor
e 20
04.
Italy
Yes
The
dem
erge
r is
tax
free
by o
pera
tion
of
law
. How
ever
, the
tax
adm
inis
tratio
n is
ent
itled
to
dis
allo
w th
e de
mer
ger
for t
ax p
urpo
ses
if it
was
ca
rrie
d ou
t for
the
sole
pu
rpos
e of
ach
ievi
ng ta
x be
nefit
s an
d w
ithou
t any
bu
sine
ss p
urpo
se (a
nti-
abus
ive
rule
).
A ru
ling
coul
d be
obt
aine
d to
pre
vent
the
appl
icat
ion
of th
e an
ti-ab
usiv
e ru
le a
nd
obta
in a
ckno
wle
dgm
ent o
f th
e pr
esen
ce o
f a b
usin
ess
to th
e pr
esen
ce o
f a
busi
ness
.
Yes,
but
not
prio
r to
the
date
of i
ncor
pora
tion
of th
e co
mpa
nie(
s) w
hich
are
the
bene
ficia
ry o
f the
mer
ger.
Yes,
if th
e de
mer
ger i
s ta
x-fre
e, th
e N
OLs
can
be
trans
ferr
ed in
pro
porti
on to
th
e ne
t wor
th tr
ansf
erre
d,
subj
ect t
o ce
rtain
co
nditi
ons.
52 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is a
dem
erge
r / s
plit-
off i
n yo
ur ju
risdi
ctio
n ta
x-fre
e?
If a
dem
erge
r / s
plit-
off i
s ta
x-fre
e in
you
r jur
isdi
ctio
n,
is s
uch
dem
erge
r / s
plit-
off
subj
ect t
o co
nditi
ons?
Can
a ru
ling
with
resp
ect
to th
e ta
x co
nseq
uenc
es
of a
dem
erge
r / s
plit-
off b
e ob
tain
ed?
May
a d
emer
ger /
spl
it-of
f pro
cedu
re b
e m
ade
retro
activ
e fo
r acc
ount
ing
and
tax
purp
oses
?
Can
in a
dem
erge
r /
split
-off
proc
edur
e lo
sses
be
tran
sfer
red
from
the
trans
ferr
ing
/ dem
ergi
ng
com
pany
to th
e re
ceiv
ing
/ ne
w c
ompa
ny?
Net
herla
nds
Yes
Yes,
mai
nly
perta
inin
g to
ant
i-abu
se s
uch
as
busi
ness
mot
ive
test
and
a
thre
e ye
ar m
inim
um
hold
ing
perio
d w
ith re
gard
to
the
shar
es th
at w
ere
obta
ined
in re
latio
n to
th
e de
mer
ger/s
plit-
off.
In
som
e ca
ses
a ru
ling
is
man
dato
ry.
Yes,
man
dato
ry in
som
e ca
ses.
Ye
s, u
p to
1 y
ear a
nd
subj
ect t
o co
nditi
ons.
In
cas
e of
a d
emer
ger
whe
reby
the
dem
ergi
ng
entit
y ce
ases
to e
xist
, the
lo
sses
can
be
trans
ferr
ed.
In c
ase
of a
spl
it-of
f the
lo
sses
rem
ain
with
the
orig
inal
ent
ity a
nd c
anno
t be
tran
sfer
red
to th
e ac
quiri
ng c
ompa
ny.
Pol
and
Yes,
for i
ncom
e ta
x, V
AT
and
trans
fer t
ax.
No,
but
it m
ust b
e su
ppor
ted
with
bus
ines
s re
ason
s an
d m
ust n
ot b
e m
ade
only
in o
rder
to a
void
ta
xatio
n.
Yes
No
No
Rus
sia
Yes,
als
o fo
r VAT
, but
the
dem
erge
r will
gen
eral
ly
trigg
er a
full
tax
audi
t for
all
com
pani
es in
volv
ed.
No
Gen
eral
ly n
ot.
No
Yes,
but
onl
y if
the
orig
inal
en
tity
ceas
es to
exi
st.
Spa
inYe
s, in
cas
e th
e sp
ecia
l re
gim
e de
rived
from
the
EU
Dire
ctiv
e 90
/434
ap
plie
d to
the
oper
atio
n,
the
split
-up/
split
-off
will
be
tax-
free
and
only
re
gist
ratio
n an
d no
tary
fees
w
ould
be
due.
Yes
Yes
Yes,
but
onl
y in
tota
l de
mer
ger/s
plit-
off
Yes,
but
not
in a
par
tial
dem
erge
r/spl
it-of
f.
53Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is a
dem
erge
r / s
plit-
off i
n yo
ur ju
risdi
ctio
n ta
x-fre
e?
If a
dem
erge
r / s
plit-
off i
s ta
x-fre
e in
you
r jur
isdi
ctio
n,
is s
uch
dem
erge
r / s
plit-
off
subj
ect t
o co
nditi
ons?
Can
a ru
ling
with
resp
ect
to th
e ta
x co
nseq
uenc
es
of a
dem
erge
r / s
plit-
off b
e ob
tain
ed?
May
a d
emer
ger /
spl
it-of
f pro
cedu
re b
e m
ade
retro
activ
e fo
r acc
ount
ing
and
tax
purp
oses
?
Can
in a
dem
erge
r /
split
-off
proc
edur
e lo
sses
be
tran
sfer
red
from
the
trans
ferr
ing
/ dem
ergi
ng
com
pany
to th
e re
ceiv
ing
/ ne
w c
ompa
ny?
Sw
eden
Yes
Yes,
the
mos
t im
porta
nt
bein
g th
at th
e tra
nsfe
rrin
g co
mpa
ny m
ust c
ease
to
exis
t.
Yes
Yes,
for t
ax a
nd a
ccou
ntin
g pu
rpos
es th
e re
cipi
ent
com
pani
es a
re d
eem
ed to
ha
ve ru
n th
e tra
nsfe
rred
busi
ness
from
the
busi
ness
da
y co
mm
enci
ng th
e da
y af
ter t
he e
nd o
f the
de
mer
ging
com
pany
’s la
st
finan
cial
yea
r.
Yes,
but
onl
y in
par
t and
su
bjec
t to
stric
t con
ditio
ns.
Sw
itzer
land
Yes,
pro
vide
d th
at c
erta
in
cond
ition
s ar
e fu
lfille
d.
Can
tona
l rea
l est
ate
trans
fer t
axes
may
stil
l be
due
in c
erta
in c
anto
ns.
Yes,
mul
tiple
con
ditio
ns,
incl
udin
g ac
tivity
test
s an
d in
som
e ca
ses
min
imum
ho
ldin
g re
quire
men
ts.
Req
uire
men
ts m
ay v
ary
for
cant
onal
and
fede
ral t
axes
, as
wel
l as
for V
AT.
Yes
Yes,
max
imum
6 m
onth
s re
troac
tive
effe
ct.
Yes,
sub
ject
to ta
x ab
use
theo
ry, i
f the
dem
erge
r is
mot
ivat
ed e
ssen
tially
by
tax
reas
ons.
Ukr
aine
Yes,
pro
vide
d th
at c
erta
in
cond
ition
s ar
e fu
lfille
d.VA
T m
ay b
e ap
plie
d in
ce
rtain
situ
atio
ns.
Yes,
sub
ject
to c
erta
in
cond
ition
s, in
clud
ing
busi
ness
mot
ive
test
.
Yes,
but
onl
y w
ith li
mite
d ap
plic
atio
n.N
oYe
s, s
ubje
ct to
cer
tain
co
nditi
ons.
Uni
ted
Kin
gdom
Yes
Yes,
pot
entia
l min
imum
sh
areh
oldi
ng re
quire
men
t in
cer
tain
situ
atio
ns.
Yes
No
Yes,
sub
ject
to c
ondi
tions
.
54 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
SU
MM
AR
Y O
F S
TATU
TOR
Y D
EM
ER
GE
RS
/SP
LIT-
OFF
S (P
AR
T II:
NO
N-T
AX
AS
PE
CTS
)1.
AM
ERIC
AS
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f/spl
it-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsA
rgen
tina
Yes
•B
OD
mee
ting
•S
peci
al b
alan
ce s
heet
s •
Exe
cutio
n of
pre
limin
ary
dem
erge
r/spl
it-of
f ag
reem
ent
•N
otic
e to
and
con
sent
fro
m e
mpl
oyee
s •
EG
M
•S
tatu
tory
pub
licat
ions
•W
aitin
g pe
riod
for
cred
itors
’ obj
ectio
ns •
Exe
cutio
n of
fina
l de
mer
ger/s
plit-
off
agre
emen
t and
not
aria
l de
ed •
Reg
istra
tion
with
the
Pub
lic R
egis
try o
f C
omm
erce
and
tax
auth
oriti
es •
Filin
g w
ith o
ther
re
gist
ries
and
gove
rnm
ent a
genc
ies
6 m
onth
s / 1
2 m
onth
sN
otic
e to
em
ploy
ees
is
requ
ired.
Als
o, c
onse
nt
wou
ld b
e re
quire
d fro
m
empl
oyee
s if
the
dem
erge
r /s
pin-
off d
oes
not i
nvol
ve
the
trans
fer o
f ass
ets
and
only
invo
lves
tran
sfer
of
empl
oym
ent c
ontra
cts.
Non
e.
55Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f/spl
it-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsB
razi
lYe
s
•P
roto
col o
f spl
it-of
f •
Bas
e ba
lanc
e sh
eet
•O
btai
n ap
prai
sal r
epor
t fro
m 3
exp
erts
or a
n in
depe
nden
t aud
iting
fir
m •
Tax
good
sta
ndin
g ce
rtific
ates
•E
GM
mee
ting
•A
men
dmen
ts o
f the
A
rticl
es o
f Org
aniz
atio
n:
(i) o
f the
com
pany
to
be te
rmin
ated
upo
n th
e m
erge
r app
rovi
ng,
amon
g ot
her i
ssue
s,
such
term
inat
ion
as a
re
sult
of th
e m
erge
r; an
d (ii
) of t
he s
urvi
ving
co
mpa
ny a
ppro
ving
, am
ong
othe
r iss
ues,
th
e ap
poin
tmen
t of t
he
expe
rts/a
ccou
ntin
g fir
m,
the
Pro
toco
l of M
erge
r an
d
At l
east
20-
30 b
usin
ess
days
•
Con
tract
ual a
lloca
tion
of
labo
r lia
bilit
ies
mig
ht n
ot
be e
nfor
ceab
le a
gain
st
third
par
ties
•E
mpl
oyee
s’ ri
ght m
ust
not b
e af
fect
ed
•E
mpl
oym
ent
agre
emen
ts m
ust n
ot
be a
ffect
ed b
y ch
ange
of
cor
pora
te o
wne
rshi
p st
ruct
ure
Pro
s:
•Li
cens
es a
nd
regi
stra
tions
tran
sfer
by
succ
essi
on •
Reg
istra
tion
of fo
reig
n in
vest
men
t app
ortio
ned
on a
pro
-rat
a ba
ses
•Th
e re
ceiv
ing
com
pany
m
ay b
e ex
pose
d to
lia
bilit
y fo
r obl
igat
ions
tra
nsfe
rred
to it
onl
y,
with
out a
ny jo
int l
iabi
lity
tow
ard
the
dist
ribut
ing
com
pany
. C
on:
•Ti
me
cons
umin
g
56 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f/spl
it-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsJu
stifi
catio
n, th
e m
erge
r its
elf,
the
chan
ge in
th
e co
rpor
ate
capi
tal
resu
lting
from
the
mer
ger (
if th
at is
the
case
), th
e ch
ange
in
the
purp
oses
of t
he
com
pany
if n
eces
sary
to
incl
ude
the
activ
ities
of
the
com
pany
to b
e te
rmin
ated
•Fi
ling
with
Com
pani
es’
Com
mer
cial
Reg
iste
r •
Pub
licat
ion
•Fo
r cor
pora
tions
, ap
prov
al a
nd
reco
mm
enda
tion
of
Boa
rd o
f Offi
cers
’ ap
prov
al re
quire
d an
d pu
blic
not
ice
requ
irem
ents
for E
GM
•If
ther
e is
fore
ign
inve
stm
ent m
ade
in
the
com
pani
es re
gist
er
the
mer
ger w
ith th
e el
ectro
nic
syst
ems
of
the
Cen
tral B
ank
of
Bra
zil (
SIS
BA
CE
N)
with
in 3
0 ca
lend
ar d
ays
as o
f the
dat
e of
the
Am
endm
ents
to th
e A
rticl
es o
f Org
aniz
atio
n of
the
com
pani
es, u
nder
pe
nalty
of f
ine
57Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f/spl
it-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsC
anad
aN
o st
atut
ory
proc
edur
e,
but a
tax-
free
“but
terfl
y”
spin
-off
can
be a
chie
ved
thro
ugh
an a
sset
tran
sfer
ag
reem
ent f
ollo
wed
by
a sh
are
trans
fer a
gree
men
t.
•A
ppro
val o
f BO
D •
Sha
reho
lder
app
rova
l if
requ
ired
by b
ylaw
s •
Ass
ets
and
shar
e tra
nsfe
r agr
eem
ent
•S
peci
fic tr
ansf
er
docu
men
ts in
regi
stra
ble
form
in c
ase
of re
al
prop
erty
or i
ntel
lect
ual
prop
erty
righ
ts •
Ent
ry in
sha
reho
lder
re
gist
ry •
Issu
ance
of s
hare
ce
rtific
ates
No
spec
ific
time
line
as to
the
corp
orat
e im
plem
enta
tion.
But
a ta
x ru
ling
may
take
2-3
mon
ths
to o
btai
n.
Can
ada
is a
n of
fer/
acce
ptan
ce ju
risdi
ctio
n.
No
prio
r con
sulta
tion
with
w
orke
rs’ r
epre
sent
ativ
es/
coun
cil i
s re
quire
d.
N/A
Chi
leYe
s; s
tatu
tory
dem
erge
r pr
oced
ure
for s
tock
co
rpor
atio
ns.
Non
-sta
tuto
ry b
ut s
imila
r pr
oced
ure
for l
imite
d lia
bilit
y co
mpa
nies
.
Sto
ck c
orpo
ratio
ns:
•E
GM
and
not
ariz
atio
n of
its
min
utes
•R
egis
tratio
n of
EG
M
Min
utes
with
the
Com
mer
ce R
egis
ter
•P
ublic
atio
n of
EG
M
Min
utes
•A
ppro
val o
f the
Chi
lean
In
tern
al R
even
ue
Ser
vice
s
1-2
wee
ksTh
e ne
w e
mpl
oyer
as
sum
es th
e la
bor
rela
tions
hip
in re
plac
emen
t of
the
old
empl
oyer
. Th
e rig
hts
and
liabi
litie
s of
the
empl
oyee
s sh
all r
emai
n in
effe
ct w
ith th
e ne
w
empl
oyer
.
Pro
s:
•S
impl
er, l
ess
time
cons
umin
g, a
nd le
ss
expe
nsiv
e •
Sha
reho
lder
s/qu
ota-
hold
ers
are
gene
rally
fre
e to
dis
tribu
te th
e as
sets
and
liab
ilitie
s am
ong
the
com
pani
es
as lo
ng a
s ce
rtain
ge
nera
l lim
its a
re
resp
ecte
dLi
mite
d lia
bilit
y co
mpa
nies
:
•A
publ
ic d
eed
is
requ
ired
inst
ead
of
spec
ial s
hare
hold
ers’
m
eetin
g
58 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f/spl
it-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsC
olom
bia
Yes
•A
udite
d sp
ecia
l pur
pose
fin
anci
al s
tate
men
ts •
Spl
it-of
f/spl
it-up
pr
opos
al •
Sha
reho
lder
s’ m
eetin
g •
Pub
lic n
otifi
catio
n •
Not
ifica
tion
to c
redi
tors
•D
isse
ntin
g or
abs
ent
shar
ehol
ders
may
ex
erci
se w
ithdr
awal
rig
hts
•A
ppro
val o
f Com
pany
S
uper
inte
nden
cy, w
hen
requ
ired
(Gen
eral
cl
eara
nce
regi
me
now
av
aila
ble)
•N
otar
ial d
eed
•R
egis
tratio
n w
ith
Cha
mbe
r of C
omm
erce
6 m
onth
s“S
ubst
itutio
n of
em
ploy
ers”
oc
curs
aut
omat
ical
ly b
y op
erat
ion
of la
w.
Labo
r co
ntra
cts
are
trans
ferr
ed
on a
n “a
s is
” bas
is.
The
com
pani
es a
re
seve
rally
and
join
tly li
able
fo
r obl
igat
ions
rela
ted
to
exis
ting
labo
r con
tract
s.
To a
void
join
t lia
bilit
y,
exis
ting
labo
r con
tract
s m
ust b
e te
rmin
ated
bef
ore
the
split
-off/
split
-up.
The
ne
w c
ompa
ny m
ay re
-hire
th
e w
orke
rs p
ost s
plit-
off/
split
-up.
The
new
em
ploy
er is
re
spon
sibl
e fo
r pos
t-su
bstit
utio
n ob
ligat
ions
.
Pro
s:U
sual
ly e
asie
r pro
cess
to
trans
fer c
ontra
cts,
lice
nses
et
c.Fl
exib
le, g
ood
met
hod
to
rele
ase
trapp
ed c
ash
Gen
eral
cle
aran
ce re
gim
e ha
s re
duce
d tim
e in
volv
edC
ons:
•C
an b
e tim
e co
nsum
ing
and
expe
nsiv
e •
Join
t lia
bilit
y fo
r lab
or
oblig
atio
ns o
f oth
er
com
pani
es
Mex
ico
Yes
•S
hare
hold
ers’
mee
ting
•Fi
nanc
ial s
tate
men
ts
audi
ted
by a
n ex
tern
al
audi
tor
•N
otar
ize
and
file
the
spin
-off
reso
lutio
n in
th
e P
ublic
Reg
istry
of
Com
mer
ce.
•P
ublis
h th
e sp
in-o
ff re
solu
tion
•45
day
s w
aitin
g pe
riod
whe
re s
hare
hold
ers
or
cred
itors
may
judi
cial
ly
cont
est t
he s
pin-
off
From
45
cale
ndar
day
s to
18
wee
ksLe
gal e
ffect
s up
on th
e w
ork
forc
e va
ry d
epen
ding
on
whe
ther
non
e, s
ome
or
all o
f the
em
ploy
ees
are
trans
ferr
ed b
y op
erat
ion
of
law
to th
e ne
w c
ompa
ny.
Em
ploy
ees
can
be
trans
ferr
ed th
roug
h an
em
ploy
er s
ubst
itutio
n no
tice
proc
edur
e w
here
th
eir w
orki
ng c
ondi
tions
will
re
mai
n id
entic
al.
Bot
h th
e su
bstit
ute
and
the
subs
titut
ed e
mpl
oyer
s
Con
:
•Ti
me
cons
umin
g.
59Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f/spl
it-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
ds •
Not
ariz
e an
d re
gist
er
the
by-la
ws
of th
e ne
w
com
pany
in th
e P
ublic
R
egis
ter o
f Com
mer
ce •
Can
cel t
he re
gist
ratio
n of
the
extin
ct c
ompa
ny,
if ap
plic
able
are
join
tly li
able
for a
ny
pre-
subs
titut
ion
liabi
litie
s fo
r a p
erio
d of
6 m
onth
s. I
f th
ese
requ
irem
ents
are
not
sa
tisfie
d, th
e su
bstit
utio
n is
une
nfor
ceab
le a
nd th
e em
ploy
ee m
ay te
rmin
ate
for c
ause
.G
ener
ally,
em
ploy
ees
or
unio
ns c
an n
ot le
gally
op
pose
to a
dem
erge
r or
spl
it-of
f unl
ess
thei
r ac
quire
d rig
hts
are
affe
cted
.Th
e ne
w c
ompa
ny m
ust
notif
y la
bor,
soci
al s
ecur
ity
and
hous
ing
agen
cies
of
the
empl
oyer
sub
stitu
tion.
Uni
ted
Sta
tes
(Del
awar
e)N
oN
/AN
/AN
/AN
/A
Vene
zuel
aN
oN
/AN
/AN
/AN
/A
60 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
2. A
SIA
PAC
IFIC
C
ount
ryIs
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsA
ustra
liaYe
s, b
ut g
ener
ally
not
ap
plic
able
to w
holly
-ow
ned
corp
orat
e gr
oups
.
N/A
N/A
N/A
N/A
Chi
naYe
sS
pin-
off:
divi
sion
with
co
ntin
uanc
e of
the
exis
ting
entit
y.S
plit-
off:
divi
sion
by
diss
olut
ion
(i.e.
, the
tra
nsfe
rrin
g en
tity
diss
olve
s af
ter i
t tra
nsfe
rs it
s as
sets
to
two
or m
ore
entit
ies)
.
Diff
eren
t rul
es a
pply
to
dom
estic
ent
erpr
ises
an
d fo
reig
n-in
vest
ed
ente
rpris
es (F
IEs)
.(1
) Spi
n-of
f of F
IEs
•Fu
ll ca
pita
l con
tribu
tion
to th
e tra
nsfe
rrin
g co
mpa
ny •
App
ly fo
r gov
ernm
ent
appr
oval
•Fi
le th
e ap
plic
atio
n fo
r pr
elim
inar
y ap
prov
al
with
the
orig
inal
ap
prov
al a
utho
rity
of th
e tra
nsfe
rrin
g co
mpa
ny •
Not
ice
to k
now
n cr
edito
rs •
Pub
lic a
nnou
ncem
ent t
o cr
edito
rs a
t lar
ge •
Cre
dito
rs s
ubm
it cl
aim
s fo
r ful
l pay
men
t or
secu
rity
•Fi
le a
pplic
atio
ns fo
r fin
al a
ppro
val w
ith
the
orig
inal
app
rova
l au
thor
ity o
f the
tra
nsfe
rrin
g co
mpa
ny
and
obta
in fi
nal
appr
oval
180-
240
days
for F
IEs
The
labo
r con
tract
s w
ith
the
trans
ferr
ing
entit
y m
ust b
e te
rmin
ated
and
ne
w la
bor c
ontra
cts
mus
t be
sig
ned
with
the
new
co
mpa
ny.
If an
em
ploy
ee
refu
ses
to b
e tra
nsfe
rred
, th
e em
ploy
er m
ay
unila
tera
lly te
rmin
ate
the
empl
oyee
. La
bor u
nion
not
ifica
tion
is re
quire
d. T
he
man
agem
ent i
s re
quire
d to
lis
ten
to th
e op
inio
ns o
f the
la
bor u
nion
.
Pro
:
•N
o ad
ditio
nal r
egis
tere
d ca
pita
l nee
ds to
be
inve
sted
to e
stab
lish
the
new
com
pany
if
stru
ctur
ed p
rope
rly.
Con
s:
•Ti
me-
cons
umin
g •
Com
plex
61Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is th
ere
a lo
cal s
tatu
tory
de
mer
ger/s
pin-
off
proc
edur
e?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
ds •
The
new
com
pany
ob
tain
s its
app
rova
l ce
rtific
ate
•R
egis
ter t
he c
hang
es
in th
e tra
nsfe
rrin
g co
mpa
ny w
ith th
e re
gist
ratio
n au
thor
ity •
Reg
iste
r the
new
co
mpa
ny w
ith th
e re
gist
ratio
n au
thor
ity(2
) Spl
it-of
f of F
IEs:
S
ame
as a
bove
, with
ad
ditio
nal l
iqui
datio
n pr
oced
ures
requ
ired.
Hon
g K
ong
No
N/A
N/A
N/A
N/A
Japa
nYe
s •
Pre
pare
spi
n-of
f pla
n •
Con
sulta
tion
with
em
ploy
ees
whe
n re
quire
d •
Dis
clos
e pl
an a
nd
rela
ted
docu
men
tatio
n •
Not
ify e
mpl
oyee
s/em
ploy
ees
who
are
ob
ject
to tr
ansf
er/
excl
usio
n •
Sha
reho
lder
s’ m
eetin
g •
Sha
reho
lder
s op
posi
ng
the
spin
-off
plan
requ
est
the
com
pany
to b
uy o
ut
thei
r sha
res
Min
imum
two
mon
ths.
•If
the
com
pany
follo
ws
certa
in p
roce
dure
s un
der t
he L
abor
C
ontra
cts
Tran
sfer
La
ws,
em
ploy
ees
who
are
sub
stan
tially
en
gage
d in
wor
k fo
r th
e bu
sine
ss th
at w
ill
be tr
ansf
erre
d m
ay b
e co
mpe
lled
to tr
ansf
er to
th
e re
ceiv
ing
entit
y.
Pro
s:
•C
onse
nts
of e
mpl
oyee
s (w
ho a
re s
ubst
antia
lly
enga
ged
in w
ork
for
the
busi
ness
that
will
be
tran
sfer
red)
or
third
par
ties
are
not
nece
ssar
y
62 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is th
ere
a lo
cal s
tatu
tory
de
mer
ger/s
pin-
off
proc
edur
e?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
ds •
Ann
ounc
emen
t •
Not
ice
to c
redi
tors
•R
egis
ter s
pin-
off w
ith
Lega
l Affa
irs B
urea
u •
Con
tinue
dis
clos
ure
of
spin
-off
docu
men
tatio
n fo
r ano
ther
six
mon
ths
•W
here
em
ploy
ees
are
trans
ferr
ed w
ith
busi
ness
ass
ets,
the
dist
ribut
ing
com
pany
m
ust f
ile a
term
inat
ion
notic
e an
d th
e re
ceiv
ing
com
pany
mus
t file
a
corr
espo
ndin
g em
ploy
men
t not
ice
with
the
rele
vant
S
ocia
l Ins
uran
ce
and
Une
mpl
oym
ent
Insu
ranc
e of
fices
. •
Col
lect
ive
barg
aini
ng
agre
emen
ts m
ay re
quire
un
ion’
s co
nsen
t or p
rior
cons
ulta
tions
with
the
unio
n. •
Pro
tect
ion
of
empl
oyee
’s p
rivac
y:
the
“dis
clos
ure
due
to c
orpo
rate
mer
ger”
ex
empt
ion
allo
ws
info
rmat
ion
to b
e di
sclo
sed
to th
e re
ceiv
ing
com
pany
.M
alay
sia
No
(lim
ited
exce
ptio
ns
avai
labl
e)N
/AN
/AN
/AN
/A
63Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is th
ere
a lo
cal s
tatu
tory
de
mer
ger/s
pin-
off
proc
edur
e?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsP
hilip
pine
sYe
s •
Inco
rpor
ate
the
spin
-off
entit
y an
d ha
ve th
e sa
me
regi
ster
ed w
ith th
e Se
curit
ies
and
Exch
ange
C
omm
issio
n •
Obt
ain
appr
oval
of
shar
ehol
ders
and
bo
ard
of d
irect
ors
of th
e tra
nsfe
rring
ent
ity a
nd th
e sp
in-o
ff en
tity
•C
ompl
y w
ith p
rior n
otice
or
con
sent
requ
irem
ents
un
der e
xistin
g co
ntra
cts,
lic
ense
s, p
erm
its, o
r re
gist
ratio
ns o
f the
tra
nsfe
rring
ent
ity •
Com
ply
with
requ
irem
ents
un
der t
he P
hilip
pine
Bul
k Sa
les
Law,
if n
eces
sary
•Im
plem
ent t
he s
pin-
off b
y tra
nsfe
rring
the
rele
vant
bu
sines
s an
d as
sets
to
the
spin
-off
entit
y •
Amen
d th
e ex
istin
g co
ntra
cts,
licen
ses,
pe
rmits
, or r
egist
ratio
ns
of th
e tra
nsfe
rring
ent
ity,
as m
ay b
e ne
cess
ary;
co
mpl
y w
ith re
leva
nt
post
-spi
n-of
f not
ice
requ
irem
ents
•O
btai
n th
e re
leva
nt
perm
its, l
icens
es, a
nd
regi
stra
tions
for t
he s
pin-
off e
ntity
App
roxi
mat
ely
2-3
mon
ths,
bu
t can
take
long
er u
nder
ce
rtain
circ
umst
ance
s
Con
sent
of e
mpl
oyee
s to
be
trans
ferr
ed to
the
spin
-off
entit
y is
requ
ired.
G
ener
ally,
how
ever
, th
e sp
in-o
ff en
tity
is
not r
equi
red
to a
bsor
b th
e em
ploy
ees
of th
e tra
nsfe
rrin
g en
tity.
Pro
:
•Th
e tra
nsfe
rrin
g en
tity
reta
ins
all a
sset
s an
d lia
bilit
ies
not o
ther
wis
e ac
quire
d or
ass
umed
by
the
purc
hase
r.C
ons:
•Te
nds
to b
e m
ore
com
plex
bec
ause
th
e tra
nsac
tion
coul
d in
volv
e th
e tra
nsfe
r of
vario
us c
ateg
orie
s of
as
sets
and
liab
ilitie
s to
th
e tra
nsfe
ree
•
Eac
h tra
nsfe
r of a
ca
tego
ry o
f ass
ets
and
liabi
litie
s m
ay re
quire
di
ffere
nt le
gal t
reat
men
t an
d do
cum
enta
tion
64 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is th
ere
a lo
cal s
tatu
tory
de
mer
ger/s
pin-
off
proc
edur
e?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsS
inga
pore
No
N/A
N/A
N/A
N/A
Taiw
anYe
s •
Boar
d m
eetin
g or
sh
areh
olde
rs’ m
eetin
g. •
Exec
utio
n of
the
spin
-off
agre
emen
t, if
appl
icab
le.
•Fa
irnes
s op
inio
n. •
Appr
oval
by
the
Inve
stm
ent C
omm
issi
ons
if fo
reig
n in
vest
ors
are
invo
lved
. •
Appl
icat
ion
to th
e go
vern
men
t age
ncy
to
inco
rpor
ate
or a
men
d th
e re
gist
ratio
n of
the
rece
ivin
g co
mpa
ny.
•Em
ploy
ee tr
ansf
er.
•C
PA c
ertif
icat
ion
of
capi
tal i
ncre
ase.
App
roxi
mat
ely
2-3
mon
ths.
Em
ploy
ees
may
requ
est
seve
ranc
e pa
y if
they
re
fuse
to b
e tra
nsfe
rred
.
Con
:Ti
me
cons
umin
g.
Thai
land
No
N/A
N/A
N/A
N/A
65Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
3. E
MEA
C
ount
ry
Is th
ere
a lo
cal s
tatu
tory
de
mer
ger/s
pin-
off
proc
edur
e?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsA
ustri
aYe
s •
Spi
n-of
f pla
n an
d sp
in-
off a
gree
men
t (A
ustri
an
nota
rial d
eed)
•A
udit
of s
pin-
off p
lan
•W
ritte
n re
port
of th
e su
perv
isor
y bo
ard
of th
e co
mpa
ny e
ffect
ing
the
spin
-off
•S
hare
hold
er’s
re
solu
tions
of e
ach
invo
lved
ent
ity
(not
ariz
ed m
inut
es)
•N
otifi
catio
n to
the
com
mer
cial
regi
ster
•S
pin-
off b
alan
ce s
heet
an
d th
e fin
al b
alan
ce
shee
t if t
he c
ompa
ny
effe
ctin
g th
e sp
in-o
ff is
liq
uida
ted
•Fi
ling
of d
ocum
ents
with
th
e re
leva
nt c
omm
erci
al
Cou
rt an
d A
ustri
an T
ax
Aut
horit
ies
2-3
mon
ths
depe
ndin
g on
the
stru
ctur
e of
the
dem
erge
r/spi
n-of
f and
the
type
of e
ntiti
es in
volv
ed.
Em
ploy
ees
are
trans
ferr
ed
to th
e ne
w c
ompa
ny b
y op
erat
ion
of la
w.
Tran
sfer
ha
s no
retro
activ
e ef
fect
.
Pro
:
•A
utom
atic
tran
sfer
of
asse
ts a
nd li
abili
ties
Con
:
•Ti
me-
cons
umin
g co
mpa
red
to o
ther
se
para
tion
met
hods
66 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsB
elgi
umYe
s •
Dem
erge
r pro
posa
l •
Filin
g of
dem
erge
r pr
opos
al w
ith th
e co
mm
erci
al c
ourt
•D
emer
ger r
epor
t by
the
Boar
d •
Rep
ort b
y th
e st
atut
ory
audi
tor
•M
ake
rele
vant
repo
rts
and
info
rmat
ion
(incl
udin
g in
terim
ac
coun
ts, i
f nec
essa
ry)
avai
labl
e •
Extra
ordi
nary
sh
areh
olde
rs’ m
eetin
g of
ea
ch in
volv
ed c
ompa
ny
in th
e pr
esen
ce o
f a
nota
ry p
ublic
(6 w
eeks
af
ter f
iling
of d
emer
ger
prop
osal
)Fi
le e
xtra
ct o
f sh
areh
olde
rs’ r
esol
utio
ns
with
the
rele
vant
co
mm
erci
al c
ourt.
3 to
6 m
onth
sIf
the
busi
ness
to b
e tra
nsfe
rred
is a
sta
nd-
alon
e bu
sine
ss, a
ll em
ploy
ees
auto
mat
ical
ly
trans
fer w
ith a
ll ex
istin
g rig
hts
and
oblig
atio
ns.
If th
e tra
nsfe
rred
bus
ines
s is
not
a s
tand
-alo
ne
busi
ness
, em
ploy
ee
trans
fers
are
sub
ject
to
indi
vidu
al c
onse
nt.
The
com
pany
nee
ds to
co
mpl
y w
ith n
eces
sary
in
form
atio
n an
d co
nsul
tatio
n ob
ligat
ions
.
Pro
:
•A
utom
atic
tran
sfer
of
asse
ts a
nd li
abili
ties
(i.e.
, no
cons
ent
nece
ssar
y in
prin
cipl
e)C
ons:
•Ti
me-
cons
umin
g (6
w
eeks
wai
ting
perio
d)Fo
rmal
ity re
quire
men
ts
67Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsC
zech
Rep
ublic
Yes
•Ap
prov
al b
y Bo
ard
of
dire
ctor
s •
Clo
sing
finan
cial
stat
emen
t and
ope
ning
ba
lanc
e sh
eet p
repa
red
by a
udito
rs •
Eval
uatio
n of
ass
ents
an
d lia
biliti
es b
y co
urt
appo
inte
d ex
pert
•C
onse
nt o
f the
co
mpe
tent
tax
offic
e fo
r der
egist
ratio
n of
the
diss
olvin
g co
mpa
ny •
Det
aile
d re
ports
on
the
dem
erge
r pre
pare
d by
th
e bo
ard
of d
irect
ors
and
the
supe
rviso
ry b
oard
re
spec
tivel
y •
File
col
lect
ion
of
docu
men
ts w
ith th
e C
omm
ercia
l Reg
ister
; pu
blica
tion
of s
uch
filing
s an
d no
tice
to c
redi
tors
•Pr
ovid
e ad
ditio
nal
info
rmat
ion
to th
e re
gist
ered
offi
ce o
f the
di
ssol
ving
com
pany
•In
form
and
con
sult
with
the
trade
uni
ons,
w
orks
cou
ncils
and
/or
empl
oyee
s
2-4
mon
ths
•O
blig
atio
n to
info
rm
and
cons
ult w
ith tr
ade
unio
ns (i
f app
licab
le)
rega
rdin
g tra
nsfe
r of
empl
oyee
s •
In th
e ab
senc
e of
trad
e un
ion,
mus
t inf
orm
and
co
nsul
t with
indi
vidu
al
empl
oyee
s w
ho w
ill b
e af
fect
ed b
y th
e tra
nsfe
r •
Indi
vidu
al e
mpl
oyee
s ha
ve n
o rig
ht to
reje
ct
the
trans
fer
•A
ll te
rms
and
cond
ition
s of
the
empl
oym
ent m
ust
rem
ain
the
sam
e
All
met
hods
are
gen
eral
ly
very
sim
ilar i
n te
rms
of
timin
g, c
ompl
exity
and
co
sts.
68 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
ds •
App
rova
l by
shar
ehol
ders
’ mee
ting
•R
egis
ter c
ompa
ny
diss
olut
ion,
del
ete
the
diss
olve
d co
mpa
ny
from
the
Com
mer
cial
R
egis
ter a
nd re
gist
er
the
dem
erge
r •
Pos
t dem
erge
r act
ions
(e
.g.,
notif
y st
ate
auth
oriti
es)
Egy
ptYe
sA
boar
d m
eetin
g to
ap
prov
e th
e de
mer
ger
in p
rinci
pal a
nd re
fer t
he
mat
ter t
o th
e E
xtra
ordi
nary
G
ener
al M
eetin
g of
the
Com
pany
(“E
GM
”),
Exte
ndin
g th
e in
vitat
ion
to a
ll th
e sh
areh
olde
rs to
an
EGM
to
app
rove
the
dem
erge
r in
prin
cipa
l and
app
oint
ing
an
audi
ting
firm
to p
erfo
rm th
e re
-eva
luat
ion
of th
e C
ompa
ny,
Hol
ding
the
EGM
ado
ptin
g th
e ab
ove-
men
tione
d re
solu
tions
,Pr
epar
ing
a de
mer
ger
cont
ract
bet
wee
n th
e sh
areh
olde
rs w
here
they
ag
ree
on th
e te
rms
of th
e sp
lit-o
ff, th
e nu
mbe
r of
resu
lting
com
pani
es a
nd
the
asse
ts a
nd li
abilit
ies
that
w
ill b
e pa
rt of
eac
h of
the
resu
lting
com
pani
es,
Aro
und
one
year
All
empl
oyee
s w
ill re
mai
n a
part
of th
e su
rviv
ing
com
pany
, unl
ess
an
agre
emen
t is
reac
hed
with
so
me
of th
e em
ploy
ees
to b
e tra
nsfe
rred
to th
e re
sulti
ng c
ompa
ny(ie
s).
Usu
ally,
the
empl
oyee
s to
be
tran
sfer
red
to th
e ne
w
com
pany
(ies)
will
requ
est
that
thei
r tre
atm
ent r
emai
n th
e sa
me
and
the
perio
d of
em
ploy
men
t with
the
surv
ivin
g co
mpa
ny(ie
s) to
be
cal
cula
ted
as p
art o
f th
eir s
ervi
ce d
urat
ion
in th
e ne
w c
ompa
ny(ie
s).
Dem
erge
r allo
ws
unbu
ndlin
g th
e bu
sine
ss,
eith
er h
oriz
onta
lly o
r ve
rtica
lly.
How
ever
, de
mer
ger c
an b
e ex
pens
ive
and
time-
cons
umin
g.
69Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsR
e-ev
alua
tion
repo
rt to
be
conc
lude
d by
the
appo
inte
d au
dito
r(s)
for
each
pro
pose
d re
sulti
ng
com
pany
and
app
rove
d by
th
e B
oard
,R
e-ev
alua
tion
repo
rt to
be
pre
sent
ed to
the
GA
FI,
whi
ch w
ill, i
nter
nally
, ref
er
the
repo
rt to
the
CM
A fo
r its
revi
ew,
Dec
ree
of th
e C
hairm
an
of th
e G
AFI
on
the
prel
imin
ary
appr
oval
on
the
split
-off,
Re-
eval
uatio
n re
port
as
revi
ewed
by
the
GA
FI to
be
pre
sent
ed to
the
EG
M
for f
inal
app
rova
l,P
rese
ntin
g th
e m
inut
es
of th
e ab
ove
mee
ting
for a
uthe
ntic
atio
n an
d ap
prov
al b
y th
e G
AFI
,O
nce
the
min
utes
are
ap
prov
ed, t
he s
hare
hold
ers
of th
e pr
opos
ed re
sulti
ng
com
pany
/ies
shal
l pre
pare
th
e pr
opos
ed A
rticl
es o
f A
ssoc
iatio
n, a
ndTh
e no
rmal
inco
rpor
atio
n pr
oced
ures
of t
he re
sulti
ng
com
pany
/ies
are
then
co
nclu
ded.
70 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsFr
ance
Yes
Spi
n-of
f: th
e tra
nsfe
rrin
g en
tity
diss
olve
s.C
ontri
butio
n of
an
auto
nom
ous
bran
ch o
f ac
tivity
: the
tran
sfer
ring
entit
y co
ntin
ues
its
exis
tenc
e.
•P
rior i
nfor
mat
ion
and
cons
ulta
tion
of th
e w
orks
cou
ncil
(if a
ny)
•In
terv
entio
n of
a c
ourt
appo
inte
d ap
prai
ser
(unl
ess
exem
pted
) •
Inte
rim a
ccou
nts
may
be
requ
ired
•P
rior a
utho
rizat
ion
of
the
Boa
rd o
f Dire
ctor
s •
File
the
dem
erge
r ag
reem
ent w
ith th
e Tr
ade
Reg
istri
es
and
publ
ish
in a
le
gal a
nnou
ncem
ent
new
spap
er •
Sha
reho
lder
s’ m
eetin
g ap
prov
es th
e de
mer
ger
Reg
istra
tion,
pub
licat
ion
and
filin
g fo
rmal
ities
with
th
e Fr
ench
tax
auth
ority
an
d Tr
ade
Reg
iste
rs.
At m
inim
um 3
-4 m
onth
sP
rior i
nfor
mat
ion
and
cons
ulta
tion
with
the
wor
ks
coun
cil i
s re
quire
d be
fore
an
y de
finiti
ve d
ecis
ion
is ta
ken.
But
a n
egat
ive
opin
ion
will
not
sto
p th
e de
mer
ger p
roje
ct.
Pro
per s
teps
nee
d to
be
take
n in
ord
er to
hav
e a
clea
r par
titio
n of
the
empl
oyee
s en
gage
d in
the
busi
ness
to b
e tra
nsfe
rred
.
Con
:
•Ti
me
cons
umin
g an
d m
ore
com
plic
ated
co
mpa
red
to o
ther
se
para
tion
met
hods
. Ve
ry ra
re in
pra
ctic
e.
Ger
man
yYe
s •
Dra
ft de
mer
ger/s
plit-
off
agre
emen
t •
Year
end
or in
terim
ba
lanc
e sh
eet (
mus
t be
audi
ted
if th
e an
nual
fin
anci
al s
tate
men
t re
quire
s au
dit)
•S
ubm
it th
e dr
aft
dem
erge
r/spl
it-of
f ag
reem
ent t
o w
orks
co
unci
l
App
rox.
thre
e m
onth
s pl
us
one
mon
th w
aitin
g pe
riod
for t
he w
orks
cou
ncil
(ent
ire p
erio
d ca
n be
sh
ort a
s re
quire
d in
the
indi
vidu
al c
ase)
Allo
catio
n/tra
nsfe
r of
exis
ting
wor
k fo
rce
by
oper
atio
n of
law
.E
mpl
oyee
s m
ay o
bjec
t to
trans
fer.
Pro
:
•P
rovi
des
for s
tatu
tory
tra
nsfe
r of l
iabi
litie
s an
d pa
yabl
es -
no c
onse
nt
requ
ired
from
cre
dito
rs
(uni
vers
al s
ucce
ssio
n ru
les)
71Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
ds •
Exe
cute
not
aria
l dee
d em
body
ing
dem
erge
r/sp
lit-o
ff ag
reem
ent a
nd
appr
oval
reso
lutio
n by
sh
areh
olde
rs m
eetin
g fo
llow
ing
expi
ry o
f one
m
onth
from
sub
mis
sion
of
dra
ft to
wor
ks c
ounc
il •
Obt
ain
inde
pend
ent
CPA
app
rais
al if
the
rece
ivin
g co
mpa
ny
issu
es n
ew s
hare
s •
Add
ition
al p
roce
dure
s fo
r lis
ted
com
pani
es
Con
s:
•N
orm
ally
mor
e co
stly
•R
isky
bec
ause
of
stat
utor
y tra
nsfe
r of
liabi
litie
s (w
hich
wou
ld
othe
rwis
e re
mai
n w
ith
trans
fero
r) •
Invo
lves
mor
e co
mpl
ex
proc
edur
es
Hun
gary
Yes
•D
emer
ger/s
pin-
off
prop
osal
s •
Sha
reho
lder
s m
eetin
g •
Dra
ft ba
lanc
e sh
eets
an
d in
vent
ory
of
asse
ts, d
raft
open
ing
inve
ntor
y of
ass
ets
and
othe
r rel
evan
t fin
anci
al
stat
emen
ts •
Pre
pare
a s
ettle
men
t pr
opos
al w
ith re
spec
t to
any
dep
artin
g sh
areh
olde
rs •
Pre
pare
the
dem
erge
r ag
reem
ent
•P
repa
re th
e A
rticl
es
of A
ssoc
iatio
n of
the
com
pany
invo
lved
App
rox.
6 m
onth
s •
Info
rm a
nd c
onsu
lt w
ith
the
trade
uni
on,
wor
ks
coun
cil o
r em
ploy
ee
com
mitt
ee •
Pro
babl
y ne
ed to
obt
ain
a w
ritte
n op
inio
n of
the
unio
n or
wor
ks c
ounc
il.
Failu
re to
do
so m
ight
in
valid
ate
the
dem
erge
r/sp
lit-o
ff.
Pro
:
•G
ener
ally,
lega
l su
cces
sion
by
oper
atio
n of
law
(inc
ludi
ng
auto
mat
ic tr
ansf
er o
f co
ntra
cts,
lice
nses
and
em
ploy
ees)
Con
s:
•R
equi
res
mor
e co
mpl
ex
docu
men
tatio
n •
Acc
ount
ing
cost
s •
Tim
e-co
nsum
ing
•C
redi
tors
are
ent
itled
to
gua
rant
ees
unde
r ce
rtain
circ
umst
ance
s
72 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
ds •
Pre
pare
tran
sfor
mat
ion
plan
, if n
eces
sary
•S
econ
d sh
areh
olde
r’s
mee
ting
to a
ppro
ve th
e de
mer
ger a
gree
men
t an
d ot
her r
elat
ed
corp
orat
e an
d fin
anci
al
docu
men
ts •
Pub
lic a
nnou
ncem
ent
•A
pply
to re
gist
er th
e de
mer
ger i
n th
e Tr
ade
Reg
istry
•Th
e C
ourt
of
Reg
istra
tion
regi
ster
s th
e de
mer
ger
•P
repa
re fi
nal b
alan
ce
shee
ts a
nd in
vent
ory
of
asse
tsIta
lyYe
s •
Boa
rd o
f Dire
ctor
’s
mee
ting
to a
ppro
ve th
e de
mer
ger p
lan
•Fi
le th
e de
mer
ger p
lan
with
the
Com
pany
’s
Reg
istry
and
oth
er
gove
rnm
ent a
genc
ies
•D
epos
it th
e de
mer
ger
plan
and
fina
ncia
l st
atem
ents
for
shar
ehol
ders
’ ins
pect
ion
•R
egis
ter t
he d
emer
ger
plan
with
the
Com
pani
es’ R
egis
try
3-5
mon
ths
Mus
t giv
e U
nion
prio
r no
tice.
E
mpl
oyee
s sh
ould
be
trans
ferr
ed u
nder
the
sam
e co
nditi
ons.
Pro
:
•Th
e pr
oced
ure
is
stra
ight
forw
ard.
Con
s:
•Ti
me-
cons
umin
g
73Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
ds •
Ext
raor
dina
ry
shar
ehol
ders
’ mee
ting
to a
ppro
ve th
e de
mer
ger i
n fa
vor o
f a
new
com
pany
•Fi
le th
e sh
areh
olde
r’s
reso
lutio
n w
ith th
e R
egis
try O
ffice
and
the
Com
pani
es’ R
egis
try •
2-m
onth
per
iod
for t
he
cred
itors
to o
ppos
e th
e de
mer
ger
•E
xecu
te a
nd fi
le th
e de
mer
ger d
eed
with
the
Com
pani
es’ R
egis
ter
Net
herla
nds
Yes
•R
eque
st a
dvic
e fro
m
Wor
ks C
ounc
il •
Pre
pare
spi
n-of
f pro
posa
l and
ex
plan
ator
y no
tes
•O
btai
n au
dito
r’s
stat
emen
t (if
requ
ired)
•P
repa
re a
rticl
es o
f as
soci
atio
n an
d ap
ply
for s
tate
men
t of
no-o
bjec
tion
of D
utch
M
inis
try o
f Jus
tice
for
inco
rpor
atio
n of
new
en
titie
s •
File
spi
n-of
f pro
posa
l w
ith e
xhib
its (i
nclu
ding
la
test
thre
e an
nual
ac
coun
ts, a
nnua
l re
ports
and
inte
rim
stat
emen
ts)
6-8
wee
ks •
Req
uest
adv
ice
from
Wor
ks C
ounc
il in
a ti
mel
y m
anne
r in
adv
ance
of t
he
deci
sion
to b
e ta
ken.
A
Sta
ff R
epre
sent
atio
n an
d S
taff
mee
ting
is
entit
led
to g
ive
advi
ce
if th
e de
mer
ger/s
plit-
off a
ffect
s th
e jo
bs o
r em
ploy
men
t con
ditio
ns
of a
t lea
st 2
5%of
the
empl
oyee
s.
•O
nly
the
Wor
ks C
ounc
il ca
n ta
ke le
gal a
ctio
ns to
op
pose
the
dem
erge
r/sp
lit-o
ff.
Pro
s:
•A
sset
s an
d lia
bilit
ies
are
trans
ferr
ed b
y op
erat
ion
of la
w •
Sav
e co
ntra
ctua
l re
stric
tions
, no
third
pa
rty c
onse
nt o
r no
tific
atio
n is
requ
ired
•P
ost-s
pin-
off l
iabi
litie
s ar
e se
para
ted
betw
een
two
lega
l ent
ities
Con
s:
•E
xter
nal a
udito
r re
quire
d
74 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
ds •
Pub
licat
ion
of fi
ling
w
hich
initi
ates
a o
ne-
mon
th p
erio
d du
ring
whi
ch c
redi
tors
may
ob
ject
aga
inst
the
prop
osed
spi
n-of
f •
Spi
n-of
f res
olut
ion
by
Sha
reho
lder
’s m
eetin
g or
Boa
rd o
f Dire
ctor
s •
Exe
cute
not
aria
l dee
d •
Upd
ate
regi
stra
tion
with
D
utch
Tra
de R
egis
try
•In
cas
e of
a tr
ansf
er
of u
nder
taki
ng th
e em
ploy
men
t con
tract
s ex
istin
g at
the
time
of tr
ansf
er w
ill b
e tra
nsfe
rred
by
oper
atio
n of
law
to th
e ac
quiri
ng
com
pany
. The
form
er
empl
oyer
will
rem
ain
join
tly a
nd s
ever
ally
lia
ble
one
year
afte
r th
e tra
nsfe
r dat
e fo
r all
oblig
atio
ns th
at h
ave
occu
rred
bef
ore
the
trans
fer.
•A
colle
ctiv
e di
smis
sal
requ
ires
the
notif
icat
ion
and
perm
issi
on o
f the
C
entre
for W
ork
and
Inco
me.
A S
ocia
l Pla
n sh
ould
be
nego
tiate
d.
•Ve
rify
if pr
ovis
ions
fo
llow
ing
the
Dut
ch S
ER
M
erge
r Cod
e ap
ply
to
dem
erge
r/spl
it-of
f.
•P
ossi
ble
dela
ys in
cas
e cr
edito
rs a
nd o
ther
third
pa
rties
file
an
obje
ctio
n ag
ains
t the
spi
n-of
f •
The
trans
ferr
ing
com
pany
can
be
held
liab
le fo
r the
no
n-pe
rform
ance
of
cont
ract
s th
at a
re
trans
ferr
ed to
the
new
en
tity
•Th
e w
orks
cou
ncil
has
form
al a
dvis
ory
pow
ers
75Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsP
olan
dYe
s •
Pre
pare
the
dem
erge
r pl
an •
Filin
g w
ith th
e re
gist
ry
cour
t and
app
licat
ion
for e
xam
inat
ion
by a
n ex
pert
•R
ecei
ve th
e ex
pert’
s op
inio
n •
Not
ice
to s
hare
hold
ers
•S
hare
hold
ers
gene
ral
mee
ting
appr
oves
the
dem
erge
r •
File
the
shar
ehol
ders
’ re
solu
tions
with
the
resp
ectiv
e re
gist
ry
cour
ts •
Rem
ove
the
com
pany
to
be
diss
olve
d fro
m th
e co
mm
erci
al re
gist
er
5 m
onth
sTh
e ne
w e
mpl
oyer
as
sum
es a
ll lia
bilit
ies
and
beco
mes
sol
ely
liabl
e fo
r th
ese
liabi
litie
s (e
xcep
t sp
lit-o
ff by
sep
arat
ion,
w
here
the
resp
onsi
bilit
y is
jo
int a
nd s
ever
able
).Th
e ne
w e
mpl
oyer
be
com
es a
par
ty to
the
colle
ctiv
e ba
rgai
ning
ag
reem
ents
to w
hich
the
form
er e
mpl
oyer
was
a
party
.M
ust n
otify
the
trade
un
ions
in w
ritin
g in
ad
vanc
e.
Pro
:
•P
erm
its a
nd li
cens
es
are
gene
rally
au
tom
atic
ally
tra
nsfe
rred
Con
s:
•Ti
me-
cons
umin
g •
Com
plic
ated
•E
xpen
sive
Rus
sia
Yes
•Sh
areh
olde
rs’ m
eetin
g to
app
rove
the
dem
erge
r pl
an a
nd th
e ba
lanc
e sh
eet
•N
otify
tax
auth
oriti
es a
nd
pay
outs
tand
ing
taxe
s •
Not
ify c
redi
tors
and
se
ttle
cred
itors
’ dem
ands
•D
ereg
iste
r the
de
mer
ging
com
pany
(if
appl
icab
le) a
nd re
gist
er
the
new
com
pany
•Tr
ansf
er re
leva
nt a
sset
s,
empl
oyee
s, a
nd fi
les
to
the
new
com
pany
1 ye
arM
ust o
btai
n w
ritte
n co
nsen
t of e
mpl
oyee
s to
co
ntin
ue e
mpl
oym
ent w
ith
the
new
com
pany
. Te
rms
of th
e ne
w e
mpl
oym
ent
cont
ract
s sh
ould
be
sim
ilar
to p
rior o
nes.
2-m
onth
pr
ior w
ritte
n no
tice
requ
ired
whe
re te
rms
of
empl
oym
ent a
re c
hang
ed.
Em
ploy
ees
who
refu
se
to b
e tra
nsfe
rred
may
be
term
inat
ed, b
ut w
ill h
ave
all
right
s as
in th
e ca
se o
f a
form
al te
rmin
atio
n.
Con
s:
•C
redi
tors
may
dem
and
acce
lera
tion
of
outs
tand
ing
debt
s •
Ant
imon
opol
y la
w
issu
es •
Tim
e-co
nsum
ing
and
cum
bers
ome
76 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsS
pain
Yes
•B
alan
ce s
heet
(mus
t be
audi
ted
unde
r cer
tain
ci
rcum
stan
ces)
•S
plit-
up/S
plit-
off p
lan
•R
epor
t by
exte
rnal
ex
pert
offic
ially
ap
poin
ted
by th
e C
omm
erci
al R
egis
try
may
be
nece
ssar
y un
der s
peci
al
circ
umst
ance
s if
any
of
the
com
pani
es in
volv
ed
in th
e sp
in-o
ff is
an
SA
com
pany
“soc
ieda
d an
ónim
a” •
Issu
e an
d de
posi
t D
irect
ors’
repo
rt •
Labo
r not
ifica
tions
•S
hare
hold
ers’
mee
ting
•P
ublic
atio
n •
Cre
dito
rs’ o
ppos
ition
•Fo
rmal
izat
ion
of th
e pu
blic
dee
d •
File
tax
form
•N
otifi
catio
n to
the
tax
auth
oriti
es •
Filin
g w
ith th
e S
pani
sh
Gen
eral
Dire
ctor
ate
of
Com
mer
ce •
Reg
istra
tion
of th
e de
ed
with
the
Com
mer
cial
R
egis
try
3-4
mon
ths
Wor
ks c
ounc
il ha
s th
e st
atut
ory
right
to is
sue
a no
n-bi
ndin
g re
port.
S
tatu
tory
labo
r not
ifica
tion
requ
ired.
Sub
stan
tial c
hang
es in
w
ork
cond
ition
s m
ay tr
igge
r st
atut
ory
labo
r con
sulta
tion
requ
irem
ents
.
Pro
:
•Fl
exib
le a
s to
whe
ther
se
para
te b
usin
ess
units
(a
s op
pose
d to
mer
ely
asse
ts) n
eed
to b
e tra
nsfe
rred
77Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsS
wed
enYe
s, fo
r lim
ited
liabi
lity
com
pani
es. D
emer
ger
may
take
pla
ce th
roug
h (i)
all
of th
e as
sets
and
lia
bilit
ies
of th
e tra
nsfe
ror
com
pany
bei
ng a
cqui
red
by tw
o or
mor
e ot
her
com
pani
es, w
here
upon
th
e tra
nsfe
ror c
ompa
ny
shal
l be
diss
olve
d w
ithou
t liq
uida
tion
taki
ng p
lace
; an
d (“
split
”) (i
i) pa
rt of
the
asse
ts a
nd li
abili
ties
of th
e tra
nsfe
ror c
ompa
ny b
eing
ac
quire
d by
one
or m
ore
othe
r com
pani
es w
ithou
t th
e tra
nsfe
ror c
ompa
ny
bein
g di
ssol
ved
(“sp
in-o
ff”).
•B
oard
of d
irect
ors
of
each
com
pany
pre
pare
s a
dem
erge
r pla
n. •
Eac
h co
mpa
ny’s
aud
itor
to re
view
dem
erge
r pl
an.
•Th
e de
mer
ger p
lan
to
be re
gist
ered
with
the
Com
pani
es R
egis
tratio
n O
ffice
(not
requ
ired
if bo
th c
ompa
nies
are
pr
ivat
e lim
ited
liabi
lity
com
pani
es a
nd a
ll sh
areh
olde
rs h
ave
sign
ed th
e de
mer
ger
plan
). •
Sha
reho
lder
s’ m
eetin
g of
eac
h co
mpa
ny to
ap
prov
e th
e de
mer
ger
plan
(not
requ
ired
if bo
th c
ompa
nies
are
pr
ivat
e lim
ited
liabi
lity
com
pani
es a
nd a
ll sh
areh
olde
rs h
ave
sign
ed th
e de
mer
ger
plan
). Fu
rther
mor
e,
shar
ehol
ders
’ mee
ting
of th
e su
rviv
ing
com
pany
onl
y re
quire
d if
at le
ast f
ive
perc
ent o
f th
e sh
areh
olde
rs re
quire
th
e de
mer
ger i
ssue
to
be
refe
rred
to th
e sh
areh
olde
rs’ m
eetin
g.
If bo
th c
ompa
nies
are
pr
ivat
e w
holly
-ow
ned
limite
d lia
bilit
y co
mpa
nies
, ab
out 4
-5 m
onth
s,
othe
rwis
e 6-
8 m
onth
s.
Req
uire
s un
ion
cons
ulta
tions
.E
mpl
oyee
s ar
e tra
nsfe
rred
on
the
sam
e te
rms
and
cond
ition
s.E
mpl
oyee
’s c
onse
nt is
re
quire
d fo
r am
endm
ent o
f em
ploy
men
t con
ditio
ns.
A tra
nsfe
r of e
mpl
oym
ent i
s no
t dee
med
a “t
erm
inat
ion
of e
mpl
oym
ent.”
Pro
:
•Fl
exib
ility
Con
:
•Ti
me-
cons
umin
g
78 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
ds •
Each
com
pany
sha
ll no
tify
its c
redi
tors
of
the
dem
erge
r pla
n. T
he
cred
itors
of t
he s
urviv
ing
com
pany
nee
d no
t be
notif
ied
unle
ss th
e au
dito
r ha
s fo
und
the
cred
itors
’ rig
hts
to b
e at
risk
sho
uld
the
dem
erge
r pla
n be
com
e ef
fect
ive.
•Ap
plica
tion
to th
e C
ompa
nies
Reg
istra
tion
Offi
ce to
impl
emen
t the
de
mer
ger p
lan.
•Th
e C
ompa
nies
R
egist
ratio
n O
ffice
sha
ll su
mm
on th
e co
mpa
nies
’ cr
edito
rs.
•If
no c
redi
tor o
ppos
es
the
dem
erge
r pla
n, th
e C
ompa
nies
Reg
istra
tion
Offi
ce s
hall a
ppro
ve
the
appl
icatio
n fo
r im
plem
enta
tion
of th
e de
mer
ger p
lan.
(If a
cr
edito
r has
opp
osed
the
dem
erge
r, th
e de
mer
ger
shal
l be
refe
rred
to th
e D
istric
t Cou
rt).
•O
nce
the
appl
icatio
n to
im
plem
ent t
he m
erge
r pl
an h
as b
een
appr
oved
, th
e bo
ard
of d
irect
ors
of
the
surv
iving
com
pany
sh
all f
ile a
not
ificat
ion
to th
e C
ompa
nies
R
egist
ratio
n O
ffice
re
gard
ing
regi
stra
tion
of
the
dem
erge
r.
79Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsS
witz
erla
ndYe
s, a
s fro
m 1
Jul
y 20
04 •
Prep
arat
ion
of in
terim
ba
lanc
e sh
eets
(if s
tatu
tory
ba
lanc
e sh
eets
are
old
er
than
six
mon
ths
from
the
date
of t
he d
emer
ger
proj
ect/a
gree
men
t) •
Dem
erge
r pro
ject
/ag
reem
ent (
inclu
ding
inte
r al
ia a
det
aile
d in
vent
ory
of
asse
ts a
nd lia
biliti
es);
•D
emer
ger r
epor
t pre
pare
d by
the
Boar
d of
dire
ctor
s/m
anag
ers;
•R
evie
w o
f the
dem
erge
r pr
ojec
t/agr
eem
ent,
dem
erge
r rep
ort a
nd
(inte
rim) b
alan
ce s
heet
s an
d iss
uanc
e of
a
conf
irmat
ion
repo
rt by
sp
ecia
lly q
ualifi
ed a
udito
rs •
Not
ificat
ion
to th
e cr
edito
rs;
•Sh
areh
olde
rs’ m
eetin
g de
cidin
g on
the
dem
erge
r an
d ap
prov
ing
the
dem
erge
r pro
ject
/ag
reem
ent (
in fr
ont o
f a
publ
ic no
tary
) •
Appl
icatio
n to
the
Reg
ister
of
Com
mer
ce •
If a
new
com
pany
is
inco
rpor
ated
, leg
al
requ
irem
ents
for s
uch
inco
rpor
atio
n sh
all b
e co
mpl
ied
with
, exc
ept f
or
cont
ribut
ion
in k
inds
and
th
e nu
mbe
r of f
ound
ers.
Reg
ular
pro
ceed
ing:
ap
prox
imat
ely
4-5
mon
ths
(may
be
slig
htly
sho
rtene
d in
eve
nt o
f sim
plifi
ed
proc
eedi
ng a
pplic
able
to
sm
all a
nd m
id-s
ize
ente
rpris
es).
Obl
igat
ion
to in
form
and
co
nsul
t with
the
empl
oyee
s or
with
the
repr
esen
tatio
n of
the
empl
oyee
s.Th
e em
ploy
ees
to b
e tra
nsfe
rred
can
opp
ose
such
tran
sfer
. In
suc
h ev
ent,
thei
r em
ploy
men
t ag
reem
ent w
ill b
e au
tom
atic
ally
term
inat
ed
effe
ctiv
e at
the
end
of th
e le
gal n
otic
e pe
riod.
If th
e ev
ent o
f non
co
mpl
ianc
e w
ith th
e co
nsul
tatio
n re
quire
men
t, th
e em
ploy
ees
or th
e re
pres
enta
tion
of th
e em
ploy
ees
may
requ
est
from
the
com
pete
nt ju
dge
an o
rder
not
to p
roce
ed
with
the
regi
stra
tion
of th
e de
mer
ger w
ith th
e R
egis
ter
of C
omm
erce
.
Pro
s:
•Tr
ansf
er o
f ass
ets
and
liabi
litie
s un
o ac
tu
to th
e ne
wly
cre
ated
le
gal e
ntity
as
from
re
gist
ratio
n w
ith th
e R
egis
ter o
f Com
mer
ce •
Sim
plifi
ed p
roce
edin
g fo
r the
cre
atio
n of
th
e ne
w e
ntity
(e.g
., co
ntrib
utio
n in
kin
d)C
on:
•Ti
me-
cons
umin
g as
com
pare
d to
ot
her r
estru
ctur
ing
proc
eedi
ngs
80 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 6 – Separation Methods: Demergers and Statutory Spin-Offs
Cou
ntry
Is
ther
e a
loca
l sta
tuto
ry
dem
erge
r/spi
n-of
f pr
oced
ure?
Wha
t pro
cedu
re s
teps
ar
e re
quire
d to
effe
ct a
de
mer
ger/s
pin-
off?
How
long
doe
s it
take
to
impl
emen
t a d
emer
ger/
spin
-off?
Em
ploy
men
t/lab
or
conc
erns
Non
-taxa
tion
pros
and
co
ns o
f a d
emer
ger/s
pin-
off a
s co
mpa
red
to o
ther
m
etho
dsU
krai
neYe
s; s
pin-
off (
extra
ctio
n)
and
split
-up
(sep
arat
ion)
. •
Sha
reho
lder
s’ m
eetin
g •
Eva
luat
ion
and
buy-
out o
f sha
res
by th
e co
mpa
ny •
Reg
istra
tion
of
chan
ges
in th
e co
rpor
ate
stru
ctur
e w
ith
gove
rnm
ent a
genc
ies
Unc
erta
in.
No
parti
cula
r lab
or
conc
erns
.N
o si
gnifi
cant
pro
s or
con
s.
Uni
ted
Kin
gdom
No
stat
utor
y pr
oced
ure
exce
pt th
e “s
chem
e of
ar
rang
emen
t” un
der
Sec
tion
895
of th
e C
ompa
nies
Act
200
6.
•A
pplic
atio
n to
the
Com
pani
es C
ourt
•Th
e R
egis
trar c
onve
nes
the
mee
ting
of c
redi
tors
an
d, if
pro
per,
the
gene
ral m
eetin
g of
sh
areh
olde
rs •
Dis
clos
e th
e ex
plan
ator
y st
atem
ent
•A
ppro
val b
y cl
ass
mee
tings
of
shar
ehol
ders
•C
ourt
sanc
tion
•Fi
ling
of th
e co
urt’s
or
der
2 m
onth
sO
blig
atio
n to
info
rm a
nd
cons
ult w
ith th
e em
ploy
ees
may
be
requ
ired
by
“cha
nge
of o
wne
rshi
p”
prov
isio
ns o
f ind
ivid
ual
empl
oym
ent c
ontra
cts
or c
olle
ctiv
e ag
reem
ents
w
ith tr
ade
unio
ns o
r wor
ks
coun
cil.
Pro
s:
•C
an e
ffect
any
kin
d of
de
mer
ger s
truct
urin
g •
All
shar
ehol
ders
are
bo
und
by th
e te
rms
of
the
sche
me
•Fi
nanc
ial a
ssis
tanc
e ca
n be
app
rove
d as
par
t of
the
sche
me
Con
s:
•Ve
ry c
ostly
and
leng
thy
•R
arel
y us
ed •
Any
sub
sequ
ent c
hang
e to
the
arra
ngem
ent
mus
t be
appr
oved
by
the
cour
t •
Unc
erta
inty
bec
ause
of
the
cour
t app
rova
l re
quire
men
t •
App
licab
le o
nly
whe
re
cred
itors
are
invo
lved
Tabl
e of
Abb
revi
atio
nsBO
DBo
ard
of D
irect
ors
EGM
Extr
aord
inar
y G
ener
al M
eetin
g of
Sha
reho
lder
sFI
EFo
reig
n-In
vest
ed E
nter
pris
e
81Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 7 – Separation Methods: Reverse Spin-Offs
Section 7 Separation methods: Reverse spin-offs
In a reverse spin-off scenario, the assets and liabilities comprising the retained business are removed from the existing entity that will be transferred to a third party. Such reverse separation can be structured in various ways. One way is for the existing subsidiary to distribute the assets comprising the retained business to its parent as an in-kind dividend (and have the parent assume related liabilities). Alternatively, the existing company can incorporate a subsidiary (“Newco”), contribute the assets comprising the retained business to Newco (either at the time of incorporation or shortly thereafter) and at the same time have Newco assume the relevant liabilities. Thereafter, the existing company would distribute the shares of Newco to its parent. A reverse spin-off can also be structured as a demerger (see Section 6, above). Depending on the value of the retained business, it may turn out to be most time and cost efficient for the existing subsidiary to sell the assets comprising the retained business to its parent or an affiliate (in the same jurisdiction) and have the parent or an affiliate assume the liabilities associated with the retained business.
Each structure requires a careful analysis of various tax, corporate, labor and regulatory issues. For example, if a parent company incorporated in a jurisdiction different from the jurisdiction of its subsidiary acquires assets and assumes liabilities comprising the retained business from the subsidiary, the parent might be considered to have a permanent establishment in the jurisdiction of its subsidiary and consequently be subject to tax in that jurisdiction. Also, many jurisdictions require local employees to be employed by a local company, branch or other presence of a foreign company. Accordingly, it might be preferable to incorporate a subsidiary or register a branch or other presence to acquire and operate the retained business in the relevant jurisdiction.
With respect to the employees who have to be transferred as part of the retained business, labor laws of many jurisdictions require such employees to be terminated and rehired. In other jurisdictions, the transferring employees would have to consent to their transfer, and existing works councils would have to be consulted (see discussion in Section 11). In many jurisdictions, the local labor law requirements depend on whether local law considers the retained business to be an independent business separate from the remaining business or part of the remaining business.
Each reverse spin-off alternative should also be examined from a regulatory compliance standpoint in order to determine which approach raises no or the least significant regulatory issues (e.g., obtaining new business licenses and product registrations for the new owner of the retained business).
If the reverse spin-off approach involves a dividend distribution, the planning team should analyze various restrictions imposed by local laws on dividend distributions. In most jurisdictions, directors of a company are under a fiduciary duty to declare and
82 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 7 – Separation Methods: Reverse Spin-Offs
pay dividends only if the company meets certain conditions generally designed to ensure the financial integrity of the company. In most common law jurisdictions (e.g., UK), the directors must ensure, taking into account the company’s current financial position, that the company has sufficient distributable reserves, i.e., accumulated realized profits. In most civil law jurisdictions, dividends may be declared from net profits plus retained profits (e.g., Germany) minus legal reserves (e.g., Italy, Mexico, and Spain). In those jurisdictions, dividends may not be paid if such payment would reduce the company’s capital below the amount stated in the relevant statutory balance sheet of the company, and the directors of the relevant company would be personally liable for the amount by which the stated capital has been reduced as a result of a dividend distribution.
The laws on dividends are very specific by country and should be confirmed in each case. For example, not all countries permit interim dividends for all types of company (e.g., Belgium and Italy only allow annual dividends once a year) and in Korea whilst interim dividends are allowed a company may only pay one in each financial year.
In common law jurisdictions, the proposed reverse spin-off structure should also be reviewed to determine whether it raises any financial assistance issues.
Whether a reverse spin-off approach is the most time and cost efficient separation method depends on various factors, including the value of the retained business compared to the value of the business to be transferred to a third party and various labor and regulatory issues to be addressed as part of the implementation of the chosen approach.
83Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Section 8 Moving companies into the new structure: Sale vs. capital contribution
Once the assets or business operations in a given jurisdiction have been segregated into their own subsidiary, it is often necessary or desirable to move that subsidiary into a separate corporate chain, e.g., to place all the entities containing the separated business under a single parent company in preparation for a spin-off or sale. Moving the shares can be done in the form of a capital contribution to the new holding company (perhaps preceded by a distribution up the chain to the ultimate parent company in the corporate group) or in the form of a sale of the subsidiary’s shares from their initial owner to the new holding company. The choice between sale and contribution should be made after due inquiry into the tax and other consequences. For example, is a contribution or sale taxable? Do capital duties apply to contributions? Must the shares being contributed be valued under local law, and if so by whom?
The table following this section sets out general answers to some of these important questions for a variety of jurisdictions at the time of this writing. This should not be viewed as an exhaustive listing of the issues that influence the choice between sale and contribution, however.
1. Overview - sale or contribution of shares
1.1 Contribution of Shares
Contributions may be made in return for the issuance of shares or they may be given for no consideration. In the latter case, the value of the contribution may increase the share premium or surplus amount on previously-issued shares or may be added to some other equity account or corporate accounting reserve. In some jurisdictions it is not permissible to make a contribution without the issuance of shares, and even in jurisdictions where this is permitted, attention should be paid to the possibility of gift tax or other adverse tax consequences.
Corporate benefit or director fiduciary issues may arise when planning share contributions where the contribution is to a subsidiary that is not wholly owned. This type of transaction could be considered as a disposal of value by the transferring company without receipt of adequate benefit in return, opening the door to potential liability for the transferor company directors and for the transferee company.
84 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
1.2 Sale of Shares
A sale of shares may be effected for cash payment or debt, or may be structured as an exchange for other property. The starting point for determining the price at which the shares are sold is the fair market value of the shares. However, there are situations where shares can be sold at their book value, i.e., the carrying value of the shares in the accounts of the transferor (assuming this is different than fair market value). If shares are sold at less than their market value this can raise corporate benefit or fiduciary duty issues for the directors of the transferor company and the transferee company. Naturally, the sale price, whether at, above or below book value is also likely to have important tax implications. When a value must be determined it can sometimes be established by an informal assessment of value carried out by the directors, but in some cases may have to be determined by an expert appointed by the company, or appointed by the courts. A summary of valuation and pricing requirements is set out later in this Section and in the accompanying table.
If shares are being sold in exchange for debt, care may be required to confirm that the additional debt taken on by the issuing company does not violate any restrictions on thin capitalization and allows it to remain within any restrictions on its debt to equity ratio. Violating such restrictions can result in tax deductions for interest payments being disallowed or give rise to an obligation to capitalize the company. In Spain the rules that regulate the equity position of a company can lead to the dissolution of a company if its net equity falls beneath certain thresholds on a long term basis. Selling shares in exchange for debt raises a number of other points that will need to be addressed, such as whether interest will be charged on the debt, whether the debt must be paid on demand or by some fixed date, and how the debt will be evidenced, e.g., by loan agreement, promissory note or simply a bookkeeping entry.
1.3 Issues common to both a contribution of shares and a sale of shares
The sale of shares and the contribution of shares will raise similar issues in relation to the mechanics of changing registered share ownership in the local jurisdiction of the transferred company. Share transfer mechanics can vary significantly between jurisdictions, notably between civil law and common law jurisdictions. The mechanics can also vary within a jurisdiction as between entity types. For example, under French law the shares of an S.A.S. are transferred in a different way from those of an S.A.
When transferring the shares of multiple group companies by way of a sale or a contribution, it is useful to record the terms of the transfer in an umbrella agreement, even if this is not always strictly required to complete the local formalities. The terms of transfer are thereby memorialized and the intentions of the parties recorded in writing in case of a future review of the transaction, for example by auditors or tax authorities. The agreement may also serve as the transfer document fulfilling part of the local transfer mechanics for several jurisdictions. However, care must be taken to ensure that even where the transfer has been
85Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
properly recorded in a transfer agreement, the local transfer formalities are completed. There have been examples where an overseas parent company documents the sale or contribution of shares between group companies, but the local transfer formalities are not completed. This results in a mismatch between the share structure set out in the accounts of the parent and the true legal ownership structure.
In many civil law jurisdictions, a notarial deed is required to transfer shares, whether by sale or contribution. A notarial deed raises two key issues: first, it usually increases the complexity of the legal transfer process, and second, it can add significantly to share transfer costs.
Examples of costs related to share transfer are:
• Stamp duties or transfer taxes
• Registration fees
• Notarial fees, which can increase based on the value of the shares being transferred
• Real estate transfer tax, which can be triggered even by the transfer of shares if the company being transferred owns real estate
Considering these costs at the initial planning stage can allow mitigating steps to be taken in certain circumstances. Even though there are provisions under local tax laws in many jurisdictions which provide for exemptions from stamp duties or transfer taxes in an intra-group transaction, it is not always straight forward to obtain these exemptions. The requirements may include a holding period for the shares before transfer, or a post-transfer period during which the transferee company must remain associated, from a group structure perspective, with the transferor company. It may not be possible to satisfy this latter type of requirement when the restructuring is to prepare a division for sale or an IPO. Usually there are no exemptions from notarial fees based on an intra-group restructuring, and these fees themselves can be even more significant than stamp duty in certain cases.
1.4 Solvency Issues
It is important to note that the concerns over receipt of fair value in exchange for shares and corporate benefit are considerably heightened if the transferor company is insolvent or likely to become insolvent. Under these circumstances creditors of the insolvent company may be able to challenge and seek to undo the transfer, and may also be able to assert damages directly against the directors involved in the transaction.
2. Tax considerationsSection 4 of this Handbook deals generally with the tax consequences of share transfers, and the table at the end of this Section summarizes the tax treatment of share transfers for a range of jurisdictions.
86 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
3. Requirements for valuation of sold or contributed sharesThe sale of shares often requires some type of valuation in order to determine the transfer price of the shares, any corresponding taxable gain or loss, and the amount of any transfer tax.
Contributions of shares, whether for a return of shares or for no consideration will sometimes require valuations similar to sales of shares. However, in many common law jurisdictions and in the US, contributions are generally more straightforward and formal valuations are not required to implement the transactions, although internal valuations may be required later in order to properly account for the transactions. For example, under English law, the contributed shares may be transferred from the transferor company to the transferee company at their carrying value on the transferor company’s accounts.
Where shares are issued in exchange for a share contribution, a formal valuation of the issued shares may also be required and this can also involve a valuation of the contributed company in order to determine how many shares need to be issued.
3.1 Fair Market Valuations
A fair market valuation of the shares being transferred may need to be obtained for various reasons, such as:
• to allow shares of equal value to be issued by the recipient to the contributor,
• to ensure shares are not being issued at a discount,
• because a valuation is required for local tax purposes e.g., to calculate income or stamp tax payable or to ensure that the ratio of par to premium on the number of shares issued is at the correct level,
• to permit the proper statutory accounting for the transaction, or
• for corporate benefit or director fiduciary reasons.
Although the analysis can vary by jurisdiction, generally the corporate benefit issues raised by the sale of shares can be summarized by two concepts: the directors of the transferor company should not sell assets at less than fair market value and the directors of the transferee company should not acquire assets at more than fair market value. The directors in question may gain protection from future liability by ensuring that the current shareholder ratifies and approves the transaction. However, this type of protection will not be valid in the event that it is deemed the transaction was a fraud on the creditors of the company, in particular in cases of insolvency.
The sale of shares at less than fair market value could be analyzed as a deemed gift of the difference between the transfer price and the fair market value if the transaction is downstream, or as a deemed distribution if the transaction is upstream or sideways in the group. The sale of shares at more than fair market value could itself be construed as a deemed distribution if the transaction is downstream, and conversely as a deemed
87Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
contribution if upstream. In addition to concerns of directors’ breaching their fiduciary duties to a company, another reason that care is taken in applying the correct transfer price is due to the potential tax issues raised by a gift or a distribution, and the possibility of triggering income tax, gift tax or withholding tax on a deemed distribution or contribution.
Where shares are issued in exchange for a contribution, the correct number of shares issued will need to be calculated to ensure that any minority shareholders’ rights are not prejudiced and that the directors of the issuing company do not issue a disproportionate number of shares to the transferring company. Where the issuing company is a wholly owned subsidiary concerns about minority shareholder requirements are generally not relevant, and the possibility of dilution of shareholder interests by issuing too many shares is not an issue.
The correct number of shares to be issued in return for the contribution can, however, still be relevant to address any concerns about the issue of shares at a discount, as issuing too many shares may breach local corporate rules. Issuing too few shares may not be acceptable from the receiving company’s perspective where a fair market transaction is required.
When shares are contributed to a company, a decision may need to be taken as to how that contribution is recorded in the receiving company’s accounts. For example, in some jurisdictions it may be beneficial to contribute the shares in a manner that creates a distributable reserve which may be called “share premium”, “capital surplus” or some other term, as this can make it easier to distribute assets from the company in the future if the company has no retained earnings.
3.2 Different valuation methodologies.
There are a number of valuation methodologies, and the choice of which methodology to use will depend on the type of industry the company is involved in and who will be carrying out the valuation. It is probably preferable to employ a consistent method of valuation across the corporate group globally to demonstrate an internal consistency of approach. In the event a value is challenged by a tax authority, it will provide more substance to the chosen methodology if this has been used throughout the restructuring, and if possible, throughout the group for other reasons or transactions. Thus, it is useful to take account of methods of valuation adopted previously by the group.
3.3 Who must conduct the valuation.
Various legal requirements or other considerations can influence who should conduct the valuation. As mentioned briefly above there are three main options:
• internal valuation – e.g., by internal finance personnel
• external valuation
– by company appointed expert
88 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
– by company’s statutory auditor
– by court or government appointed expert
The local corporate law will generally determine whether the valuation needs to be carried out by a court appointed expert, the company’s statutory auditor or by the company’s own expert, the company’s statutory auditor. Even where local corporate rules do not require a third party valuation to be prepared for a particular jurisdiction, if a global valuation of the group or the division is being prepared, it may be prudent to do so in any event as the incremental cost to including one additional jurisdiction is unlikely to be significant, and the valuation can be used to substantiate the value of the contribution if there are any questions raised later. If a company is required to use a court appointed expert to carry out the valuation, this may delay the timetable for executing a contribution as court appointed experts often have prescribed period to carry out the valuation and are unlikely to be persuaded to deliver their reports early.
The third party valuations were often previously carried out by the company’s auditors, however following the restrictions upon the role of audit firms set out in the Sarbanes-Oxley Act, the auditors are often prevented from completing this type of service. Alternative service providers include other accounting firms, valuation firms and economists.
If there is no plan to instruct a firm to carry out a global valuation and no requirements from a local corporate law perspective or by the officers of the companies involved, an internal valuation by the group may be sufficient and should be less costly.
89Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
SU
MM
AR
Y O
F IS
SU
ES
RE
LATI
NG
TO
INTR
AG
RO
UP
TRA
NS
FER
OF
SH
AR
ES
BY
SA
LE O
R
CA
PIT
AL
CO
NTR
IBU
TIO
NJu
risdi
ctio
nA
re s
hare
s tra
nsfe
rabl
e by
gift
?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?
AM
ERIC
AS
Arg
entin
aYe
sYe
sYe
sYe
sYe
sTh
e sh
ares
ca
n be
sol
d at
net
boo
k va
lue,
but
onl
y in
the
cont
ext
of a
tax
free
reor
gani
zatio
n.
(a) t
hird
par
ty;
and
(b) t
hird
par
ty.
Inco
me
tax
- 35
%.
Tax
relie
f is
avai
labl
e if
the
trans
fer
qual
ifies
as
a ta
x fre
e re
orga
niza
tion.
Inco
me
tax
- 35
%.
Tax
relie
f is
avai
labl
e if
the
trans
fer
qual
ifies
as
a ta
x fre
e re
orga
niza
tion.
In g
ener
al,
no (a
few
pr
ovin
ces
have
cap
ital
duty
).
The
timin
g de
pend
s on
man
y fa
ctor
s.
Bra
zil
Yes
(don
atio
ns
tax
may
ap
ply)
.
Yes
Yes
Valu
atio
n is
requ
ired
for s
hare
s is
sued
by
corp
orat
ions
. N
o va
luat
ion
is re
quire
d fo
r sha
res
issu
ed b
y lim
ited
liabi
lity
com
pani
es.
No,
val
uatio
n is
not
re
quire
d.
Yes,
the
shar
es c
an
be s
old
at n
et
book
val
ue.
No
spec
ific
requ
irem
ents
.C
apita
l gai
ns
of a
Bra
zilia
n le
gal e
ntity
on
the
trans
fer o
f sh
ares
hel
d in
a B
razi
lian
com
pany
are
ta
xed
at 3
4%.
With
hold
ing
inco
me
tax
at 1
5% (2
5%
for l
ow ta
x ju
risdi
ctio
ns)
is im
pose
d on
no
n-re
side
nts.
Con
tribu
tion
of s
hare
s is
co
nsid
ered
a
sale
for t
ax
purp
oses
. Th
eref
ore,
the
sam
e ta
xes
and
rate
s ap
ply.
No
(a) 1
5 da
ys
for s
hare
s of
bot
h co
rpor
atio
ns
and
limite
d lia
bility
co
mpa
nies
; an
d (b
) 2-3
da
ys fo
r sh
ares
of
corp
orat
ions
an
d 15
day
s fo
r sha
res
of li
mite
d lia
bility
co
mpa
nies
.
1 Th
is c
olum
n re
fers
to s
ales
by
an e
ntity
inco
rpor
ated
in th
e re
leva
nt ju
risdi
ctio
n, ra
ther
than
sal
es o
f sha
re o
f suc
h a
com
pany
.
90 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?
How
ever
, the
pa
rtner
s ar
e jo
intly
liabl
e fo
r the
am
ount
of
any
ass
ets
(inclu
ding
sh
ares
) co
ntrib
uted
an
appr
aisa
l of
the
valu
e of
th
e co
ntrib
uted
sh
ares
is
reco
mm
ende
d.Sh
ares
mus
t be
con
tribu
ted
eith
er a
t net
bo
ok v
alue
or
app
raise
d va
lue.
Can
ada
Yes
Yes
Yes
No,
but
the
tax
auth
oriti
es
have
the
right
to
chal
leng
e th
e co
ntrib
utio
n if
it is
not
at f
air
mar
ket v
alue
.
In re
late
d-pa
rty
trans
actio
ns,
sale
s m
ust b
e at
fair
mar
ket
valu
e.S
hare
s ca
nnot
be
sol
d to
th
ird p
artie
s fo
r cas
h at
net
bo
ok v
alue
.
No
spec
ific
requ
irem
ents
.If
the
shar
es
are
held
as
cap
ital
prop
erty
, the
n on
ly 5
0% o
f th
e pr
ocee
ds
are
incl
uded
in
taxa
ble
inco
me
of th
e se
ller.
Inco
me
tax
rate
s ar
e ar
ound
35%
.
Con
tribu
tions
ar
e tre
ated
as
disp
ositi
ons.
If
ther
e is
no
appl
icab
le
relie
f, th
en
proc
eeds
of
the
disp
ositi
on
will
be
incl
uded
in
com
putin
g th
e ga
in.
Som
e pr
ovin
ces
impo
se
annu
al
capi
tal t
ax
of u
p to
0.
5% p
er
annu
m; b
ut
thes
e ar
e al
l pro
pose
d to
be
elim
inat
ed
by 2
012.
(a) 3
day
s,
and
(b)
3 da
ys.
Com
plic
ated
tra
nsac
tions
re
quire
mor
e tim
e. A
no
n-re
side
nt
of C
anad
a m
ust
gene
rally
ap
ply
for a
91Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?S
hare
s m
ay
be s
old
in
exch
ange
fo
r sha
res
in a
noth
er
Can
adia
n co
rpor
atio
n at
net
boo
k va
lue.
Tax-
free
elec
tive
“rol
l-ove
r”
relie
f may
be
ava
ilabl
e,
if th
e co
nsid
erat
ion
cons
ists
of
the
shar
es
of a
noth
er
Can
adia
n co
rpor
atio
n.
Rel
ief m
ay
also
be
avai
labl
e un
der d
oubl
e ta
x tre
atie
s.
Tax-
free
elec
tive
“roll-
over
” re
lief m
ay b
e av
aila
ble,
if
the
shar
es a
re
cont
ribut
ed
in e
xcha
nge
for s
hare
s in
ano
ther
C
anad
ian
corp
orat
ion.
R
elie
f may
al
so b
e av
aila
ble
unde
r dou
ble
tax
treat
ies.
clea
ranc
e ce
rtific
ate
with
in 1
0 da
ys o
f the
tra
nsac
tion
or fa
ce a
w
ithho
ldin
g ta
x if
it is
di
spos
ing
of
shar
es in
a
Can
adia
n co
rpor
atio
n.
Chi
leYe
s (g
ift ta
x m
ay a
pply
at
a ra
te
of u
p to
25
%).
Yes
Yes
No,
but
the
tax
auth
oritie
s m
ay
chal
leng
e th
e co
ntrib
utio
n if
it is
not a
t fai
r m
arke
t val
ue,
unle
ss th
e co
ntrib
utio
n is
mad
e in
th
e co
ntex
t of
a g
roup
re
orga
niza
tion.
No,
but
the
tax
auth
oriti
es
may
cha
lleng
e th
e sa
le if
it
is n
ot a
t fai
r m
arke
t val
ue.
(a) w
hen
the
cont
ribut
ion
is no
t un
anim
ously
ap
prov
ed
by th
e sh
areh
olde
rs o
f th
e tra
nsfe
ree,
an
exp
ert m
ust
perfo
rm th
e va
luat
ion.
(b
) no
spec
ific
requ
irem
ents
.
If th
e sh
ares
w
ere
acqu
ired
befo
re 3
1 Ja
nuar
y 19
84,
the
gain
is
not s
ubje
ct to
in
com
e ta
x. I
f no
t, th
e ga
in
is s
ubje
ct to
a
35%
Cap
ital
Gai
ns T
ax.
Con
tribu
tions
ar
e tre
ated
as
disp
ositio
ns.
If th
ere
is no
ap
plica
ble
relie
f, th
en
the
diffe
renc
e be
twee
n co
st
and
fair
mar
ket
valu
e of
the
shar
es w
ill be
in
clude
d in
co
mpu
ting
the
gain
.
No
(a) 1
-5 d
ays;
an
d(b
) 1-3
day
s.
92 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?An
app
raisa
l is
requ
ired
if th
e sh
areh
olde
rs o
f th
e tra
nsfe
ree
do n
ot
unan
imou
sly
appr
ove
the
valu
e of
the
cont
ribut
ion.
The
rate
may
be
redu
ced
to
17%
pro
vide
d th
e tra
nsfe
r is
not “
habi
tual
,” th
e sh
ares
w
ere
held
fo
r at l
east
on
e ye
ar, t
he
trans
fer i
s m
ade
to a
n “u
nrel
ated
pa
rty,”
and
the
shar
es a
re
shar
es is
sued
by
a C
hile
an
corp
orat
ion.
Rel
ief m
ay
also
be
avai
labl
e un
der d
oubl
e ta
x tre
atie
s.
In th
e co
ntex
t of
a ta
x-fre
e re
orga
niza
tion,
“ro
ll-ov
er”
relie
f may
be
avai
labl
e.
Rel
ief m
ay a
lso
be a
vaila
ble
unde
r dou
ble
tax
treat
ies.
93Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?C
olom
bia
Yes
(a
gift
may
co
nstit
ute
deem
ed
inco
me
for t
he
trans
fere
e).
Yes,
in s
ome
circu
msta
nces
Ye
sYe
s Ye
sN
o, th
e sa
le
mus
t be
at fa
ir m
arke
t val
ue.
Pre
fera
bly
, by
a th
ird p
arty
in
depe
nden
t ap
prai
ser,
the
audi
tor/
tax
advi
sor
for b
oth
trans
actio
ns.
Cap
ital g
ains
ta
x - 3
3% %
. N
o ta
x re
lief i
s av
aila
ble.
Con
tribu
tions
ar
e tre
ated
as
disp
ositi
ons
that
are
su
bjec
t to
capi
tal g
ains
ta
x –
33%
. N
o ta
x re
lief i
s av
aila
ble.
Not
ary
fees
an
d VA
T (ju
st o
ver
0.3%
) on
the
incr
ease
d no
min
al
valu
e of
the
shar
es p
lus
regi
stra
tion
tax
of
0.7%
for
regi
stra
tion.
(a) 1
da
y fo
r a
corp
orat
ion,
3
days
for
a lim
ited
liabi
lity
com
pany
(n
ot
incl
udin
g tim
e fo
r ap
prai
sal);
an
d(b
) 1
day
for a
co
rpor
atio
n,
3 da
ys fo
r a
limite
d lia
bilit
y co
mpa
ny
(not
in
clud
ing
time
for
appr
aisa
l).
94 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?M
exic
oYe
sYe
sYe
sN
o, a
lthou
gh
a va
luat
ion
is
reco
mm
ende
d to
ens
ure
that
the
shar
es a
re
cont
ribut
ed
at fa
ir m
arke
t va
lue.
No,
alth
ough
a
valu
atio
n is
re
com
men
ded
to e
nsur
e th
at
the
shar
es
are
sold
at f
air
mar
ket v
alue
.Th
e sh
ares
m
ust b
e so
ld
at fa
ir m
arke
t va
lue.
No
spec
ific
requ
irem
ents
. M
exic
an
shar
ehol
ders
ar
e su
bjec
t to
inco
me
tax
at
28%
on
net
gain
. Fo
reig
n sh
areh
olde
rs
are
subj
ect t
o in
com
e ta
x at
25
% (4
0% if
lo
cate
d in
a
pref
eren
tial
tax
regi
me)
on
gros
s am
ount
or
may
ele
ct
to b
e ta
xed
at
28%
on
net
gain
.Fu
rther
re
lief m
ay
be a
vaila
ble
unde
r a
doub
le ta
x tre
aty.
Mex
ican
sh
areh
olde
rs
are
subj
ect
to in
com
e ta
x at
28%
on
the
net
gain
. Fo
reig
n sh
areh
olde
rs
are
subj
ect t
o in
com
e ta
x at
25
% (4
0% if
lo
cate
d in
a
pref
eren
tial
tax
regi
me)
on
gros
s am
ount
or
may
ele
ct
to b
e ta
xed
at
28%
on
net
gain
.Fu
rther
re
lief m
ay
be a
vaila
ble
unde
r a
doub
le ta
x tre
aty.
Intra
-gro
up
rest
ruct
ures
qu
alify
for t
ax
defe
rral
.
No
(a) 1
-3
days
; and
(b
) 1 -3
da
ys.
95Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?U
nite
d S
tate
sYe
s (a
lthou
gh
tech
nica
lly
the
trans
actio
n w
ill no
t be
stru
ctur
ed
as a
“g
ift” b
ut
shou
ld b
e st
ruct
ured
as
a
cont
ribut
ion
or
dist
ribut
ion
of s
hare
s).
Yes
Yes
No,
this
is
up to
the
busi
ness
ju
dgm
ent
of th
e co
mpa
ny’s
di
rect
ors.
No
spec
ific
requ
irem
ents
.N
o sp
ecifi
c re
quire
men
ts.
Red
uced
long
te
rm c
apita
l ga
ins
tax
rate
s m
ay a
pply
to
the
gain
on
the
sale
of s
tock
by
non-
corp
orat
e ta
xpay
ers.
For c
orpo
rate
ta
xpay
ers,
the
regu
lar r
ate
appl
ies.
Sale
s be
twee
n m
embe
rs
of a
U.S
. co
nsol
idat
ed
tax
grou
p ge
nera
lly d
o no
t at
tract
taxa
tion
at th
e tim
e of
sa
le; t
axat
ion
of
the
gain
, if a
ny,
is de
ferre
d.Ta
x re
lief
may
also
be
ava
ilabl
e in
som
e cir
cum
stan
ces
Con
tribu
tions
to
a w
holly
-ow
ned
subs
idia
ry a
re
gene
rally
tax
exem
pt.
In th
e ca
se
of s
tock
co
ntrib
utio
ns
to a
non
-US
tra
nsfe
ree,
th
e tra
nsfe
ror
mus
t fol
low
ce
rtain
form
al
proc
edur
es
to p
rese
rve
nonr
ecog
nitio
n tre
atm
ent.
No
Bot
h ty
pes
of
trans
actio
n ca
n ge
nera
lly b
e ef
fect
ive
on
the
date
of
exec
utio
n of
th
e re
leva
nt
agre
emen
t an
d de
liver
y of
sto
ck
certi
ficat
es
or s
tock
po
wer
s, s
o th
e on
ly
lead
tim
e re
quire
d is
a
few
day
s to
pre
pare
th
e le
gal
docu
men
ts
and
obta
in
sign
atur
es.
96 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?w
here
the
sale
of
the
shar
es
can
be s
tepp
ed
toge
ther
with
ot
her s
teps
an
d th
e ov
eral
l tra
nsac
tion
is
rech
arac
teriz
ed.
Vene
zuel
aYe
s,
how
ever
, gi
ft ta
x m
ay a
pply
an
d gi
ft ta
x ra
tes
rang
e fro
m 1
0%
to 5
5%.
Yes
Yes
No
No.
The
sh
ares
can
be
sol
d at
ne
t boo
k va
lue.
The
di
ffere
nce,
ho
wev
er,
betw
een
the
net b
ook
valu
e an
d fa
ir m
aker
va
lue
may
be
cons
ider
ed to
be
a g
ift fo
r ta
x pu
rpos
es.
Tran
sfer
pr
icin
g re
gula
tions
m
ay a
pply.
No
spec
ific
requ
irem
ents
.A
ny g
ain
on
sale
is s
ubje
ct
to in
com
e ta
x at
the
corp
orat
e ra
te,
whi
ch is
34%
.P
aym
ent o
f th
e pu
rcha
se
pric
e is
su
bjec
t to
back
-up
with
hold
ing
of 5
%.
The
selle
r is
entit
led
to
cred
it th
e am
ount
w
ithhe
ld
agai
nst t
he
final
inco
me
tax
liabi
lity
Inco
me
tax
will
atta
ch
at th
e 34
%
corp
orat
e ra
te o
n th
e di
ffere
nce
betw
een
the
tax
cost
ba
sis
of th
e co
ntrib
uted
sh
ares
and
th
e fa
ir m
arke
t va
lue
of th
e is
sued
sha
res.
No
with
hold
ing
tax
appl
ies.
The
incr
ease
of
the
capi
tal
stoc
k an
d is
suan
ce o
f ne
w s
hare
s is
sub
ject
to
a 1%
sta
mp
tax.
(a) 1
-2
wee
ks; a
nd(b
) 1-3
day
s.
97Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?de
term
ined
in
the
year
-end
re
turn
.S
ale
of s
hare
s lis
ted
in a
Ve
nezu
elan
st
ock
exch
ange
is
sub
ject
to
a fl
at 1
%
inco
me
tax
rate
on
the
sale
s pr
ice.
Rel
ief m
ay
be a
vaila
ble
unde
r dou
ble
taxa
tion
treat
ies.
The
shar
ehol
der
is re
quire
d,
how
ever
, to
repo
rt th
e ga
in
in th
e ye
ar-
end
inco
me
tax
retu
rn
and
pay
the
appl
icab
le ta
x.R
elie
f may
be
ava
ilabl
e un
der d
oubl
e ta
xatio
n tre
atie
s.
98 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?
ASI
A PA
CIF
ICA
ustra
liaYe
sYe
sYe
sN
o, a
lthou
gh
dire
ctor
s m
ust
gene
rally
co
ntrib
ute
shar
es fo
r co
nsid
erat
ion
of n
o le
ss
than
fair
mar
ket v
alue
. It
may
be
poss
ible
to
cont
ribut
e sh
ares
for
cons
ider
atio
n eq
ual t
o ne
t bo
ok v
alue
, be
ing
an
amou
nt le
ss
than
full
mar
ket v
alue
.A
valu
atio
n m
ay b
e re
quire
d fo
r tax
or
stam
p du
ty
purp
oses
.
No,
alth
ough
di
rect
ors
mus
t ge
nera
lly s
ell
shar
es fo
r co
nsid
erat
ion
of n
o le
ss
than
fair
mar
ket v
alue
. It
may
be
poss
ible
to
sell
shar
es
at n
et b
ook
valu
e, b
eing
an
am
ount
le
ss th
an fu
ll m
arke
t val
ue.
A va
luat
ion
may
be
requ
ired
for t
ax o
r st
amp
duty
pu
rpos
es.
If a
valu
atio
n is
requ
ired,
us
ually
an
inte
rnal
va
luat
ion
will
suffi
ce,
alth
ough
an
inde
pend
ent
valu
atio
n w
ill be
nec
essa
ry
in s
ome
circu
mst
ance
s.
The
appl
icab
le
rate
of t
ax
is 3
0% o
n an
y ca
pita
l ga
in le
ss th
e tra
nsfe
ror’s
ca
pita
l gai
ns
tax
cost
bas
e.Th
ere
is n
o ta
xabl
e ga
in
on a
n in
tra-
grou
p tra
nsfe
r be
twee
n th
e m
embe
rs
of a
n A
ustra
lian
tax
cons
olid
ated
gr
oup
(req
uire
s 10
0% o
wne
r-sh
ip))
. S
hare
s he
ld b
y a
non-
resi
dent
will
on
ly g
ener
ally
be
sub
ject
to
Aus
tralia
n C
GT
if th
e
The
tax
of 3
0%
is ch
arge
able
on
any
cap
ital
gain
whi
ch
is br
oadl
y de
term
ined
ba
sed
on th
e m
arke
t val
ue o
f th
e sh
ares
less
th
e tra
nsfe
ror’s
ca
pita
l gai
ns
tax
cost
bas
e.R
elie
f is
avai
labl
e in
a
num
ber o
f cir
cum
stan
ces,
in
cludi
ng in
tra-
grou
p tra
nsfe
rs
betw
een
mem
bers
of a
n Au
stra
lian
tax
cons
olid
ated
gr
oup
(requ
ires
100%
ow
ners
hip)
.
No
(a) 1
-3 d
ays;
an
d(b
) 1-3
day
s.
99Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?co
mpa
ny’s
asse
ts d
irect
ly
or in
dire
ctly
pr
edom
inan
tly
cons
ist o
f Au
stra
lian
land
as
sets
. If
the
shar
es h
eld
by
a no
n-re
siden
t ar
e su
bjec
t to
Aus
tralia
n C
GT,
a C
GT
rollo
ver m
ay
be a
vaila
ble
for
certa
in tr
ansf
ers
with
in a
100
%
owne
d gr
oup.
In
som
e St
ates
, st
amp
duty
of
0.6
% is
le
vied
on th
e hi
gher
of t
he
mar
ket v
alue
or
cons
ider
atio
n pa
id fo
r sha
res.
G
roup
relie
f is
avai
labl
e in
som
e cir
cum
stan
ces.
100 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?C
hina
Yes
Whe
re th
e co
mpa
ny
rece
iving
the
cont
ribut
ion
is a
fore
ign
inves
ted
ente
rpris
e (“F
IE”),
the
requ
ired
gove
rnm
enta
l ap
prov
al is
not li
kely
to
be g
rant
ed.
Whe
re th
e co
mpa
ny
rece
iving
the
cont
ribut
ion
is a
fore
ign
inves
ted
holdi
ng
com
pany
that
ha
s alr
eady
re
ceive
d US
$30
millio
n of
cap
ital in
ca
sh,
Yes
Yes.
A
non-
cash
co
ntrib
utio
n ta
king
the
form
of
shar
es o
r eq
uity
mus
t be
app
rais
ed,
if su
ch a
re
not p
ublic
ly
trade
d or
do
not c
onsi
st
of tr
ansf
ers
agai
nst b
ook
valu
e or
in
vest
men
t co
sts
(if
perm
itted
un
der P
RC
la
w).
No
valu
atio
n is
requ
ired
exce
pt w
hen
the
buye
r is
a FI
E a
nd
the
targ
et
ente
rpris
e is
no
t a F
IE.
A sa
le s
houl
d be
mad
e at
fa
ir m
arke
t va
lue,
unl
ess
spec
ifica
lly
allo
wed
und
er
law
to b
e co
nduc
ted
at
book
val
ue.
It is
exp
ecte
d th
at s
uch
sale
at b
ook
valu
e m
ay
be a
llow
ed
only
whe
n th
e tra
nsfe
ree
is a
P
RC
ent
ity.
A du
ly
qual
ified
PR
C
appr
aise
r
Cap
ital g
ain
from
the
sale
of
sha
res
by a
fore
ign
shar
ehol
der
is s
ubje
ct
to 1
0%
with
hold
ing
ente
rpris
e in
com
e ta
x.
Cap
ital g
ain
from
the
sale
of
sha
res
by a
PR
C
shar
ehol
der
shou
ld b
e ad
ded
to
its ta
xabl
e in
com
e an
d be
sub
ject
to
ent
erpr
ise
inco
me
tax
at th
e sh
areh
olde
r’s
tax
rate
, no
rmal
ly
25%
for
ente
rpris
es.
In g
ener
al,
the
PR
C ta
x im
plic
atio
ns o
f a
shar
e sw
ap
are
sim
ilar t
o th
e sa
le o
f an
equi
ty in
tere
st.
Sta
mp
tax
of 0
.05%
of
any
incr
ease
of
the
regi
ster
ed
capi
tal o
f a
FIE
. Fo
r re
gist
ered
ca
pita
l up
to R
MB
10
mill
ion,
a
regi
stra
tion
fee
of 0
.08%
is
due
. Fo
r an
am
ount
be
twee
n R
MB
10
mill
ion
to
RM
B 1
00
mill
ion,
a fe
e of
0.0
4% is
pa
yabl
e.
Gov
ernm
ent
appr
oval
an
d su
bseq
uent
re
gist
ratio
ns
are
requ
ired
whe
re
the
targ
et
ente
rpris
e is
a F
IE.
Tim
ing
is
typi
cally
:(a
) tw
o m
onth
s;
and
(b) t
wo
mon
ths.
Whe
re
the
targ
et
ente
rpris
e is
not
a F
IE,
the
proc
ess
take
s on
e w
eek.
101Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?co
ntrib
utio
ns
will
be
perm
itted
fo
r cap
ital
incr
ease
s.
A m
inim
um
of 3
0% o
f a
com
pany
’s
regi
ster
ed
capi
tal
mus
t be
cont
ribut
ed
in c
ash.
A ta
x-fre
e tre
atm
ent o
f a
trans
fer a
t in
vest
men
t co
sts
or b
ook
valu
e m
ay
be p
erm
itted
w
here
the
trans
fere
e is
a
PR
C e
ntity
.C
erta
in
treat
ies
prov
ide
for l
ower
w
ithho
ldin
g ta
x ra
te o
n ca
pita
l gai
ns.
Sta
mp
tax
of 0
.05%
is
levi
ed o
n th
e tra
nsfe
r val
ue.
No
regi
stra
tion
fee
is d
ue
for t
he
amou
nt
exce
edin
g R
MB
100
m
illio
n.
Hon
g K
ong
Yes
Yes
Yes
Som
e va
luat
ion
is re
quire
d.
This
is
beca
use
the
par v
alue
of
the
shar
es
issu
ed in
No
valu
atio
n is
requ
ired.
G
ener
ally,
di
rect
ors
mus
t sel
l the
sh
ares
at n
o le
ss th
an fa
ir m
arke
t val
ue
No
spec
ific
requ
irem
ents
.S
tam
p du
ty
is p
ayab
le a
t th
e ra
te o
f 0.
2% o
n th
e hi
gher
of t
he
valu
e of
the
cons
ider
atio
n pa
id o
r the
Sta
mp
duty
is
paya
ble
at th
e ra
te o
f 0.2
%
on th
e hi
gher
of
the
valu
e of
the
issu
ed
shar
es o
r the
co
ntrib
uted
The
rate
of
capi
tal d
uty
is 0.
1% o
n th
e am
ount
of
incr
ease
in
shar
e ca
pita
l, an
d 0.
1% o
n
(a) 1
-3 d
ays;
an
d(b
) 1-3
day
s.
102 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?ex
chan
ge (i
f an
y) m
ust n
ot
exce
ed th
e va
lue
of th
e co
ntrib
uted
sh
ares
. A
lso,
if th
e pa
r val
ue o
f th
e sh
ares
is
sued
in
exch
ange
is
less
than
the
valu
e of
the
cont
ribut
ed
shar
es, t
he
dire
ctor
s m
ust b
ook
the
bala
nce
in th
e sh
are
prem
ium
ac
coun
t of
the
issu
ing
com
pany
.
and
acqu
ire
the
shar
es a
t no
mor
e th
an
fair
mar
ket
valu
e in
ord
er
to a
void
a v
oid
trans
actio
n an
d to
sat
isfy
fid
ucia
ry
dutie
s.
In s
ome
circ
umst
ance
s,
it m
ay b
e po
ssib
le to
se
ll at
net
bo
ok v
alue
, be
ing
an
amou
nt le
ss
than
full
mar
ket v
alue
.
valu
e of
the
shar
es b
eing
so
ld.
An
exem
ptio
n m
ay a
pply
if
the
trans
fero
r ow
ns 9
0%
of th
e is
sued
sh
are
capi
tal
of th
e tra
nsfe
ree
(or
vice
ver
sa),
or if
a p
aren
t co
mpa
ny
owns
90%
of
the
issu
ed
shar
e ca
pita
l of
bot
h th
e tra
nsfe
ror a
nd
the
trans
fere
e.
The
trans
fere
e m
ust n
ot fa
ll ou
tsid
e th
e re
quire
d 90
%
owne
rshi
p w
ithin
2 y
ears
of
the
sale
.
shar
es.
If th
e tra
nsfe
ror
owns
at l
east
90
% o
f the
is
sued
sha
re
capi
tal o
f the
tra
nsfe
ree
(or
vice
ver
sa),
or
if th
e pa
rent
co
mpa
ny
owns
at l
east
90
% o
f the
is
sued
sha
re
capi
tal o
f bot
h th
e tra
nsfe
ror
and
the
trans
fere
e.
The
trans
fere
e m
ust n
ot fa
ll ou
tsid
e th
e re
quire
d 90
%
owne
rshi
p w
ithin
2
year
s of
the
cont
ribut
ion.
any
shar
e pr
emiu
m
arisi
ng fr
om
the
issue
of
the
new
sh
ares
, ca
pped
in
each
cas
e at
H
K$30
,000
.
103Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?Ja
pan
Yes
– as
lo
ng a
s th
e di
rect
ors
of
the
dono
r co
mpa
ny
fulfil
l the
ir fid
ucia
ry
dutie
s.
If th
e re
cipie
nt
is a
shar
ehol
der
of th
e do
nor
com
pany
, th
e tra
nsac
tion
may
be
proh
ibite
d.
Yes
Yes
Yes
– un
less
th
e sh
ares
ha
ve a
m
arke
t pric
e an
d th
e pr
ice
set b
y re
solu
tion
of
the
Boa
rd
does
not
ex
ceed
the
mar
ket p
rice.
No
valu
atio
n re
quire
d.
Dire
ctor
s m
ust s
ell t
he
shar
es a
t a
reas
onab
le
pric
e ta
king
into
co
nsid
erat
ion
the
fair
mar
ket
valu
e in
ord
er
to s
atis
fy
fiduc
iary
du
ties.
D
epen
ding
on
the
circ
um-
stan
ces,
it
may
be
poss
ible
to
sell
at n
et
book
val
ue,
bein
g an
am
ount
less
th
an m
arke
t va
lue.
(a) A
n in
spec
tor
appo
inte
d by
the
cour
t (J
oint
sto
ck
corp
orat
ion
(kab
ushi
ki
kais
ha) o
nly)
, an
atto
rney
, a
certi
fied
publ
ic
acco
unta
nt,
or c
ertif
ied
tax
acco
unta
nt;
(b) N
o sp
ecifi
c re
quire
men
ts.
Capit
al ga
ins
are
subje
ct
to J
apan
ese
corp
orat
ion ta
x,
inhab
itant
s ta
x an
d en
terp
rise
tax
at 4
2%
(effe
ctive
tax
rate
). A
sale
of
shar
es m
ust b
e at
the
shar
es’
fair
mar
ket
value
; if th
e sh
ares
are
so
ld at
a p
rice
lower
than
fair
mar
ket v
alue,
th
e tra
nsfe
ror
is re
quire
d to
re
cogn
ize t
he
diffe
renc
e be
twee
n th
e fa
ir m
arke
t va
lue a
nd th
e sa
les p
rice
as a
no
n-de
ducti
ble
dona
tion
(only
a c
erta
in
portio
n ca
n be
de
ducti
ble fo
r
A co
ntrib
utio
n of
sha
res,
in
prin
cipl
e, is
a
taxa
ble
even
t.
Cap
ital g
ains
ar
e su
bjec
t to
Jap
anes
e co
rpor
atio
n ta
x,
inha
bita
nts
tax
and
ente
rpris
e ta
x at
42%
(e
ffect
ive
tax
rate
).
How
ever
, ta
xes
can
be d
efer
red
if ce
rtain
co
nditi
ons
are
met
.
The
amou
nt
of th
e in
crea
se in
sh
are
capi
tal
by is
suin
g ne
w s
hare
s is
sub
ject
to
regi
stra
tion
and
licen
se
tax.
If s
hare
ce
rtific
ates
ar
e is
sued
, st
amp
duty
is
paya
ble
as
wel
l. If
the
capi
tal o
f a
corp
orat
ion
is in
crea
sed
by is
suin
g ne
w s
hare
s,
this
will
af
fect
the
amou
nt o
f pe
r cap
ita
levy
due
.
(a) O
ne
mon
th if
va
luat
ion
is re
quire
d.
Oth
erw
ise
1 da
y; a
nd(b
) 1-3
day
s.
104 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?Ja
pane
se ta
x pu
rpos
es) a
nd
the
trans
fere
e is
requ
ired
to re
cogn
ize
the
diffe
renc
e be
twee
n th
e fa
ir m
arke
t va
lue a
nd th
e sa
les p
rice
as
a ta
xable
gift
gain.
On
the
othe
r han
d, if
th
e sh
ares
are
so
ld at
a p
rice
highe
r tha
n fa
ir m
arke
t valu
e,
the
trans
fero
r is
requ
ired
to re
cogn
ize
the
diffe
renc
e be
twee
n th
e fa
ir m
arke
t va
lue a
nd th
e sa
les p
rice
as
a ta
xable
gift
gain
(in a
dditio
n to
the
ordin
ary
capit
al ga
in) a
nd
the
trans
fere
e
105Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?is
requ
ired
to re
cogn
ize
the
diffe
renc
e be
twee
n th
e fa
ir m
arke
t va
lue
and
the
sale
s pr
ice a
s a
non-
dedu
ctib
le
dona
tion
(onl
y a
certa
in
porti
on c
an b
e de
duct
ible
for
Japa
nese
tax
purp
oses
).M
alay
sia
Yes.
H
owev
er, it
is
advis
able
fo
r a n
omin
al
cons
idera
tion
to b
e in
serte
d.
This
is
beca
use
the
cont
ract
co
uld
be
void
if
ther
e is
no
exch
ange
of
cons
idera
tion.
Yes
Yes
No,
but
car
e m
ust b
e ta
ken
to e
nsur
e th
at
the
nom
inal
va
lue
of
the
shar
es
issu
ed b
y th
e re
cipi
ent
Mal
aysi
an
com
pany
in
exch
ange
(if
any)
doe
s no
t ex
ceed
the
valu
e of
the
cont
ribut
ed
shar
es.
No.
The
sh
ares
can
be
sol
d at
any
co
nsid
erat
ion
agre
ed u
pon
by th
e pa
rties
, an
d ca
n th
eref
ore
be
sold
at n
et
book
val
ue
rath
er th
an
at fu
ll m
arke
t va
lue.
The
M
alay
sian
S
tam
p O
ffice
w
ould
car
ry
out a
The
Mal
aysi
an
Sta
mp
Offi
ce
impo
ses
stam
p du
ty o
n th
e in
stru
men
t of
tran
sfer
.
The
shar
e tra
nsfe
r is
not s
ubje
ct
to in
com
e ta
x (u
nles
s th
e co
mpa
ny is
in
the
busi
ness
of
trad
ing
in
shar
es).
How
ever
, st
amp
duty
at
the
rate
of
0.3%
of t
he
cons
ider
atio
n or
the
mar
ket
valu
e
Sta
mp
duty
is
appl
icab
le to
th
e in
stru
men
t of
tran
sfer
at
the
rate
of
0.3%
of t
he
par v
alue
of
the
shar
es,
cons
ider
atio
n fo
r the
tra
nsfe
r, o
r th
e m
arke
t va
lue
(whi
chev
er is
hi
gher
).
No
(a) 1
4 da
ys;
and
(b) 1
4 da
ys.
106 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?va
luat
ion
of
the
shar
es fo
r st
amp
duty
ad
judi
catio
n pu
rpos
es.
Suc
h va
luat
ion
wou
ld n
ot
affe
ct th
e co
nsid
erat
ion
agre
ed u
pon
by th
e pa
rties
.
(whi
chev
er
is h
ighe
r) is
ap
plic
able
. In
ter-
com
pany
tra
nsfe
rs m
ay
qual
ify fo
r a
stam
p du
ty
exem
ptio
n.
Cer
tain
rela
ted
com
pany
tra
nsfe
rs m
ay
qual
ify fo
r a
stam
p du
ty
exem
ptio
n.
Phi
lippi
nes
Yes
Yes
Yes
No,
unl
ess
shar
es a
re
issu
ed in
ex
chan
ge in
w
hich
cas
e th
e va
lue
of
the
shar
es
shou
ld b
e de
term
ined
by
the
boar
d of
dire
ctor
s,
subj
ect t
o ap
prov
al b
y th
e S
EC
.
No.
The
sh
ares
can
be
sol
d at
net
bo
ok v
alue
.
No
spec
ific
requ
irem
ents
, al
thou
gh if
sh
ares
are
is
sued
in
exch
ange
, the
va
lue
of th
e co
ntrib
utio
n sh
ould
be
dete
rmin
ed
by th
e bo
ard
of d
irect
ors,
su
bjec
t to
appr
oval
by
the
SE
C.
Cap
ital g
ains
ta
x at
the
rate
of
5%
for n
et
capi
tal g
ains
no
t exc
eedi
ng
PhP
100,
000
(abo
ut
US
$1,9
00),
and
10%
for
net c
apita
l ga
ins
in
exce
ss o
f P
hP10
0,00
0 is
impo
sed.
C
apita
l gai
n is
co
mpu
ted
on
the
basi
s of
th
e fa
ir m
arke
t va
lue
Cap
ital g
ains
ta
x at
the
rate
of
5%
for n
et
capi
tal g
ains
no
t exc
eedi
ng
PhP
100,
000
(abo
ut
US
$1,9
00),
and
10%
for
net c
apita
l ga
ins
in
exce
ss o
f P
hP10
0,00
0 is
im
pose
d.S
tam
p du
ty
of 0
.375
% is
ch
arge
able
on
the
par
Sta
mp
duty
of
0.5
% o
f th
e to
tal p
ar
valu
e of
the
shar
es is
im
pose
d on
th
e or
igin
al
issu
e.
(a) 1
-3
days
(4 to
8
wee
ks if
ap
prov
al
of S
EC
is
requ
ired)
; an
d(b
) 1 m
onth
(6
mon
ths
if a
BIR
rulin
g is
requ
ired
for t
ax
relie
f).
107Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?or
boo
k va
lue
of th
e sh
ares
, w
hich
ever
is
high
er, l
ess
the
acqu
isiti
on
cost
. S
tam
p du
ty
of 0
.375
% is
ch
arge
able
on
the
par
valu
e of
the
trans
ferr
ed
shar
es.
Tax
relie
f may
be
ava
ilabl
e un
der a
do
uble
tax
treat
y.
valu
e of
the
cont
ribut
ed
shar
es.
If th
e tra
nsfe
ror
gain
s co
ntro
l ov
er th
e is
suin
g co
rpor
atio
n,
the
capi
tal
gain
s ta
x w
ill
be d
efer
red
until
the
subs
eque
nt
sale
of t
he
cont
ribut
ed o
r is
sued
sha
res.
Sin
gapo
reYe
sYe
sYe
sN
oN
o. I
t is
poss
ible
to
sell
shar
es
betw
een
rela
ted
com
pani
es
at n
et b
ook
valu
e.
No
spec
ific
requ
irem
ents
.If
the
shar
es
are
held
on
reve
nue
acco
unt,
the
gain
from
the
sale
may
be
subj
ect t
o in
com
e ta
x.
If th
e sh
ares
ar
e he
ld o
n ca
pita
l
If th
e sh
ares
ar
e he
ld
on re
venu
e ac
coun
t, th
e ga
in fr
om th
e sa
le m
ay b
e su
bjec
t to
inco
me
tax.
If
the
shar
es
are
held
on
capi
tal
No
(a) 1
-3 d
ays;
an
d
(b) 1
-3 d
ays.
108 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?ac
coun
t, th
e pr
ocee
ds o
n sa
le a
re n
ot
taxa
ble.
The
trans
fer
of s
hare
s is
su
bjec
t to
stam
p du
ty a
t 0.
2% o
n th
e hi
gher
of n
et
asse
t val
ue o
f th
e sh
ares
or
cons
ider
atio
n.
Rel
ief m
ay
be a
vaila
ble
but c
law
back
s of
relie
f may
oc
cur w
here
th
e sh
ares
are
sp
un-o
ff w
ithin
a
certa
in
perio
d.
acco
unt,
the
proc
eeds
from
sa
le a
re n
ot
taxa
ble.
The
trans
fer
of s
hare
s is
su
bjec
t to
stam
p du
ty a
t 0.
2% o
n th
e hi
gher
of n
et
asse
t val
ue o
f th
e sh
ares
or
cons
ider
atio
n.
Rel
ief m
ay
be a
vaila
ble
but c
law
back
s of
relie
f may
oc
cur w
here
th
e sh
ares
are
sp
un-o
ff w
ithin
a
certa
in
perio
d.Ta
iwan
Yes
(gift
ta
x m
ay
appl
y).
Yes
It is
po
ssib
le to
se
ll sh
ares
fo
r cas
h bu
t not
for
a lo
an n
ote
if th
e
In g
ener
al,
no.
In s
ome
circ
um-
stan
ces,
an
inde
pend
ent
opin
ion
on
No
An
inde
pend
ent
opin
ion
can
be is
sued
by
an a
ttorn
ey,
acco
unta
nt o
r
Sec
uriti
es
trans
actio
n ta
x of
0.3
% o
n th
e sa
le p
rice.
No
tax
on
cont
ribut
ion
of
shar
es.
No
Reg
istra
tion
fee
is
0.02
5% o
f th
e am
ount
(a) 2
- 3
mon
ths;
and
(b) 7
day
s.D
ue to
no
tariz
atio
n/
lega
lizat
ion
109Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?tra
nsfe
ree/
tra
nsfe
ror
is a
fore
ign
entit
y.
valu
e of
the
shar
es m
ay
be re
quire
d.
unde
rwrit
er
unre
late
d to
th
e pa
rties
.
Cap
ital g
ains
on
the
sale
of
sha
res
are
subj
ect
to a
ltern
ativ
e m
inim
um ta
x.Ta
x re
lief o
n th
e se
curit
ies
trans
actio
n ta
x is
ava
ilabl
e if
the
sale
is p
art
of a
n “M
&A
trans
actio
n.”
by w
hich
th
e ca
pita
l is
incr
ease
d.
requ
irem
ents,
ex
ecut
ion
of
docu
men
ts
may
take
up
to 1
mon
th.
Thai
land
Yes,
but
th
e m
arke
t va
lue
of
the
shar
es
may
be
cons
ider
ed
inco
me
of th
e tra
nsfe
ror
for t
ax
purp
oses
.
Yes,
for t
ax
purp
oses
th
e co
ntrib
utio
n w
ould
be
treat
ed a
s tw
o tra
ns-
actio
ns:
the
sale
of
shar
es th
at
trigg
ers
Thai
co
rpor
ate
inco
me
tax
if th
ere
are
gain
s an
d a
subs
crip
tion
for s
hare
s.
Yes
No.
In
the
even
t of a
n au
dit o
f the
co
mpa
ny, t
he
com
pany
may
be
requ
ired
to ju
stify
the
pric
e.
In c
ase
of
loca
l cor
pora
te
shar
ehol
ders
, th
e sh
ares
m
ust b
e so
ld
at fa
ir m
arke
t va
lue
if it
diffe
rs fr
om th
e bo
ok v
alue
(u
nles
s th
ere
is a
just
ifiabl
e gr
ound
ac
cept
ed
by th
e ta
x au
thor
ities,
e.g
., re
orga
niza
tion)
.
No
spec
ific
requ
irem
ents
. Th
e ga
ins
from
sal
e ar
e co
nsid
ered
in
com
e of
the
selle
r tha
t is
sub
ject
to
inco
me
tax.
N
o ta
x re
lief
is a
vaila
ble.
Fo
r cor
pora
te
inco
me
tax
purp
oses
, the
sh
ares
mus
t be
sol
d at
fair
mar
ket v
alue
. W
here
The
gain
s fro
m th
e sa
le
of s
hare
s ar
e co
nsid
ered
in
com
e of
th
e se
ller t
hat
is s
ubje
ct to
in
com
e ta
x.
No
tax
relie
f is
avai
labl
e.
No
(a) 1
-3 d
ays;
an
d (b
) 1-3
day
s;
thou
gh
signi
fican
t le
ad tim
e m
ay
be re
quire
d to
sa
tisfy
fore
ign
owne
rshi
p re
quire
men
ts.
110 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?th
e sa
le is
be
twee
n a
Thai
bu
yer a
nd a
fo
reig
n se
ller
and
any
capi
tal
gain
s ar
e pa
id
in T
haila
nd, t
he
gain
s m
ay b
e su
bjec
t to
15%
w
ithho
ldin
g ta
x th
at m
ay
be e
xem
pt/
redu
ced
unde
r do
uble
tax
treat
ies.
Any
shar
e tra
nsfe
r in
stru
men
t ex
ecut
ed in
, or
bro
ught
to,
Thai
land
is
subj
ect t
o 0.
1%
stam
p du
ty o
f th
e pa
id-u
p va
lue
of s
hare
s or
the
nom
inal
va
lue
of th
e in
stru
men
t, w
hich
ever
is
high
er.
111Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?
EMEA
Aus
tria
Yes
Yes
In g
ener
al,
cont
ribu-
tions
mus
t be
in
exch
ange
fo
r sha
res.
Yes
No
No
In s
ome
circ
umst
ance
s,
it m
ay b
e po
ssib
le to
se
ll at
net
bo
ok v
alue
, be
ing
an
amou
nt le
ss
than
full
mar
ket v
alue
.
No
spec
ific
requ
irem
ents
.If
a do
mes
tic
com
pany
se
lls s
hare
s in
a d
omes
tic/
fore
ign
com
pany
, th
e sa
le o
f do
mes
tic
shar
es is
su
bjec
t to
25%
cor
pora
te
inco
me
tax.
Th
e sa
le o
f fo
reig
n sh
ares
is
gen
eral
ly
exem
pt.
If a
fore
ign
com
pany
se
lls d
omes
tic
shar
es it
is
subj
ect t
o 25
% c
orpo
rate
in
com
e ta
x un
less
Tre
aty
relie
f is
avai
labl
e.
Con
tribu
tions
ar
e ei
ther
su
bjec
t to
capi
tal t
rans
fer
tax
at 1
% o
r to
gift
tax
at
prog
ress
ive
rate
s up
to
60%
. C
apita
l tra
nsfe
r tax
m
ay n
ot
appl
y in
som
e ci
rcum
stan
ces.
G
ift ta
x is
onl
y tri
gger
ed if
the
cont
ribut
ion
is fo
r no
cons
ider
atio
n C
apita
l tra
nsfe
r tax
m
ight
not
be
appl
icab
le if
th
e A
ustri
an
Reo
rgan
izat
ion
Tax
Act
can
be
app
lied.
Cap
ital d
uty
of 1
% o
n th
e is
sue
of
new
sha
res.
(a) 2
wee
ks;
and
(b) 2
wee
ks.
112 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?B
elgi
umN
oYe
sYe
sIf
shar
es a
re
cont
ribut
ed
to a
Bel
gian
co
mpa
ny,
both
the
stat
utor
y au
dito
r and
th
e bo
ard
of
dire
ctor
s of
su
ch B
elgi
an
com
pany
m
ust p
repa
re
a re
port.
The
st
atut
ory
audi
tor’s
re
port
mus
t co
nfirm
w
heth
er th
e va
lue
of th
e co
ntrib
uted
sh
ares
is a
t le
ast e
qual
to
the
valu
e of
the
shar
es
issu
ed in
ex
chan
ge.
Dire
ctor
s m
ust
gene
rally
sel
l sh
ares
for
cons
ider
atio
n of
no
less
th
an fa
ir m
arke
t val
ue
and
acqu
ire
shar
es a
t no
mor
e th
an
fair
mar
ket
valu
e. F
or
tax
purp
oses
, sh
ares
sho
uld
be s
old/
purc
hase
d at
fa
ir m
arke
t va
lue.
No
spec
ific
requ
irem
ents
(a
lthou
gh
the
stat
utor
y au
dito
r of t
he
trans
fere
e sh
ould
be
invo
lved
in
case
of a
co
ntrib
utio
n (s
ee c
olum
n 5
on v
alua
tion
of
shar
es))
. Fo
r ta
x pu
rpos
es,
a th
ird p
arty
va
luat
ion
is
pref
erab
le.
Cap
ital g
ains
on
sha
res
are
gene
rally
ex
empt
from
co
rpor
ate
inco
me
tax.
C
apita
l los
ses
on s
hare
s ar
e ge
nera
lly n
ot
dedu
ctib
le
for c
orpo
rate
in
com
e ta
x pu
rpos
es.
Cap
ital g
ains
on
sha
res
are
gene
rally
ex
empt
from
co
rpor
ate
inco
me
tax.
C
apita
l los
ses
on s
hare
s ar
e ge
nera
lly n
ot
dedu
ctib
le
for c
orpo
rate
in
com
e ta
x pu
rpos
es.
No
(a) 2
-4
wee
ks; a
nd(b
) 1-3
day
s.
113Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?C
zech
R
epub
licYe
s ,
as lo
ng a
s th
e di
rect
ors
of th
e do
nor
com
pany
fu
lfil th
eir
fiduc
iary
du
ties.
If
the
recip
ient
is a
sh
areh
olde
r of
the
dono
r co
mpa
ny
or re
late
d pa
rty th
e tra
nsac
tion
may
be
proh
ibite
d.Ad
ditio
nally
, gi
ft ta
x m
ay
appl
y.
Yes,
al
thou
gh a
pa
rticip
atio
n in
tere
st in
a
limite
d lia
bility
co
mpa
ny
cann
ot b
e co
ntrib
uted
in
som
e ci
rcum
-st
ance
s.
Yes
Yes
If th
e sh
ares
ar
e tra
nsfe
rred
be
twee
n re
late
d pa
rties
an
d th
e va
lue
of th
e sh
ares
ex
ceed
s 10
%
of re
gist
ered
ca
pita
l of t
he
purc
hase
r or
the
Cze
ch
selle
r, th
e pu
rcha
se
pric
e m
ust
be b
ased
on
the
valu
atio
n pr
epar
ed
by th
e co
urt
appo
inte
d va
luer
.
The
valu
atio
n,
if re
quire
d (m
anda
tory
), m
ust b
e pe
rform
ed
by th
e co
urt
appo
inte
d va
luer
.
Cap
ital g
ains
re
aliz
ed b
y th
e C
zech
ent
ities
up
on th
e sa
le
of th
e sh
ares
ar
e su
bjec
t to
ord
inar
y co
rpor
ate
inco
me
tax
at th
e ra
te o
f 21
%, u
nles
s th
e sa
le
qual
ifies
for
parti
cipa
tion
exem
ptio
n.Th
ere
is n
o st
amp
duty
on
the
trans
fer o
f sh
ares
.
The
cont
ribut
ion
of th
e sh
ares
do
es n
ot g
ive
rise
to c
apita
l ga
ins.
No
(a) 2
m
onth
s;
and
(b) 2
m
onth
s.
Egy
pt
No
Yes
Yes
Yes
Yes,
in s
ome
circ
umst
ance
s.Th
e co
mpa
ny’s
au
dito
r, su
bjec
t to
revi
ew b
y th
e C
apita
l Mar
ket
Aut
horit
y.
No
tax
impo
sed
on
capi
tal g
ains
.
No
tax
on
cont
ribut
ions
.N
o(a
) 2 -
6 m
onth
s; a
nd(b
) tim
ing
depe
nds
on w
heth
er
shar
es
are
liste
d.
Usu
ally,
it
take
s 4
days
.
114 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?Fr
ance
Yes,
al
thou
gh
the
gift
is n
ot ta
x de
duct
ible
fo
r the
tra
nsfe
ror
and
is
taxa
ble
inco
me
for
the
trans
fere
e (th
e gi
ft ta
x ra
te c
an b
e as
hig
h as
60
%).
Yes
Yes
Yes
No.
The
sh
ares
mus
t be
sol
d at
full
mar
ket v
alue
.
Valu
atio
n is
onl
y re
quire
d up
on
cont
ribut
ion.
A
n ex
tern
al
valu
atio
n au
dito
r mus
t be
app
oint
ed
by th
e co
mm
erci
al
Cou
rt.
A ca
pita
l ga
in d
eriv
ed
from
the
sale
of
sha
res
is
subj
ect t
o th
e no
rmal
co
rpor
ate
rate
tax
(33.
3%, p
lus
surc
harg
e).
How
ever
, sh
ares
hel
d fo
r mor
e th
an
2 ye
ars
that
re
pres
ent a
“c
ontro
lling
in
tere
st” a
re
subj
ect t
o an
ex
empt
ion
up
to 9
5%, t
he
rem
aini
ng 5
%
bein
g su
bjec
t to
the
norm
al
corp
orat
e ta
x ra
te (w
hich
m
ight
be
neut
raliz
ed
with
in a
tax
cons
olid
ated
gr
oup)
. Thi
s ex
empt
ion
In s
ome
circu
mst
ance
s,
shar
e fo
r sha
re
exch
ange
s be
nefit
fro
m
a ta
x de
ferra
l.
Tax
defe
rral
cont
inue
s un
til di
spos
al
of th
e sh
ares
re
ceive
d in
ex
chan
ge.
A fla
t rat
e of
375
€
or 5
00 €
ap
plie
s if
the
shar
e ca
pita
l ex
ceed
s 22
5,00
0€.
(a) U
p to
2
mon
ths;
an
d(b
) 1-3
day
s.
115Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?do
es n
ot a
pply
to
a c
ontro
lling
in
tere
st th
at
qual
ifies
as
real
est
ate
orie
ntat
ed
inte
rest
.If
the
com
pani
es
belo
ng
to a
tax
cons
olid
ated
gr
oup,
any
ca
pita
l gai
n re
sulti
ng fr
om
the
sale
will
be
pos
tpon
ed
until
the
de
partu
re o
f th
e co
mpa
nies
fro
m th
e gr
oup,
or t
he
end
of th
e ta
x co
nsol
idat
ed
grou
p.
116 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?G
erm
any
Yes,
but
gift
ta
x ap
plie
s.
Yes
Yes
Appr
aisa
l on
ly re
quire
d fo
r cor
pora
te
law
pur
pose
s if
in re
turn
fo
r the
issu
e of
sha
res.
If
in re
turn
fo
r cas
h/lo
an n
ote,
an
app
rais
al
is o
nly
reco
mm
ende
d fo
r fin
anci
al
acco
untin
g an
d ta
x pu
rpos
es.
No,
but
arm
’s
leng
th p
rice
is re
quire
d.
Any
sal
e at
le
ss th
an fu
ll m
arke
t val
ue
will
trig
ger
cons
truct
ive
divi
dend
pro
fit
real
izat
ion
and
divi
dend
w
ithho
ldin
g ta
x.
(a) G
erm
an
CPA
for c
ourt
filin
g pu
rpos
es
in is
suan
ce o
f ne
w s
hare
s;
and
(b) a
va
luat
ion
expe
rt.
Tax
exem
ptio
n ap
plie
s in
ca
se o
f co
rpor
ate
cont
ribut
ors
or s
elle
rs to
al
l but
5%
of
the
gain
, un
less
sha
res
resu
lt fro
m
a ta
x ne
utra
l co
nver
sion
or
cont
ribut
ion
of
othe
r tax
able
as
sets
, spi
n-of
f, sp
lit o
r di
visi
on.
Con
tribu
tion
is tr
eate
d as
a
taxa
ble
sale
un
less
tax
exem
ptio
n ru
les
appl
y,
(e.g
., w
here
m
ore
than
50
% o
f the
sh
ares
of a
co
rpor
ate
entit
y ar
e co
ntrib
uted
).
No
(a) 1
-3 d
ays
(Gm
bH
shar
es) a
nd
1-3
wee
ks
for r
ecor
ding
th
e ca
pita
l in
crea
se
in th
e co
mm
erci
al
regi
ster
; an
d(b
) 1-3
day
s (G
mbH
sh
ares
).
Hun
gary
Yes,
but
if
the
trans
fer
is b
etw
een
rela
ted
parti
es, t
he
trans
fer
pric
ing
rule
s sh
ould
be
take
n in
to
acco
unt.
Yes
Yes
Yes,
in th
e ca
se o
f co
mpa
nies
lim
ited
by
shar
es.
No.
How
ever
, if
the
trans
fer
is b
etw
een
rela
ted
parti
es, t
he
trans
fer
pric
ing
rule
s sh
ould
be
take
n in
to
acco
unt.
An
audi
tor o
r ex
pert.
The
diffe
renc
e be
twee
n th
e bo
ok v
alue
an
d th
e sa
le
valu
e of
the
shar
es is
in
clud
ed in
th
e ta
xabl
e bu
sine
ss
inco
me
of a
H
unga
rian
resi
dent
Sta
mp
duty
is
paya
ble
whe
n th
e ca
pita
l in
crea
se is
re
gist
ered
at
the
Hun
garia
n C
ourt
of
Reg
istra
tion.
Th
e am
ount
of
sta
mp
duty
de
pend
s on
th
e ty
pe o
f
No
(a) A
ppro
x.
2 m
onth
s (in
clud
ing
regi
stra
tion)
; an
d(b
) 1-3
day
s.
117Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?co
mpa
ny
and
taxe
d at
th
e st
anda
rd
corp
orat
e in
com
e ta
x ra
te o
f 16%
. S
olid
arity
tax
at a
rate
of
4% is
als
o pa
yabl
e.A
s of
1
Janu
ary
2007
, the
sa
le o
f sha
res
acqu
ired
afte
r 200
6 is
ex
empt
from
co
rpor
ate
inco
me
tax
prov
ided
th
at c
erta
in
cond
ition
s ar
e m
et.
Cap
ital l
osse
s ar
e no
t de
duct
ible
. N
o ta
x re
lief
is a
vaila
ble
for i
ntra
-gro
up
trans
fers
.
lega
l ent
ity,
but s
houl
d no
t exc
eed
EU
R 1
000.
118 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?Ita
lyYe
sYe
sYe
sYe
s. I
f the
tra
nsfe
ree
is
a jo
int s
tock
co
mpa
ny
(SpA
), th
e ap
prai
ser
mus
t be
appo
inte
d by
th
e C
ourt.
If
the
trans
fere
e is
a li
mite
d lia
bilit
y co
mpa
ny (s
rl),
the
appr
aise
r ca
n be
se
lect
ed
amon
gst
char
tere
d ac
coun
tant
s lis
ted
in th
e re
gist
er o
f au
dito
rs o
r au
ditin
g fir
ms
(rev
isor
i)
No
appr
aisa
l is
requ
ired
by th
e la
w.
Nor
mal
ly, th
e tra
nsfe
r mad
e be
twee
n re
late
d pa
rties
sh
ould
follo
w
trans
fer
pric
ing
regu
latio
ns.
How
ever
, th
e sa
le a
t bo
ok v
alue
is
pos
sibl
e in
th
e co
ntex
t of
an in
tra-g
roup
re
orga
niza
tion
or w
hen
the
selle
r has
no
min
ority
sh
areh
olde
rs,
espe
cial
ly
whe
n po
ssib
le
capi
tal g
ains
ar
e no
t su
bjec
t to
taxa
tion
in
Italy.
(a) A
n ap
prai
sal m
ust
be p
erfo
rmed
by
a c
harte
red
acco
unta
nt
who
is li
sted
in
the
regi
ster
of
aud
itors
or
by a
n au
ditin
g co
mpa
ny. I
f th
e tra
nsfe
ree
is a
n S
rl (li
mite
d lia
bilit
y co
mpa
ny),
the
appr
aise
r ca
n be
ap
poin
ted
by
the
trans
fero
r.
If th
e tra
nsfe
ree
is
an S
pa (s
tock
co
mpa
ny),
the
appr
aise
r is
appo
inte
d by
th
e C
ourt.
(b) N
o sp
ecifi
c re
quire
men
ts.
Und
er th
e pa
rtici
patio
n ex
empt
ion
regi
me,
onl
y 5%
of t
he
capi
tal g
ain
is
sub
ject
to
tax
at 2
7.5%
(i.
e., a
n ef
fect
ive
tax
rate
of 1
.3%
. Th
is re
lief
is a
vaila
ble
whe
n th
e sh
ares
wer
e he
ld a
s a
finan
cial
as
set o
n th
e st
atut
ory
bala
nce
shee
t of t
he
selle
r for
not
le
ss th
an 1
2 m
onth
s; a
nd
the
com
pany
w
hose
sh
ares
are
tra
nsfe
rred
ei
ther
car
ries
on b
usin
ess
Seve
ral
regi
mes
are
av
aila
ble:
Ord
inar
y ta
xatio
n –
Cap
ital g
ain
is
subj
ect t
o ta
x at
327
.5%
.Sp
ecia
l reg
ime
- app
lies
to
cont
ribut
ions
of
sha
re
parti
cipa
tions
re
pres
entin
g at
leas
t 20.
1%
of th
e sh
are
capi
tal o
f the
su
bsid
iary
oc
curri
ng
betw
een
Italia
n re
side
nt
corp
orat
ions
. In
this
cas
e,
the
capi
tal
gain
is
calc
ulat
ed a
s th
e di
ffere
nce
If th
e sh
ares
ar
e iss
ued
in e
xcha
nge
of th
e co
ntrib
utio
n of
oth
er
shar
es, t
he
capi
tal d
uty
tax
is fix
ed a
t EU
R 1
68.0
0.
(a) 2
-5
mon
ths
(dep
endi
ng
on th
e ev
alua
tion
proc
ess
by th
e ap
prai
ser)
; an
d(b
) 2 w
eeks
.
119Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?or
is li
sted
on
a s
tock
ex
chan
ge;
and
the
com
pany
w
hose
sh
ares
are
tra
nsfe
rred
is
not r
esid
ing
in
a ta
x-ha
ven
juris
dict
ion
or,
alte
rnat
ivel
y,
the
trans
fero
r ob
tain
s a
rulin
g fro
m th
e ta
x au
thor
ities
. Th
e sa
le
of s
hare
s el
igib
le to
the
parti
cipa
tion
exem
ptio
n re
gim
e ca
nnot
ge
nera
te
dedu
ctib
le
loss
es.
Cap
ital l
osse
s ar
e de
duct
ible
in
the
sam
e pe
rcen
tage
.
betw
een
(i)
the
book
val
ue
of th
e ne
wly
iss
ued
shar
es
or, i
f hig
her,
the
book
val
ues
assig
ned
to
the
cont
ribut
ed
shar
es in
th
e bo
oks
of
the
acqu
iring
co
mpa
ny;
and
(ii) t
he ta
x ba
sis o
f the
co
ntrib
uted
sh
ares
.Pa
rticip
atio
n ex
empt
ion
regi
me
- thi
s re
gim
e m
ay
also
app
ly to
th
e co
ntrib
utio
n of
sha
res.
If
the
trans
fero
r an
d tra
nsfe
ree
resid
e in
two
diffe
rent
EU
co
untri
es th
en
the
trans
actio
n is
tax
free.
120 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?N
ethe
rland
sYe
s,
alth
ough
th
e gi
ft m
ay
give
rise
to
tran
sfer
pr
icing
ad
justm
ents.
Yes
Yes
The
taxp
ayer
m
ust b
e ab
le
to s
how
that
th
e va
lue
for
whi
ch th
e co
ntrib
utio
n w
as m
ade
is
ente
red
in th
e bo
oks
and
refle
cts
an
arm
’s le
ngth
ag
reem
ent.
A co
ntrib
utio
n in
retu
rn fo
r th
e is
sue
of s
hare
s by
a D
utch
co
mpa
ny
requ
ires
a st
atem
ent
from
an
audi
tor
conf
irmin
g th
at th
e va
lue
of th
e co
ntrib
utio
n is
at
leas
t equ
al
to th
e no
min
al
valu
e of
the
Dut
ch
taxp
ayer
s m
ust
alw
ays
obse
rve
the
arm
’s le
ngth
sta
ndar
d an
d m
aint
ain
docu
men
tatio
n in
sup
port
of
the
arm
’s le
ngth
na
ture
of t
he
trans
actio
n.A
sale
bet
wee
n a
(pre
vious
or
cur
rent
) sh
areh
olde
r /
inco
rpor
ator
an
d its
Dut
ch
subs
idia
ry
with
in 2
yea
rs
afte
r the
su
bsid
iary
’s in
corp
orat
ion
requ
ires
an
audi
tor’s
st
atem
ent
conf
irmin
g th
at
the
valu
e of
th
e sh
ares
is a
t le
ast e
qual
to
the
purc
hase
The
valu
atio
ns
mus
t be
perfo
rmed
by
the
man
agem
ent
of th
e D
utch
co
mpa
ny.
Sub
sequ
ently
, an
in
depe
nden
t D
utch
aud
itor
mus
t iss
ue
a st
atem
ent
conf
irmin
g th
at th
e va
lue
of th
e co
ntrib
utio
n / a
cqui
sitio
n at
leas
t eq
uals
the
valu
e of
the
cons
ider
atio
n pa
id b
y th
e D
utch
co
mpa
ny.
The
stan
dard
D
utch
co
rpor
ate
inco
me
tax
rate
is 2
5.5%
. H
owev
er,
capi
tal g
ains
de
rived
from
sa
le o
f sha
res
are
usua
lly
exem
pt b
y vi
rtue
of
the
Dut
ch
parti
cipa
tion
exem
ptio
n.
The
parti
cipa
tion
exem
ptio
n ap
plie
s to
all
5% o
r mor
e in
vest
men
ts,
unle
ss th
e in
vest
men
t ha
s th
e na
ture
of
a P
assi
ve
Inve
stm
ent
Com
pany
w
hich
is n
ot
subj
ect t
o an
ef
fect
ive
prof
it
Con
tribu
tions
m
ade
to
the
capi
tal
of a
Dut
ch
com
pany
are
no
t sub
ject
to
capi
tal d
uty
or s
imila
r ch
arge
s.
No
(a) 3
-4 d
ays;
an
d (b
) 3-4
day
s,pr
ovid
ed
that
the
rele
vant
va
luat
ion
/ aud
it re
quire
men
ts
have
bee
n m
et.
121Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?sh
ares
to b
e is
sued
.A
cont
ribut
ion
as a
gift
to
a D
utch
co
mpa
ny
with
in 2
ye
ars
of it
s in
corp
orat
ion
by it
s di
rect
(p
revi
ous
or c
urre
nt)
shar
ehol
der /
in
corp
orat
or
requ
ires
an
audi
tor’s
st
atem
ent
conf
irmin
g th
at th
e va
lue
of th
e co
ntrib
utio
n is
at l
east
eq
ual t
o
zero
.
price
pai
d by
the
Dut
ch
com
pany
.
tax
rate
of a
t le
ast 1
0%.
Pol
and
Yes
Yes
Yes
A va
luat
ion
is
not r
equi
red
for a
lim
ited
liabi
lity
com
pany
.
No
valu
atio
n re
quire
d.
The
sale
sh
ould
be
at
(a) u
pon
cont
ribut
ion
to
a jo
int s
tock
co
mpa
ny,
Inco
me
earn
ed o
n th
e sa
le o
f sha
res
by a
fore
ign
com
pany
is
The
incr
ease
of
the
shar
e ca
pita
l of
the
Pol
ish
com
pany
No
(a) 1
-2
mon
ths
(sha
res
in a
jo
int s
tock
co
mpa
ny),
122 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?Fo
r a
join
t-sto
ck
com
pany
, pr
omot
ers
mus
t dra
w
up a
repo
rt de
scrib
ing
the
cont
ribut
ion.
Th
e co
ntrib
utio
n is
al
so s
ubje
ct
to a
ppra
isal
by
an
audi
tor
with
a re
port
stat
ing
whe
ther
the
valu
e of
the
cont
ribut
ion
corr
espo
nds
to th
e no
min
al
valu
e or
the
high
er is
sue
pric
e of
the
shar
es is
sued
in
exc
hang
e fo
r the
co
ntrib
utio
n.
arm
’s le
ngth
an
d th
e pr
ice
shou
ld n
ot b
e lo
wer
than
fair
mar
ket v
alue
.
an a
udito
r is
appo
inte
d by
th
e re
gist
ry
cour
t(b
) no
spec
ific
requ
irem
ents
exem
pt fr
om
Cor
pora
te
Tax.
In
com
e ea
rned
on
the
sale
of s
hare
s by
a P
olis
h co
mpa
ny
is s
ubje
ct
to 1
9%
Cor
pora
te T
ax
on th
e ga
in.
Sal
e of
sha
res
in th
e P
olis
h co
mpa
ny a
nd
sale
of s
hare
s to
the
Pol
ish
buye
r sub
ject
to
1%
tax
on c
ivil
law
tra
nsac
tions
.
resu
lting
fro
m th
e co
ntrib
utio
n is
sub
ject
to
0.5
% ta
x on
civ
il la
w
trans
actio
ns.
The
tax
is
paya
ble
by
the
Pol
ish
com
pany
.Ta
x is
co
llect
ed a
nd
paid
by
a no
tary
pub
lic
with
in 1
4 da
ys
from
a d
ate
of e
xecu
tion
of a
not
aria
l de
ed o
n co
ntrib
utio
n.
2 w
eeks
(s
hare
s in
a
limite
d lia
bilit
y co
mpa
ny);
and
(b) 1
-3 d
ays
for s
ale
and
2 w
eeks
fo
r cou
rt.
regi
stra
tion.
123Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?R
ussi
aN
o, g
ifts
betw
een
lega
l en
titie
s in
ex
cess
of
RU
R50
0 ar
e pr
ohib
ited.
Yes
Yes
Yes
The
mar
ket
valu
e of
the
shar
es m
ust
be a
sses
sed
by a
n in
depe
nden
t ap
prai
ser i
f th
e sh
ares
ar
e us
ed in
pa
ymen
t for
ot
her s
hare
s (a
s an
in-k
ind
cont
ribut
ion)
. It
is p
ossi
ble
to s
ell s
hare
s at
net
boo
k va
lue.
Whe
re
requ
ired,
an
inde
pend
ent
appr
aise
r.
Sal
e of
sha
res
is s
ubje
ct to
pr
ofits
tax
at
the
rate
of
24%
. Th
e ta
x ba
se is
de
term
ined
as
the
diffe
renc
e be
twee
n th
e se
lling
pr
ice
and
the
purc
hase
pr
ice
of
shar
es.
If th
e sa
le p
rice
of
the
shar
es
is b
elow
the
mar
ket v
alue
of
the
shar
es,
then
the
tax
base
will
be
dete
rmin
ed
base
d on
the
mar
ket v
alue
(w
ith s
peci
al
rule
s ap
plyi
ng
depe
ndin
g on
w
heth
er th
e sh
ares
are
pu
blic
ly li
sted
or
not
).
Cap
ital
cont
ribut
ions
in
exc
hang
e fo
r sha
res
are
not s
ubje
ct to
R
ussi
an ta
x.
Sta
te d
uty
of 1
,000
ru
bles
, and
fees
at
0.2%
of t
he
nom
inal
va
lue
of
the
shar
es,
capp
ed a
t 10
0,00
0 ru
bles
.
(a) 3
day
s;
and
(b) 3
day
s.
124 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?S
pain
Yes
Ther
e ar
e tw
o po
ssib
le
scen
ario
s:If
ther
e is,
a
Span
ish
tax
grou
p de
ferra
l re
gim
e w
ill ap
ply.
b) if
ther
e is,
no
Span
ish ta
x gr
oup
the
trans
actio
n m
ay b
e re
- ch
arac
teriz
ed
by th
e Sp
anish
Tax
Au
thor
ities
as a
“d
eem
ed
divid
end”
Yes
Yes
Yes,
if
cont
ribut
ed to
a
corp
orat
ion
(SA
). N
ot re
quire
d if
cont
ribut
ed
to a
lim
ited
liabi
lity
com
pany
(SL
com
pany
).
No,
but
sh
ares
mus
t be
sol
d at
no
less
than
fair
mar
ket v
alue
.
(a) F
or a
n S
A, a
n in
depe
nden
t ex
pert
mus
t be
app
oint
ed
by th
e C
ompa
nies
R
egis
ter.
Fo
r an
SL,
th
e va
luat
ion
is a
t the
di
scre
tion
of
the
com
pany
di
rect
ors.
Span
ish
resid
ent
corp
orat
ion
trans
fers
its
parti
cipat
ion
in
a no
n Sp
anish
re
siden
t co
rpor
atio
n w
hich
bel
ongs
to
the
sam
e gr
oup
the
stan
dard
ra
te is
30%
(re
inve
stm
ent
tax
cred
its c
an
furth
er re
duce
th
e ef
fect
ive
rate
to 1
8%).
Furth
erm
ore
Sp
anish
C
orpo
rate
In
com
e Ta
x Ac
t set
s ou
t a
fore
ign
tax
cred
it sy
stem
and
a
parti
cipat
ion
exem
ptio
n sy
stem
(the
ta
xpay
er m
ay
opt p
rovid
ed
Tax
relie
f av
aila
ble
if co
ntrib
utio
n ta
kes
form
re
gula
ted
by
the
EU
mer
ger
dire
ctiv
e,
(sub
ject
to
busi
ness
pu
rpos
e te
st).
Oth
erw
ise
ther
e ar
e th
ree
poss
ible
sc
enar
ios,
fo
r whi
ch
plea
se s
ee
expl
anat
ions
in
the
pr
evio
us
colu
mn.
1%,
alth
ough
th
is c
an b
e av
oide
d if
issu
e el
igib
le fo
r E
U m
erge
r di
rect
ive
(sub
ject
to
busi
ness
pu
rpos
e te
st).
(a) F
or
regi
stra
tion
of d
eed:
4
wee
ks.
An
inde
pend
ent
valu
atio
n w
ill ad
d ex
tra
time
(4 to
6
wee
ks);
and
(b) 1
-3 d
ays.
125Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?th
at c
erta
in
requ
irem
ents
ar
e m
et) i
n or
der t
o av
oid
doub
le ta
xatio
n.Th
e se
ller
and
the
buye
r be
long
to th
e sa
me
Span
ish
tax
grou
p, th
e ta
xatio
n of
ca
pita
l gai
ns
is de
ferre
d un
til th
e di
sapp
eara
nce
of th
e ta
x gr
oup.
If a
non-
Span
ish
resid
ent
corp
orat
ion
trans
fers
its
parti
cipat
ion
in a
Spa
nish
re
siden
t co
rpor
atio
n w
hich
bel
ongs
to
the
sam
e gr
oup,
it w
ill be
ta
xed
at 1
8%.
126 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?N
o ta
xatio
n of
ca
pita
l gai
ns
deriv
ed fr
om
the
sale
of
less
than
25%
eq
uity
inte
rest
in
a S
pani
sh
com
pany
, pr
ovid
ed th
e se
ller i
s (i
) an
EU
resi
dent
w
hich
doe
s no
t car
ry o
ut
a bu
sine
ss
activ
ity in
S
pain
thro
ugh
a P
erm
anen
t E
stab
lishm
ent
or (i
i) an
EU
P
erm
anen
t E
stab
lishm
ent
Trea
ty
prov
isio
ns
shou
ld a
lso
be
cons
ider
ed.
127Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?S
wed
enYe
sYe
sYe
sIf
the
cont
ribut
ion
is m
ade
in
retu
rn fo
r sh
ares
, the
bo
ard
of
the
issu
ing
com
pany
m
ust a
t the
ge
nera
l sh
areh
olde
rs
mee
ting
pres
ent a
re
port
on th
e va
luat
ion
of
cont
ribut
ed
shar
es.
The
repo
rt m
ust
be re
view
ed
by a
n au
dito
r.
No
valu
atio
n re
quire
d. A
s a
gene
ral
rule
, sha
res
in u
nlis
ted
com
pani
es
may
be
sold
at
net
boo
k va
lue.
(a) T
he b
oard
of
dire
ctor
s an
d au
dito
r.(b
) No
valu
atio
n re
quire
d.
For
com
pani
es,
gain
s on
sh
ares
in
unlis
ted
Sw
edis
h co
mpa
nies
ar
e ex
empt
fro
m ta
x.
Sw
eden
doe
s no
t im
pose
st
amp
duty
on
cont
ribut
ions
. Fo
r co
mpa
nies
, ga
ins
on
shar
es in
un
liste
d S
wed
ish
com
pani
es
are
exem
pt
from
tax.
No
(a)
6-8
wee
ks
(how
ever
, ca
n be
qu
icker
if
ther
e is
on
ly on
e sh
areh
olde
r);
and
(b) 1
-3 d
ays.
Switz
erla
ndYe
s Ye
sYe
sYe
s –
the
dire
ctor
s or
in
corp
orat
ors
of th
e S
wis
s tra
nsfe
ree
mus
t iss
ue a
sp
ecia
l rep
ort
desc
ribin
g th
e as
sets
co
ntrib
uted
,
No.
Dire
ctor
s m
ust s
ell a
t no
less
than
fa
ir m
arke
t va
lue
in o
rder
to
sat
isfy
thei
r fid
ucia
ry d
utie
s an
d th
e ta
x re
quire
men
ts.
(a) T
he
dire
ctor
s or
in
corp
orat
ors
of th
e tra
nsfe
ree
(con
firm
ed b
y an
aud
itor)
.(b
) No
spec
ific
requ
irem
ents
.
If th
e sh
ares
so
ld re
pres
ent
less
than
20
%, t
he
capi
tal g
ain
is s
ubje
ct
to o
rdin
ary
fede
ral a
nd
cant
onal
in
com
e ta
xes.
The
trans
fero
r is
taxa
ble
unle
ss th
e co
ntrib
utio
n qu
alifi
es a
s a
reor
gani
zatio
n fo
r tax
pu
rpos
es a
nd
the
shar
es
rece
ived
in
1% o
n th
e iss
ue o
f sha
re
capi
tal (
abov
e th
e fir
st C
HF
1 m
illion
).N
ot
appl
icabl
e in
qu
alify
ing
(a) 1
0-15
da
ys; a
nd(b
) 1-3
day
s.
128 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?th
e va
lue
of
such
ass
ets
and
the
basi
s fo
r val
uatio
n.
An
audi
tor
shal
l con
firm
th
e ac
cura
cy
and
the
com
plet
enes
s of
the
spec
ial
repo
rt.N
o va
luat
ion
repo
rt re
quire
d fo
r lim
ited
liabi
lity
com
pani
es.
Und
er s
pecia
l cir
cum
stan
ces
(e.g
., re
orga
niza
tion)
, it
is po
ssib
le
to tr
ansf
er th
e sh
ares
at n
et
book
val
ue.
If th
e sh
ares
so
ld re
pres
ent
at le
ast 2
0%
and
have
be
en h
eld
for
a m
inim
um
perio
d of
on
e ye
ar,
the
fede
ral
and
cant
onal
in
com
e ta
xes
are
redu
ced
by th
e pe
rcen
tage
co
rresp
ondi
ng
to th
e ra
tio
betw
een
(i) th
e ne
t ca
pita
l gai
n re
aliz
ed o
n th
e sa
le a
nd
(ii) t
he to
tal
net p
rofit
of
the
com
pany
(s
o-ca
lled
parti
cipa
tion
redu
ctio
n).
If th
e co
mpa
ny
qual
ifies
as
a pu
re h
oldi
ng
exch
ange
ar
e re
cord
ed
at th
e sa
me
book
val
ue
as th
e co
ntrib
uted
sh
ares
.Th
e co
ntrib
utio
n do
es n
ot
repr
esen
t ta
xabl
e in
com
e to
th
e re
cipi
ent
com
pany
.
reor
ganiz
ation
s fo
r tax
pu
rpos
es.
129Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?co
mpa
ny
(i.e.
if i
ts
inve
stm
ents
in
oth
er
com
pani
es
repr
esen
t at
leas
t 2/3
of
the
com
pany
’s
tota
l ass
ets
or if
at l
east
2/
3 of
its
tota
l inc
ome
com
es fr
om
parti
cipa
tion
inco
me)
, the
ca
pita
l gai
n on
the
sale
of
sha
res
is
fully
exe
mpt
ed
from
can
tona
l in
com
e ta
x.
The
fede
ral
trans
fer s
tam
p ta
x m
ay a
pply
on
the
sale
if
eith
er th
e se
ller
or th
e bu
yer
qual
ifies
as a
Sw
iss s
ecur
ities
130 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?de
aler
(e.g
., a
lega
l ent
ity
hold
ing
secu
ritie
s ha
ving
a bo
ok v
alue
ex
ceed
ing
CH
F 10
milli
on).
The
tra
nsfe
r tax
rate
is
0.15
% o
n Sw
iss s
hare
s an
d 0.
3% o
n fo
reig
n sh
ares
. R
elie
f may
be
gran
ted
with
re
spec
t to
trans
actio
ns
qual
ifyin
g as
re
orga
niza
tions
or
intra
-gro
up
trans
fers
.U
krai
neYe
sYe
sIt
is
poss
ible
to
sell
shar
es
for c
ash
but n
ot
for a
loan
no
te.
No,
un
less
the
shar
es a
re
cont
ribut
ed to
th
e co
mpa
ny
in w
hich
the
Gov
ernm
ent
has
or w
ill
have
a d
irect
or
indi
rect
No,
unl
ess
the
shar
es
are
shar
es o
f th
e co
mpa
ny
whe
re th
e G
over
nmen
t ha
s a
dire
ct
or in
dire
ct
shar
ehol
ding
in
tere
st.
Qua
lifie
d va
luat
ion
expe
rts.
The
sale
of
shar
es w
ill
give
rise
to a
ga
in o
r a lo
ss
for t
he s
elle
r, as
app
licab
le.
A ga
in is
ca
lcul
ated
as
the
posi
tive
diffe
renc
e
For t
he
trans
fero
r, th
e co
ntrib
utio
n of
sha
res
in
exch
ange
fo
r the
issu
e of
sha
res
is tr
eate
d as
a s
ale/
disp
ositi
on
No
(a) 1
-3 d
ays;
an
d (b
) 1-3
day
s,un
less
prio
r ap
prov
al
of th
e A
nti-
mon
opol
y C
omm
ittee
is
requ
ired.
131Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?sh
areh
oldi
ng
inte
rest
.If
the
Ukr
aini
an
trans
fer
pric
ing
rule
s ap
ply,
the
shar
es m
ust
be s
old
at fu
ll m
arke
t val
ue.
Oth
erw
ise
the
shar
es m
ay
be s
old
at n
et
book
val
ue.
betw
een:
(a)
the
high
er
of th
e sa
le
pric
e or
arm
’s
leng
th v
alue
of
the
shar
es;
and
(b) t
he ta
x ba
sis
of th
e sh
ares
. Th
e ga
in is
taxa
ble
to a
dom
estic
se
ller a
t 25%
co
rpor
ate
tax
and
to
a fo
reig
n se
ller a
t 15%
w
ithho
ldin
g ta
x, u
nles
s a
doub
le
tax
treat
y pr
ovid
es
othe
rwis
e.A
loss
is
cred
itabl
e ag
ains
t th
e se
ller’s
se
curit
ies
tradi
ng
inco
me.
with
tax
treat
men
t si
mila
r to
the
treat
men
t of
the
selle
r. Th
e tra
nsfe
ree
will
get
a ta
x ba
sis
in th
e co
ntrib
uted
sh
ares
equ
al
to th
e va
lue,
at
whi
ch s
uch
shar
es w
ill b
e co
ntrib
uted
.
132 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?Th
e pu
rcha
ser
may
ded
uct
the
purc
hase
pr
ice
from
its
sec
uriti
es
tradi
ng
inco
me.
Uni
ted
Kin
gdom
Yes
Yes
Yes
No
- but
car
e m
ust b
e ta
ken
to e
nsur
e th
at
the
nom
inal
va
lue
of
the
shar
es
issu
ed b
y th
e re
cipi
ent
Eng
lish
com
pany
in
exch
ange
(if
any)
is n
ot
mor
e th
an th
e va
lue
of th
e co
ntrib
uted
sh
ares
as
this
wou
ld b
e a
brea
ch o
f s1
00 o
f the
C
ompa
nies
A
ct 1
985.
No
valu
atio
n re
quire
d.
Dire
ctor
s m
ust s
ell a
t no
less
than
fa
ir m
arke
t va
lue
and
acqu
ire a
t no
mor
e th
an fa
ir m
arke
t val
ue
in o
rder
to
satis
fy fi
duci
ary
dutie
s. A
sh
areh
olde
r ca
n ra
tify
thes
e ac
tions
if
requ
ired.
Dep
endi
ng
on th
e cir
cum
stan
ces,
it
may
be
poss
ible
to s
ell
No
spec
ific
requ
irem
ents
The
initi
al s
ale
of th
e sh
ares
w
ill b
e tre
ated
as
giv
ing
rise
to n
eith
er a
ga
in n
or a
lo
ss fo
r tax
pu
rpos
es, w
ith
the
resu
lt th
at
the
trans
fer
will
not
giv
e ris
e to
a
liabi
lity
to U
K
tax
(pro
vide
d th
e tra
nsfe
ror
and
trans
fere
e ar
e m
embe
rs
of th
e sa
me
grou
p fo
r UK
ta
x pu
rpos
es).
The
initi
al
cont
ribut
ion
of th
e sh
ares
, w
heth
er in
ex
chan
ge fo
r sh
ares
or n
ot,
will
be
treat
ed
as a
no
gain
no
loss
eve
nt
(pro
vide
d th
e tra
nsfe
ror a
nd
trans
fere
e sa
tisfy
the
requ
irem
ents
fo
r a g
roup
fo
r UK
tax
purp
oses
).W
hen
the
trans
fere
e,
toge
ther
with
th
e ta
rget
co
mpa
ny,
No
(a) 1
-3 d
ays;
an
d(b
) 1-3
day
s.
133Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?at
net
boo
k va
lue,
bei
ng
an a
mou
nt
less
than
full
mar
ket v
alue
.
Whe
n th
e tra
nsfe
ree,
to
geth
er w
ith
the
targ
et
com
pany
, le
aves
the
grou
p, w
ithin
6
year
s, th
e tra
nsfe
ree
wou
ld s
uffe
r a
degr
oupi
ng
char
ge o
f 30%
of
the
capi
tal
gain
bas
ed
on th
e m
arke
t va
lue
of th
e sh
ares
at t
he
date
of t
he
orig
inal
tran
sfer
le
ss th
e hi
stor
ic
base
cos
t of t
he
shar
es in
the
hand
s of
the
trans
fero
r.St
amp
duty
of
0.5%
, with
a
min
imum
of £
5,
will
be le
vied
on
the
valu
e of
the
shar
es.
leav
es th
e gr
oup,
with
in
6 ye
ars,
the
trans
fere
e w
ould
suf
fer
a de
grou
ping
ch
arge
of 3
0%
of th
e ca
pita
l ga
in b
ased
on
the
mar
ket
valu
e of
the
shar
es a
t the
da
te o
f the
co
ntrib
utio
n le
ss th
e hi
stor
ic b
ase
cost
of t
he
shar
es in
the
hand
s of
the
trans
fero
r.If
the
cont
ribut
ion
of
the
shar
es is
m
ade
for n
o co
nsid
erat
ion,
th
e tra
nsfe
ror
will
not o
btai
n an
upl
ift in
its
base
cos
t in
the
shar
es it
ho
lds
in th
e
134 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?G
roup
relie
f m
ay b
e av
aila
ble
unle
ss
ther
e ar
e ar
rang
emen
ts
in p
lace
pu
rsua
nt to
w
hich
the
trans
fero
r or
trans
fere
e w
ill
ceas
e to
be
asso
ciat
ed.
trans
fere
e to
refle
ct th
e va
lue
of th
e co
ntrib
uted
sh
ares
. An
up
lift w
ill be
ob
tain
ed,
how
ever
, if t
he
cont
ribut
ion
is m
ade
in
exch
ange
for
the
issu
e of
sh
ares
by
the
trans
fere
e to
th
e tra
nsfe
ror.
If th
ere
is n
o co
nsid
erat
ion
issu
ed in
ex
chan
ge fo
r th
e co
ntrib
utio
n of
the
shar
es,
the
trans
fer
will
be e
xem
pt
from
sta
mp
duty
and
this
ca
n be
sel
f ce
rtifie
d by
th
e tra
nsfe
ror
on th
e st
ock
trans
fer
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Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 8 – Moving Companies Into the New Structure
Juris
dict
ion
Are
sha
res
trans
fera
ble
by g
ift?
Are
shar
es
trans
fera
ble
by
cont
ribut
ion
in re
turn
for
the
issu
e of
sh
ares
?
Is it
po
ssib
le to
se
ll sh
ares
(in
retu
rn
for c
ash/
lo
an n
ote)
?
Upo
n co
ntrib
utio
n to
loca
l co
mpa
ny,
mus
t co
ntrib
uted
sh
ares
be
valu
ed /
appr
aise
d?
Upo
n sa
le1 ,
m
ust s
hare
s be
val
ued
/ ap
prai
sed?
C
an s
hare
s be
sol
d at
net
bo
ok v
alue
ra
ther
than
full
mar
ket v
alue
?
Who
mus
t pe
rform
the
valu
atio
ns o
r ap
prai
sals
up
on (a
) co
ntrib
utio
n an
d/or
(b)
sale
?
Wha
t is
the
rele
vant
tax
on s
ale
and
the
prev
ailin
g ra
te o
f thi
s ta
x? W
hen
is ta
x re
lief
avai
labl
e?
Wha
t is
the
rele
vant
tax
on c
ontri
butio
n an
d th
e pr
evai
ling
rate
of t
his
tax?
Whe
n is
tax
relie
f av
aila
ble?
Is th
ere
any
capi
tal
duty
on
the
issu
e of
new
sh
ares
?
Wha
t is
the
appr
oxim
ate
timin
g fo
r (a)
a
cont
ribut
ion
of s
hare
s;
and
(b)
a sa
le o
f sh
ares
?fo
rm.
If co
nsid
erat
ion
is is
sued
in
the
form
of
shar
es, s
tam
p du
ty w
ill b
e le
vied
at t
he
sam
e ra
te a
nd
with
sam
e co
nditi
ons
for
grou
p re
lief a
s on
a s
ale.
136 Baker & McKenzie
Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 9 – Identifying the Most Effective Form of New Entity
Section 9 Identifying the Most Effective Form of Entity for the Asset or Business Transfer
Before making any asset or business transfer, the appropriate vessel for the business or assets must be identified, be it a company, branch or representative office. Before a decision as to the corporate vehicle is made, various considerations should be addressed, such as timing, capital requirements, local regulation, nominal shareholders and minimum share capital rules.
If the asset or business transfer is constrained by timing issues it will be of utmost importance to decide what is the most appropriate entity into which the business can be transferred:
• newly incorporated company;
• dormant subsidiary;
• shelf company; or
• branch/representative office.
1. Incorporating a New CompanyWhen making a decision as to whether to transfer a business or assets into a new company, it is necessary to review all of the incorporation formalities which must be fulfilled and weigh these against the advantages and disadvantages of a ready-made company or branch. A thorough review should consider the following factors:
• practical set-up requirements;
• minimum share capital;
• debt or equity funding;
• type of company;
• time to incorporate; and
• number of shareholders.
1.1 Practical Set-up Requirements
A review of the practical set-up requirements for a new company in the proposed jurisdiction of the asset or business transfer should cover:
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• Number of founders required – e.g., a Swiss AG/SA requires three persons, whereas a Belgian SA/NV requires only two.
• Director and shareholder requirements – e.g., must the directors also be shareholders (as in a Philippine stock corporation where five directors must also hold at least one share each in the company)? Must the directors be domiciled in the country of incorporation (as in a Danish A/S where the Managing Director and at least half of the board of directors are required to be resident in Denmark or citizens of EEA member states)? How many directors must the company have?
• Registered office requirements – e.g., must it be in the country of incorporation?
• Capitalization requirements.
• Foreign ownership restrictions – e.g., whether there are restrictions, as in Thailand and the Philippines, on 100% foreign ownership of a local subsidiary.
Issues such as licenses, value-added tax (VAT), and foreign investment review boards should also be considered. For example Australia, India and Thailand require prior approvals for foreign investment. Such issues can weigh heavily in decisions whether or not to incorporate a new company.
1.2 Share Capital Requirements
The establishment of a new company will usually require the injection of a minimum share capital amount by the proposed new shareholder. Although in the UK or U.S. this can be a nominal amount, in a number of jurisdictions this minimum is actually set at quite a high level (e.g., in Saudi Arabia it is roughly equivalent to US$500,000; a German GmbH requires €25,000).
Additionally, in some jurisdictions the share capital must be fully paid up, e.g., in Austria, Denmark and Norway.
Similarly, many jurisdictions also require the shareholder of a new company to transfer the new company’s capital into a specifically designated bank account. This involves the shareholder providing a number of guarantees and opening a new bank account for the funds. For example, an Austrian GmbH and Swiss AG require up to 25% and 20%, respectively, of the nominal share capital to be paid in to a bank account before registration can be made; in Russia and in certain Latin American countries, designated bank accounts must be created.
All of these issues can affect timing and influence the choice of vehicle to be used and should be addressed well in advance of any asset or business sale.
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1.3 Debt / Equity Funding
Once set up, a new company will require funding for it to be able to purchase the business or assets. This can be achieved either by debt funding, equity contribution or a combination of the two. The decision as to debt or equity funding will be influenced largely by the parent’s financial situation at that time. However, the jurisdiction’s thin capitalization rules must also be borne in mind. (Thin capitalization is the situation where a company’s debt to equity ratio exceeds the applicable local ratio.)
Jurisdictions can impose further requirements on companies or their members as a result of low capitalization, for example:
• In Belgium, the founding shareholders are liable for the debts of a Belgian company, should it go into bankruptcy within 3 years of incorporation due to inadequate initial capitalization.
• In Denmark, if an ApS loses more than 40% of its net capital it must either be re-capitalized to the prescribed level or dissolved.
• In Italy, if losses (current and carried forward) at any time exceed one third of the capital, the directors must convene a shareholders meeting for remedial action. Failure to do so would result in the dissolution and liquidation of the company.
Again, these local requirements should be reviewed carefully prior to any asset or business sale, as they may influence the final decisions as to the type of vehicle to be used.
1.4 Type of Company
The type of company to be incorporated should also be carefully reviewed, because in most jurisdictions the type of company will affect the liability of the shareholders, the minimum number of required shareholders and a whole raft of individual requirements. For example in Italy, a sole shareholder in an SrL will have the same limited liability as shareholders in an SpA unless the sole shareholder is a company, in which case the company will have unlimited liability for the obligations undertaken by the SrL.
There may also be practical consequences, such as tax liability, arising from the choice of type of company which will arise in the future. For example in Austria a GmbH has the disadvantage that transfers of its shares are burdened with a transfer tax at the rate of 2.5% whereas transfers of shares in an AG only attract a transfer tax of 0.15%. Similarly, in Argentina, the transfer of shares of an SA is exempt from capital gains tax, whereas the transfer of shares of a S.R.L. is not. Such considerations will be especially important when the time comes to on-sell to a third party.
1.5 Number of Shareholders
In a number of jurisdictions a company will be required to have more than one shareholder, usually with a nominal shareholder holding a minority stake. This can cause problems
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especially where the nominal shareholder must be an individual or resident of the jurisdiction. For example in Russia, where the shareholder of a new company is a foreign company which in turn is owned by a foreign company the new company will requires a resident shareholder. This can be avoided only by having a non-foreign company as the sole shareholder or having a foreign company which has two shareholders as the sole shareholder. In Argentina, a minimum of two shareholders is required and the minority or second shareholder should not be a mere shell or holding company, but should have significant assets located outside of Argentina, otherwise it will be very difficult or even impossible to register such shareholder with the Public Registry of Commerce as required by law.
Requirements such as these may have considerable impact on any intended disposition to a third party and should be considered at the outset as part of the planning process.
2. Use of Dormant SubsidiariesIn light of certain of these requirements, the use of a dormant subsidiary may be an easier vehicle for the asset or business transfer as it clearly avoids the inconvenience of incorporating a new company. However, dormant subsidiaries can have their own disadvantages to be considered, in particular their trading history and potential exposure to past liabilities.
In a number of jurisdictions a dormant company will still be required to make certain filings, annual returns and notifications despite its dormant status. Failure to do so may result in fines and penalties. Additionally, the existence of creditors will also be of extreme importance because once the company starts trading again, the rights of the creditors will be revived.
It is therefore critical to undertake an in-depth review of the dormant company’s past history in order to avoid passing assets or a business to a “dirty” vehicle that may prove unacceptable to a third party purchaser.
Occasionally, for commercial reasons, the use of a dormant company is entirely undesirable. The name may have unwanted connotations or the company may have bad “goodwill” towards it. In these cases it may be preferable to avoid using the dormant company and opt for its dissolution as an outward show of making a “clean break.”
3. Shelf CompaniesAn alternative and “cleaner” vehicle to use for a business transfer or asset sale may be a shelf company. A shelf company is a ready made company, incorporated other than on specific instructions from a client, which has never undertaken trading or business activities and is retained for the purpose of being readily available to a client in need of a corporate vehicle. Such companies are usually purchased from a company formation agent.
The advantages of a shelf company lie in its “clean” history and ability to begin trading immediately (subject to the need for any local trade licenses). However, the administrative
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headache of incorporating a new company is in effect only delayed as the shelf company will still require a change of name, change of corporate address and change of corporate officers, imposing additional cost and filing requirements. This is something that will still have to be addressed prior to any on-sale to a third party. In Malaysia, the original shelf company name must continue to appear on official corporate documentation such as invoices for a period of one year following the acquisition of the shelf company, which may also be an administrative nuisance.
Additionally, please note that in some jurisdictions, such as Austria, the concept of a shelf company does not exist and this option is not available.
4. BranchesAs an alternative, it may be more time efficient to utilize a branch as the appropriate corporate vehicle. When considering whether to use a branch rather than a new company or existing company, the following factors should be reviewed:
• timing;
• registration / residency requirements;
• account publication / parent privacy;
• liability;
• foreign ownership restrictions on subsidiaries (which may necessitate using a branch);
• tax issues; and
• distribution of profits.
When planning a pre-acquisition restructuring, the company that forms the branch should be one of the entities planned to be transferred to the new structure.
4.1 Timing
As with establishing a new company, the time it takes to establish a branch fluctuates between jurisdictions. However, it is frequently the case that branches take less time to set up. For example, in the UK a branch of a company may be established immediately with the requirement that certain particulars of the branch and its foreign “parent” be delivered to Companies House within a month, and in other countries, such as Switzerland, only branches of a certain size and autonomy need be registered at all.
However, one should not assume that establishing a branch is always a speedy alternative to the incorporation of a new company. In Spain, for instance, a branch will offer no advantages, as the cost and time frame for establishing it are similar to those involved with incorporating a new company, and in Germany the legal costs involved with setting up a branch are greater than for incorporating a new company.
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4.2 Registration / Residency Requirements
Consideration should also be given to the registration and residency requirements in setting up a new branch. In Denmark the branch cannot start its business before the registration form and all relevant documents have been filed with the Commerce and Companies Agency and the tax authorities.
There may also be local residency requirements for directors/representatives or, at the very least, requirements for a locally resident representative to accept service on behalf of the parent company. In Denmark the branch manager must either be living in Denmark or a citizen of the EU/EEA. Again, all issues should be reviewed thoroughly before any decision as to corporate vehicle is made.
4.3 Accounts Publication / Parent Privacy
Another point to note with regard to branch offices is that the parent may be required to publish its accounts in the country of the newly formed branch. For example, in the UK, if the overseas parent company’s law requires publication of accounts a copy of the consolidated accounts must be delivered to the Registrar of Companies. If the law of the parent’s country does not require publication of accounts, then the company must deliver accounts which relate to the parent company and the branch. Should privacy of accounts be an issue for the parent company this is a requirement to be borne in mind and may mean a different corporate vehicle will be preferable.
4.4 Liability
The fact that a branch is not usually deemed a separate legal entity may also be a disadvantage as the company that formed the branch will be liable for all actions, debts and obligations relating to that branch.
In any planning stage, the liability for each of the proposed entities must be reviewed. A subsidiary (new company) is usually deemed a separate legal entity from its parent, meaning any judgment against the subsidiary will be effective only against the assets of the subsidiary. A branch, however, is not considered a separate entity from that of its parent, and should a judgment be made against the branch, the parent would be held liable.
It is also worth noting that should the intention be to transfer the branch to a third party, this will only be possible upon the transfer of the branch’s parent company. This is also of utmost importance as part of planning for the essential retention or on-sale of the business or assets.
4.5 Distribution of Profits
Another consideration flowing from the fact that a branch is not a separate legal entity is that branches are free to distribute profits to their parents unhindered. Subsidiaries (new
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companies), on the other hand, are usually constrained by local law from being able to freely distribute profits and must have distributable profits or meet other financial tests.
4.6 Tax Issues
Tax consequences will also vary depending upon the entity chosen. In the UK, for example, the establishment of an operation as a branch is taken by the Inland Revenue as evidence that the overseas parent is carrying on business in the UK. However, in other jurisdictions the branch will be taxed under the rules as if it were a subsidiary under that jurisdiction’s law.
In addition, whereas a new company may be subject to corporation taxation on its worldwide income, a branch or representative office may only be taxed on trading activities in the country of the branch. It may be easier to control the level of taxable profits through the use of a subsidiary rather than a branch as arrangements such as management fees, technical service fees and pricing policies can be used. A branch may also be excluded from claiming small company reduced tax rates and may not be allowed to deduct interest on loans from its parent.
Finally, there may be more favorable tax treatment for distributions made from a branch as compared to a Subsidiary. Dividends paid from a subsidiary may be subject to dividend withholding taxes, whereas branch profit remittances may not be taxed, or may be taxed at a lower rate, though this is far from the general rule which seems to be to tax branches and subsidiaries in much the same way. On the other hand, a branch may be considered a non-resident for tax purposes (as is the case in Malaysia) and certain fees and payments to the branch in Malaysia may therefore be subject to withholding tax. For the same reason, a branch is not entitled to the benefits of Malaysia’s Double Tax Treaties with third countries.
4.7 The Branch Registration Process
Branch registration procedures vary from jurisdiction to jurisdiction. Typically, in order to register a branch, the board of directors or shareholders of the parent company have to resolve to register the branch and file a branch registration application, together with translations of the organizational documentation of the parent company (e.g., certificate of incorporation or commercial registry extract, certified translations of the memorandum and articles of association, by-laws, etc.) and other supporting documentation (e.g., annual report, credit standing letter, etc.). In many jurisdictions, the parent company is required to designate a local resident as the branch representative who has authority to accept service of process on behalf of the company or is even granted full powers to represent the company. In some jurisdictions, it may only take a few days for a branch to be registered and permitted to conduct business (e.g., Denmark). In other jurisdictions, this process may take several months (e.g., China).
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In many common law jurisdictions (e.g., England and Wales, South Africa), a foreign company is not required to register a branch before starting to conduct business in such jurisdiction. On the contrary, in such jurisdictions, the foreign company must conduct business before being able to register a branch. Similarly, in some jurisdictions (e.g., China), a foreign company must have entered into a lease prior to being able to register a branch.
Once a branch has been registered, the foreign company will need to register with local tax authorities (e.g., obtain a tax identification number, VAT number, etc.) in order to conduct business. In jurisdictions where a branch may be registered only once a foreign company “conducts business within such jurisdiction,” it may be necessary to transfer a few initial assets in order to register the branch and register with tax authorities so as to ensure that the proposed branch is ready to efficiently conduct business as of the proposed separation or closing date.
4.8 The Representative Office Registration Process
In many jurisdictions, a foreign company may not engage in any business activities without registering a representative office at a minimum. The registration process for representative offices is often quite similar to that for branches (i.e., corporate authorization, application with one or more authorities, appointment of representative office representative, etc.). In certain jurisdictions, the registration of a representative office requires additional steps. For example, in China, the foreign company will need to register with the Foreign Enterprise Service Corporation (“FESCO”), a Chinese state agency, as it may only employ individuals through FESCO and not in its own name. This fact should be kept in mind when “transferring” a representative office in China (see below).
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Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 10 – Branches and Representative Offices
Section 10 Restructuring issues raised by branches and representative offices
When planning and implementing the separation of a business involving companies with foreign branches or representative offices, peculiar issues arise that often turn out to be “traps for the unwary.” In order to better anticipate such issues, it is important to understand that a branch is merely an extension of a foreign company and a representative office is merely a presence of a company in a jurisdiction different from its home jurisdiction. Neither branches nor representative offices have their own legal personality (except in a very limited sense in a few jurisdictions).
1. TransferabilityBecause branches and representative offices are extensions and part of the parent company and do not have their own legal personality they are not per se transferable. In other words, the parent company is unable to transfer its branches or representative offices to another company. In order to achieve the equivalent of a transfer, the following actions are typically necessary:
• the receiving company registers its own branch or representative office (or incorporates a subsidiary) in the relevant jurisdiction;
• the transferring company transfers the relevant assets, liabilities and employees of its branch to the newly registered (or existing) branch or representative office (or subsidiary) of the receiving company; and
• the transferring company deregisters its branch or representative office, unless the transferring company retains a business and needs the relevant branch or representative office to conduct such retained business.
When planning the separation of a business, it is essential to take into account the time it takes for the receiving company to register its own branch or representative office, if applicable, or, alternatively, to incorporate a subsidiary. In most jurisdictions, the activities of branches or representative offices are specifically limited to those activities listed in the registration application. Accordingly, it is crucial to identify the proposed activities of the new branch or representative office and include them in the registration application. If the parent company is planning to retain activities in an existing branch or representative office, it is equally crucial to review whether the existing branch or representative office approvals will need to be amended to reflect a change in activity following the separation.
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The transfer of the target business assets, liabilities and employees is typically less time consuming and more straight-forward (i.e., via the execution of a simple business transfer agreement). However, some jurisdictions require additional steps to be taken. For example, in China, the receiving company will need to work with FESCO to assign the employees working in the target business for work at the receiving company.
2. Deregistration Often overlooked is the time it takes to deregister a branch or representative office that is no longer needed following the business separation. The deregistration process tends to be quite time consuming and typically trails behind as a “post-closing” item of the separation process.
In most jurisdictions, the procedures for deregistering a branch or representative office are very similar to those of registering a branch or representative office. In other words, the parent company’s board of directors or equivalent body has to approve the deregistration and applications for deregistration have to be filed and approved by various governmental authorities. In addition, in many jurisdictions, the parent company will need to appoint an agent and/or a liquidator for the deregistration process (e.g., in the Philippines and Taiwan). Finally, in most jurisdictions, a tax clearance certificate is required confirming that the parent company has filed all tax returns and paid all taxes due in relation to the branch or representative office, which can take some time and often will be issued only upon a tax audit.
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Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 11 – Employment Considerations
Section 11 Employment considerations
1. BackgroundIndustrial relations can play an important role in formulating the plans for a pre-transaction restructuring. This is particularly the case in jurisdictions with extensive labor legislation or with a strong culture of employee involvement through works councils or trade union representation. Many European Union Member States fall into this category. The need to spend time informing and consulting with employees or their representatives should be factored into any restructuring timetable.
Common pre-transaction measures with an employment impact include the spinning out of one or more businesses from one group company to a new or existing subsidiary, either to transfer those businesses to a purchaser or a joint venture vehicle, or to allow the businesses that remain to be transferred. In connection with this there may be redundancies, relocations and changes to terms and conditions of employment. Set forth below is a discussion of some of the main issues to be aware of when effecting a restructuring in the European Union, North America and the Asia Pacific region.
2. The European UnionAfter a further wave of expansion on 1 January 2007, the European Union (“EU”) now has some twenty-seven Member States. These are Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. Three further states - Iceland, Liechtenstein and Norway - are associated with the EU states in the European Economic Area (“EEA”) and are subject to the EU Directives discussed below. Switzerland is not an EU or EEA member but has similar legislation.
2.1 The Acquired Rights Directive
From a labor point of view, the EU’s Acquired Rights Directive (“ARD”) or, to be more precise, legislation implementing the ARD in each of the 27 Member States, is invariably the first point of reference when planning any pre-transaction restructuring project. To determine whether the ARD will apply, managers must first consider whether the project involves a “transfer of an undertaking.” If it does, various rights are triggered for the employees who are employed in the undertaking, notably the right to be informed and consulted about the transfer, to transfer automatically to the acquiring entity, and to protection from dismissal and changes to terms and conditions of employment.
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It is important to stress that the ARD will apply even where the transfer takes place entirely intra-group, as will often be the case in the context of a pre-transaction restructuring. The only requirement is that there is a legal transfer (or merger) of an undertaking, business or part of an undertaking or business from one employer to another. The fact that both employers are within the same group does not affect the legal position, although of course it may have significant practical implications.
It is also important to note that the ARD does not apply to share transfers. Where a restructuring simply involves the transfer of shares of a company from the existing corporate structure to the new corporate structure, the ARD’s provisions on informing and consulting employees will not apply. Note, however, that in some jurisdictions the change of ownership of a company may nevertheless trigger a right on the part of a works council, trade union or other employee representative body to be informed and/or consulted if there are implications for the employees. Works council information and consultation rights are most expansive in countries such as the Netherlands, France and Germany. Note also that a restructuring may involve a series of transfers and it is important to be alert to the fact that, although one or more of these transfers may not trigger the ARD (for example, the transfer of shares of a company), other transfers (such as the onward transfer of the assets of the company) may do so.
2.2 Meaning of “Undertaking”
“Undertaking” is not defined in the ARD. As a consequence, the meaning of “undertaking” has evolved through developments in case law, particularly that of the European Court of Justice (“ECJ”). The primary consideration is whether there is a recognizable, stable and continuing economic entity. All relevant factors must be examined in each case and the weight to be accorded to each factor will vary depending on the circumstances. Broadly speaking, if no assets are transferred, particularly in an asset-intensive business, it is unlikely that there will be a transfer of an undertaking. However, this is not always the case and advice should always be sought.
In the context of a pre-transaction restructuring, ascertaining what does and does not amount to an undertaking often proves particularly problematic, especially in the case of labor-intensive service industries. Within the same legal entity, or division of a legal entity, a variety of different business units may exist, one or more of which is to be separated out in readiness for the transaction. The business units may share assets and premises. Employees may work for more than one unit and it may not always be clear to which unit they are predominantly assigned. In such circumstances, determining whether the restructuring amounts to a transfer of an undertaking for the purposes of the ARD can come down to a fine judgment call. Much may depend on the objectives of the company concerned and the desire to structure the transaction in such a way as to make it more or less likely that the ARD will apply. This can be achieved through decisions on the transfer and use of shared assets, shared contracts, shared premises and so on. The advantage of an intra-group
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restructuring in advance of a transaction, as opposed to the transaction itself, is that the absence of an independent counter-party makes it relatively easy to take a tailored approach to the structuring of the transfer to achieve desired goals.
There is an unresolved debate as to whether the ARD applies to “cross-border” transfers of undertakings. A cross-border transfer is a transfer where the transferor and transferee are located in different EU Member States, or where the transferor is located inside the EU but the transferee outside, or vice versa. The ARD itself states that it applies wherever “the undertaking … to be transferred is situated within the territorial scope of the Treaty,” i.e., anywhere in the EU. Lawyers in different jurisdictions, and indeed within the same jurisdiction, hold conflicting views on this issue and in the absence of case law to resolve the question one way or the other, there is no one right answer. In most situations a restructuring will not involve a cross-border element, but should it do so, it is important to take advice from local counsel as to whether the ARD is likely to apply.
2.3 Consequences of Classification
The principal consequence of a transfer being classified as a transfer of an undertaking for purposes of the ARD is that all rights and obligations arising from contracts of employment of employees employed in the undertaking as of the date of the transaction transfer automatically to the transferee. Employees’ rights to old age, disability or survivors’ benefits under supplementary company or intercompany pension schemes are, in general, excluded from transferring automatically, although certain rights under such schemes (for example, early retirement and redundancy benefits) do transfer.
Some jurisdictions allow employees to object to the automatic transfer of their contract of employment, although the consequences of such an objection vary. For example, in Germany, employees who object to the transfer simply carry on being employed by the former employer, whereas in the UK, the effect of an objection is to terminate the employment relationship by operation of law, without entitlement to compensation.
Other important consequences flow from the automatic transfer of employment contracts under the ARD. First, employees are protected from being dismissed by either the transferor or the transferee for a reason connected to the transfer itself. However, this does not prevent dismissals that are for “economic, technical or organizational reasons entailing changes in the workforce,” (an “ETO”). Employers often use the “ETO reason” route as a means of justifying dismissals where, for example, the transfer necessitates an internal reorganization that results in one or more jobs being identified as surplus to requirements. Care should be taken when implementing any such dismissals and legal advice should normally be sought. Even where an ETO exists, there will typically be procedural requirements that must be followed.
Secondly, the ARD places strict restrictions on the ability of an employer to change terms and conditions following a transfer. The extent of these restrictions varies between
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jurisdictions. Where an intra-group restructuring is taking place that is likely at some stage to involve a transfer of an undertaking, and where there is also a requirement to change employees’ terms, it may be prudent to ensure that the changes are effected as far as possible in advance of the transfer of undertaking being completed to reduce the risk of problems arising.
2.4 Informing and Consulting
Article 7 of the ARD imposes obligations on both the transferor and the transferee to inform representatives of their respective employees who are affected by the transfer and to consult over measures. The identity of these representatives will depend on whether there are any pre-existing information and consultation structures in place in the transferor and transferee organizations. This, in turn, is likely to depend on the industrial relations environment in the country concerned. For example, in countries such as France, the Netherlands and Germany, it is common (and in some instances obligatory) for companies to have works councils comprised of employees elected or appointed to the position by their co-workers. These works councils have the right to be informed and consulted about a broad range of matters connected with the business. In some cases, works councils will have rights of co-determination, or alternatively, they may be entitled to issue an opinion on the transfer and can hold up the process by delaying their opinion. In other countries, particularly Mediterranean countries such as Italy and Spain and Scandinavian countries such as Sweden, trade union representation of employees is more common. The greater the impact of the transfer upon the workforce, the more likely it is that the unions will intervene and seek to play an active role in the process.
In the UK, Ireland and many of the new Member States from central and eastern Europe, employee representative bodies are less common. Note, however, that this may start to change as all EU countries have either implemented or are to implement the EU’s Information and Consultation Directive, which creates a statutory mechanism for allowing employees in undertakings employing more than 50 employees, or establishments employing more than 20 employees (the choice is left up to Member States), to request that information and consultation procedures be set up. For the time being, however, many employers in these jurisdictions will not have employee representatives whom they can immediately engage in an information and consultation process. Their obligations will then depend on the terms of the local implementing legislation of the ARD. Often, as in the UK and Ireland, the parties will be required to offer employees the chance to elect representatives to be informed and consulted about the transfer, following rules laid down for the election process.
Employee representatives must be informed about the date or proposed date of the transfer, the reasons for the transfer, the legal, social and economic implications for employees and any “measures” envisioned in relation to the employees. Where measures are envisioned – such as redundancies, relocations or changes to reporting lines, or a subsequent sale outside the group – consultation must take place with the representatives in good time with a view
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to reaching agreement. Local implementing legislation may provide for a more extensive, stricter consultation obligation. In practice, there is almost always a degree of consultation, even if the number of envisioned measures is very limited.
The consequences of a failure to inform and consult are not laid down in the ARD and therefore vary from jurisdiction to jurisdiction. In a limited number of countries, the transfer itself can be invalidated. Some countries, notably France, impose criminal liability on the managers of the companies concerned for failure to inform and consult, backed up by a (rarely used) sanction of imprisonment. In others, such as the UK and Ireland, the employees (or their representatives) can seek a monetary award for each affected employee that is linked to their remuneration, or loss suffered, and subject to an upper cap. In still others, such as the Czech Republic, enforcement is by way of fines imposed by regulatory bodies.
2.5 Transfers Outside the Acquired Rights Directive
Where a restructuring takes the form of a transfer of shares, such that the owner of the employing entity changes but not the identity of the employing entity itself, the ARD will not be triggered but there may nevertheless be employment considerations. In some jurisdictions, either individual employment contracts or (more likely) collective agreements with trade unions or works council agreements may include “change of ownership” provisions. The nature of these provisions will vary but typically some form of consultation obligation will be triggered. Consultation may be a good idea from an industrial relations standpoint in any event, particularly if the transfer is one of a series of transfers that will include a transfer of an undertaking and will involve employment measures of some sort. Employees or their representatives may be more inclined to co-operate with both the pre-transaction restructuring and the transaction itself if the employer concerned has been open about its intentions from the outset. Of course, commercial considerations may dictate an alternative approach.
2.6 Downsizing and the Collective Redundancies Directive
During restructuring, the company may determine that the positions of one or more employees are surplus to requirements, for example because a business is being stripped down in readiness for being taken over, merged or moved into a joint venture vehicle, or because a reorganization of business units has identified the need to eliminate an excess of capacity. Where a redundancy exercise is proposed, the employer will first of all need to assess whether it is of such a scale as to amount to a collective redundancy for the purposes of the EU’s Collective Redundancies Directive and local implementing legislation, in which case various consultation obligations will be triggered.
2.7 The Threshold
The Collective Redundancies Directive gives Member States a choice as to how to define a collective redundancy under local law. It can be defined either by reference to a period of
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30 days, or to a period of 90 days. If 30 days is chosen, a collective redundancy consists of at least 10 redundancy dismissals in establishments employing more than 20 but less than 100 workers, at least 10% of workers dismissed by reason of redundancy in establishments employing at least 100 but less than 300 workers, and at least 30 redundancy dismissals in establishments employing 300 workers or more, within a 30 day period. If 90 days is chosen, a collective redundancy consists of at least 20 redundancy dismissals over a period of 90 days, whatever the number of workers employed. Member States are also free to define a collective redundancy in a more restrictive fashion for employers, and indeed a number have done so, particularly in countries with a strong tradition of trade union representation. For example, in Italy a “collective redundancy” can, depending on the circumstances, involve the dismissal of as few as two employees.
2.8 Consultation – Collective
Where an employer is contemplating a collective redundancy, it must begin consultations with the workers’ representatives in good time with a view to reaching agreement. To determine the identity of the representatives, the same considerations apply as when consulting under the ARD (see above), although note that the Collective Redundancies Directive extends to all workers and not simply employees as is the case with the ARD. Consultation must cover ways and means of avoiding collective redundancies or reducing the number of workers affected and of mitigating the consequences for the affected workers, for example through retraining, plus any other matters that may be specified by national legislation or applicable collective agreements. The workers’ representatives must be provided with certain specified categories of information relating to the collective redundancies to assist them to carry out their consultation function. This includes information as to the number and categories of workers to be made redundant, the proposed selection criteria, and details of any redundancy payments. There is also a requirement to notify a competent public authority, for example a Social Security bureau, not less than 30 days before the first of the dismissals takes effect. Local law often lays down particular timeframes for the consultation process which may further delay the implementation of the dismissals.
In some jurisdictions a failure to carry out consultation can render any redundancies null and void. In other jurisdictions, the likely consequence is a fine and/or claims for damages by employees.
Note that, in some Member States, proposed relocations may amount to redundancies where the new site of business is far enough away from the existing site to trigger a redundancy under local law. Even where an employer has a contractual right to relocate, local law may place limitations on that right. At a minimum, prior consultation may be required, perhaps with a works council or trade union.
2.9 Consultation – Individual
In addition to collective consultation obligations, the majority of Member States impose requirements to consult individually with employees in a redundancy situation, even where
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only one redundancy is proposed. The requirements vary significantly from jurisdiction to jurisdiction, so legal advice should always be sought. The consequences of non-compliance also vary, but typically employees will have a claim for unfair or wrongful dismissal, entitling them to compensation.
2.10 Redundancy Selection Criteria
The laws of many Member States oblige employers to select employees for redundancy using criteria which can be objectively justified. Failure to do so may lead to claims for unfair or wrongful dismissal or even discrimination on one of a number of proscribed grounds. What will be regarded as fair criteria differs from Member State to Member State. The “last in, first out” principle is strictly applied in some jurisdictions, some require consideration of “social criteria” such as family status, while others give employers more scope for selection using, for example, performance and attendance criteria. In some countries, a collective or other workforce agreement may pre-determine the grounds to be used.
2.11 Severance Payments
Most Member States require a minimum period of notice to be given to employees on termination, which is often paid in lieu. Employees will also have an entitlement to accrued holiday up to the termination date and possibly other contractual benefits as well. In addition, many Member States require employers to pay enhanced severance compensation, particularly in redundancy situations. This is often linked to the employees’ age, length of service and salary. Employees may also have a contractual right to enhanced compensation, either under individual contracts of employment or collective agreements, or through custom and practice.
2.12 Changes to Terms and Conditions
The extent to which any employer can unilaterally implement changes to terms and conditions of employment is severely circumscribed in EU countries. In most cases, at a minimum the consent of the employees is required. Failure to obtain such consent may result in claims for breach of contract or even, if the change is sufficiently serious, for constructive dismissal on the basis that the employer has committed a repudiatory breach of contract entitling the employee to treat himself as discharged and claim the protection of local employment legislation. Where unions or works councils are involved, they may have a right to be consulted or even a right of veto on the proposed change. On occasion, the easiest way of effecting the desired change may be to implement a technical collective redundancy, triggering the information and consultation obligations described above.
As discussed above, changes to terms and conditions are even more difficult where the ARD applies to a transfer. In some jurisdictions, changes to terms simply cannot be made if the change is connected to the transfer of undertaking, even if the employees
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consent (although in practice, if the changes are favorable to the employees, there may not be any objection). In others, a specific protected period must be observed before any changes can be implemented. The restructuring action plan should take account of these considerations.
3. Asia Pacific
3.1 Transfer of Employees
Unlike the European Union, there is no concept of “transfer” of employment in most Asia Pacific countries, even where the old and new employers are within the same group or where the employees are meant to be transferred as a part of a larger transaction such as the sale of a particular business. There are certain limited exceptions to this general rule under Chinese and Japanese law, but such exceptions will not apply in every case.
As an employer cannot force an employee to change employers, “transfer” is achieved through termination and rehire. In some jurisdictions such as Hong Kong, statutory procedures exist to help employers avoid making certain termination payments to employees who agree to transfer to the new owner. As there are strict restrictions on termination in some jurisdictions (such as China, Korea, Japan and Indonesia), many employers adopt a “resign and rehire” approach. This avoids having to justify the dismissals or risk later disputes. Some employers will adopt a resign and rehire approach throughout the region to be consistent and for easy administration.
3.2 Notice
It is possible to dismiss by giving notice or making payment in lieu of notice in almost every jurisdiction in Asia except for the Philippines (where payment in lieu of notice is not allowed) and Indonesia (where strict procedures preclude termination by notice or payment in lieu of notice in most cases). In other jurisdictions, such as China, Korea and Japan, termination by notice is permissible, but subject to the general requirement that the dismissal be justifiable in accordance with applicable laws and procedures. Given the difficulty in justifying a dismissal (even in the context of a reorganization) in these jurisdictions, however, some employers will seek a resignation but make payment in lieu of notice as if they had dismissed the employee.
In jurisdictions where termination on notice is allowed, the minimum notice period is usually one month, but can vary from one day to eight weeks. In some jurisdictions, such as Australia, India, Malaysia and Singapore, protective legislation applies only to specified categories of staff and the rights of senior employees are governed by the relevant contract of employment. In Vietnam, senior staff are entitled to “reasonable” notice which can depend on age, rank, industry practice and years of service. It is common in some jurisdictions such as Hong Kong to seek consent to short notice where the transaction is intra-group.
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3.3 Consultation
There are no works councils or similar bodies in most Asia Pacific jurisdictions. There are consultation requirements in China and Vietnam, but otherwise, unless there is a collective bargaining agreement in place that requires consultation, this is generally not a requirement. Certain jurisdictions do, however, require local labor authorities to be notified if more than a certain number of employees will be made redundant. The level of unionization varies across Asia. Unions are much stronger in Indonesia and Korea than they are in Hong Kong or Singapore, for example. In all countries, if a collective bargaining agreement is in place and that agreement requires union consultation before termination, the requirement will be upheld.
3.4 Redundancies
Employees across the Asia Pacific region have widely divergent rights when they are made redundant. Given the disparity in legal systems and employee rights across the region, reducing one’s workforce can be a significant task that should not be approached lightly. For example, unlike the United States, where the termination process is straightforward and “employment at will” allows employers to downsize without incurring significant costs, labor laws and market practice in many Asia Pacific countries require employers to make significant payments and/or comply with strict procedural requirements when carrying out terminations.
In countries such as Korea and Japan, layoffs can be extremely problematic and employers may be required to prove “just cause” for the termination or make large payouts. In China, downsizing must meet statutory requirements to be justifiable. Restructuring in other countries such as Hong Kong and Singapore is relatively straightforward in comparison. In India, an employee’s rights will depend on his or her classification as either a “workman” or manager.
In almost every Asia Pacific jurisdiction, employees will be entitled to the following: notice or payment in lieu of notice, accrued but unpaid wages and annual leave and expenses incurred on behalf of the employer. Some jurisdictions also require a pro-rata payment of any contractual bonus. Entitlement to and the amount of any severance payment will vary depending on the jurisdiction, employee’s length of service, terms of employment, and, in China, the type of legal entity of the employer (i.e., a “foreign investment enterprise” or representative office).
Employers in many countries prefer to adopt the “voluntary redundancy” approach, meaning the employer solicits resignations from employees. This method of downsizing is particularly recommended in those jurisdictions where it is otherwise very difficult to terminate employees, including China, Indonesia, Japan and Korea, or where termination procedures are particularly cumbersome, such as India. Employers who are conducting a multi-jurisdictional exercise may therefore wish to adopt this approach throughout the region, with the exception of Australia.
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3.5 Harmonization of Terms and Conditions
As in the EU and elsewhere, a new owner will generally wish to rationalize the terms and conditions of the “old” and the “new” employees as soon as possible. There is no legislation in the Asia Pacific region which protects employees’ terms and conditions automatically as there is in the EU, but where there are statutory processes to assist employers to avoid termination payments, the new terms and conditions must be similar to the employees’ existing terms.
When the new employer harmonizes the terms and conditions of the new joiners and existing staff, the real issue is variation of the contract for some of the employees. In each jurisdiction in Asia Pacific, significant changes will require the employee’s consent. If the employee does not consent and the employer implements a salary cut or terminates a significant benefit, the employee can claim damages for breach of contract. Employees will, at a minimum, be entitled to the difference between their old salary and the new salary or between the value of the benefits.
When an employer in some jurisdictions, such as Hong Kong, unilaterally varies the terms of an employee’s contract, this may allow the employee to claim that he or she has been constructively dismissed. In this case, the employer may be liable for other termination payments, such as long service payment or a termination payment for dismissal without a valid reason. The success of a claim for constructive dismissal will depend on the terms being changed and the manner in which the change is implemented.
4. United StatesAlthough the United States has worker protection laws at the federal, state and local levels, employees generally have fairly limited employment rights when compared to most other developed nations, especially when compared to the EU. The concept of “at-will” employment is generally followed in the United States and allows employers to terminate employees for any reason or no reason at all, with or without prior notice. Thus, a company may have considerable flexibility in considering whether to reorganize its workforce prior to a disposition and/or whether to alter terms and conditions of its employees to make the workforce more attractive for acquisition.
The majority of U.S. employees are employed “at will” and, consequently, changes to the identity of their legal employer or a variation to their terms and conditions (in order to make them more attractive to an acquiring company), can normally be achieved easily through a termination and rehire of those employees. The same is true of a downsizing that might be required to showcase a “lean and mean” workforce. Thus, some of the major issues to be considered pre-acquisition in the United States consist of ensuring that proper due diligence is conducted so that the costs and potential liabilities associated with reorganizing the workforce prior to disposition are considered and factored into the costs associated with the transaction. Some of the potential liabilities include: WARN or other notice obligations, severance or other contractual rights and successor employer liability for discrimination and other employment-related claims.
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4.1 WARN and other Notice Requirements
The federal Worker Adjustment and Retraining Notification (WARN) Act gives employees a degree of protection (outside of discrimination legislation) against the loss of employment without prior notice. The WARN Act applies if an employer who employs 100 or more people intends to dismiss at least 50 employees consisting of at least 1/3 of its U.S. workforce, or 500 or more employees, which may include employees working oversees. In those circumstances, the employer is obliged to give the affected employees at least 60 days advanced written notice of the dismissals and to provide written notice to certain state, local and union (if applicable) officials.
The WARN Act can apply outside of a “normal” downsizing or reduction-in-force situation and the liabilities for failure to comply with the statutory notice requirements include payments to the affected employees, as well as potential fines to the state and/or local governments. Courts have applied certain exceptions to the WARN Act notice requirements in situations involving a corporate restructuring where employees did not suffer any actual employment loss. However, when considering pre-acquisition restructuring scenarios, the company must analyze its potential WARN Act liability and be prepared to comply with the notice requirements if applicable or understand the extent of its potential liability if it fails to comply.
Many states and a few municipalities also have their own “mini-WARN” laws that may require a longer period of advance notice to affected employees or that may apply with smaller thresholds. Thus, state and local laws applicable to the jurisdiction in which any workforce restructuring is to take place must be consulted prior to implementing the restructuring.
Other notification requirements which may arise under state or federal law in the event of actual terminations include the obligation to notify employees of their rights to obtain unemployment insurance and to purchase health insurance under federal law.
4.2 Contractual Rights
Although the majority of U.S. employees are employed at will, other employees will have certain contractual rights to advance notice and/or severance or other contractual payments in the event of a change in control. Those contractual rights need to be considered in the context of the proposed pre-transaction restructuring. Some employees (particularly executives and senior managers) are likely to have contracts of employment that give them the right to a specified period of notice or a severance payment in the event of a change in control, restructuring or termination. Contractual rights can also arise from staff handbooks (for example, notice provisions) or from other communications from the employer to employees. If an employee it to be dismissed, the employer must also ensure that it complies fully with its obligations under the benefits plans to which the employee belongs, particularly with respect to retirement plans. Thus, a due diligence review should be conducted prior to implementing any proposed corporate restructuring to accurately assess these obligations.
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If the employer has a collective agreement with any trade union relating to the affected employees, it is likely that some aspects of the collective agreement will impact a proposed restructuring. Collective agreements will commonly include provisions dealing with payments due in the event of a change in control, termination selection criteria, notice requirements and severance payments. In addition, the employer should ensure that its actions in dealing with employees throughout the intended restructuring process are consistent with the requirements of the National Labor Relations Act if its workforce is unionized.
4.3 Discrimination and Other Employment-Related Claims
When implementing any proposed restructuring, employers must be conscious of the potentially discriminatory impact of any proposed workforce reorganization, which may be inadvertent. For instance, age discrimination may be a particular problem where an employer uses salary cost as a basis of making lay-off or other restructuring selections. Commonly, it will be the most senior, and thus usually the oldest, employees who are the most highly paid, and using such criteria may lead to claims of age-based discrimination. Similarly, decisions to eliminate part-time or at-home working arrangements in a cost-savings restructuring may have a greater impact on female employees, which may give rise to claims of gender, pregnancy or marital status discrimination. Prior to undertaking any workforce restructuring that involves lay-offs or position eliminations, the company should take time to prepare and use a fair and objective procedure for the selection process and to ensure that the process is appropriately documented. Doing so will provide some protection to the company in the event that any allegations are raised of illegal discrimination in the selection process.
In preparing for any disposition, the company should also track any pending employment-related claims (whether at the demand or complaint stage or pending before an administrative agency or court) so that it has an accurate assessment of its potential liabilities in this regard for purposes of structuring indemnification clauses where available. Although single-plaintiff employment-related claims frequently have a lower risk value associated with them than other typical commercial litigation claims, with the increasing popularity of class-action litigation against employers for wage and hour and class-based discrimination claims, the company should be aware of any large potential liabilities associated with the intended restructuring.
5. Canada
5.1 Jurisdiction
In Canada, employers are governed by either federal or provincial law depending upon the nature of the business. With the exception of the Province of Quebec, all jurisdictions within Canada are common law jurisdictions. Therefore, while certain statutory provisions may differ, the general employment law principles will be similar.
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5.2 Transferring a Division into a Separate Corporate Entity
Employers implementing a corporate restructuring in anticipation of the disposition of a business division ought to be careful that the restructuring process itself does not trigger employment-related liabilities. In Canada, employment-related liabilities will arise where there is a transfer by way of an asset purchase but will not arise where a transfer is by way of shares. This distinction is based on the notion that employment contracts cannot be automatically transferred from one employer to another without the consent of the affected employees.
In an asset transfer transaction, where the affected employees consent to the transfer of their employment, a legal consequence of the transaction is a change in the employer of the employees. Absent such consent, the affected employees are technically terminated from employment and entitled to notice of termination (or payment in lieu of notice) from the transferor. In share transfer transactions, there is a change in the legal owner of the shares but there is no change in the legal employer of the transferred employees. In such a situation, there is no termination of employment and related liabilities do not arise. It is therefore critical that the company give appropriate consideration to the nature of any proposed restructuring or transfer of a business division.
In the unionized context, the terms of any collective agreement will bind an acquiring company on the transfer of a business division or part thereof. The union will also retain its bargaining rights following the transfer.
5.3 Transferring Employment-Related Liabilities
It is important to remember that employment-related liabilities lie at all times with the legal employer of the employees. As such, they cannot be transferred. In a restructuring process, a parent company and newly formed subsidiary, for example, could choose to allocate or share responsibility for this liability; however, such an agreement is only binding as between those two parties. An employee who is terminated as a result of the transfer of a business division, or a subsequent disposition of a division to a third party, is entitled to recover from his legal employer irrespective of any agreement allocating such liability.
5.4 Constructive Dismissal
Where a corporate restructuring results in a fundamental change to an employee’s terms and conditions of employment, such as physical relocation, that employee may resign and claim constructive dismissal. Whether or not a change is considered to be fundamental depends on the circumstances particular to each situation. For example, it is highly likely that a relocation of the employee to another city would be considered fundamental. Conversely, a relocation to another floor in the same office building would not. Lying somewhere in the grey is a relocation to a branch office half hour away.
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Where an employer intends to unilaterally implement a fundamental change to an employee’s employment, the employer can reduce its liability by giving the employee notice of such change. Typically, the amount of notice that should be given is that amount to which the employee would have been entitled if he or she were terminated at that time. In Canada, notice of termination entitlements increases in proportion to a number of factors, including the employee’s length of service, age, position and salary.
An employee can still elect to resign after having been given notice of an impending change and sue his or her employer for anticipatory breach of contract. However, by terminating the employment contract prior to the fundamental change taking effect, the employee will have failed to mitigate his damages (by failing to remain employed until that time). Therefore, the employee’s entitlement would be proportionally reduced. If notice of the change had been given and the employee resigned after the change had taken effect, the period of notice provided would be deducted from the notice otherwise due upon termination.
5.5 Notice and Consultation
There is no statutory obligation to notify or consult with employees or their unions, if any, about the transfer of a division or business or corporate restructuring. Note, however, that where a transfer results in a collective redundancy, most employers will be required to provide notice to the appropriate governmental authority. The threshold for what amounts to a collective redundancy and the particulars of any governmental notice varies by jurisdiction within Canada.
5.6 Contractual Considerations
In any restructuring process, the employer must pay due regard to the terms of any employment contract in place, including any collective agreement. Such contracts may limit the ability of the employer to implement a restructuring process, transfer an employee or otherwise alter the terms and conditions of employment.
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Section 12 Stock options and other equity compensation issues
1. IntroductionThe company will need to consider how to treat employees of the target business who hold outstanding stock options and other equity compensation awards or who may be granted new awards. In a spin-off transaction, the employee stock options over company shares will need to be cashed out or adjusted in value to take into account the changes to the company. For employees with outstanding options who will be employed by the spun-off entity or a related subsidiary, the options must be both adjusted and converted into options over the new company’s shares. These adjustments and conversions may result in tax events in some jurisdictions and may mean the loss of favorable tax status in others. In addition to U.S. securities law implications, the adjustment and conversion of options and the granting of new options may raise significant securities law issues, particularly in EU jurisdictions which have recently implemented the EU prospectus directive 2003/71/EC. The company and/or the spun-off entity may be required to make securities law filings or other disclosure prior to the spin-off transaction. In addition, labor entitlement issues that should be considered in relation to equity compensation awards should the adjustment and/or conversion of the awards be considered to result in a lesser benefit to employees (see Section 11, above).
In a spin-off transaction, a company must decide whether to preserve or cash out any outstanding employee stock options and other equity compensation awards. In deciding these issues, the company needs to consider issues of contract and of operation of law. As a matter of contract, if the company intends that the awards will remain outstanding after the transaction is complete, the awards must be adjusted to reflect the change(s) taking place in the restructuring. As a general rule, the goal is to preserve the value of the awards post restructuring. Further, a company must review the contracts underlying the equity awards – the equity compensation plan and agreements – to determine whether change of control or other provisions have been triggered by the spin-off transaction. If these provisions exist and are triggered, the company is likely to be limited in the steps it may take to preserve the value of or cash out any outstanding equity compensation awards. Finally, the company will have to consider tax, securities law and other legal implications of the transaction on the equity compensation award. These issues are raised by operation of law and are particularly difficult if the company has offered options to employees in many different countries.
The following discussion addresses mainly stock options, but similar themes apply for stock appreciation rights, restricted stock, restricted stock unit and other types of equity compensation arrangements.
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2. Primary Approaches to Outstanding OptionsThere are two primary approaches for handling spin-offs within the stock option arena: the “concentrated adjustment and conversion” method and the “basket method.”
2.1 Concentrated Adjustment and Conversion Method
There are two types of employees to be dealt with: employees who remain employed by the existing company and employees who become employed by the new entity being spun-off. The issues that arise in relation to equity compensation awards are different for each group.
Under the concentrated adjustment and conversion method, employees who will remain employed by the existing company will have their options over the existing company shares adjusted to compensate for the loss in option value resulting from the spin-off of the new company. Generally, this adjustment means that the exercise price per option share will decrease and the number of option shares will increase (the “Adjustment”); however, the aggregate exercise price will remain the same. The Adjustment is intended to preserve the intrinsic value of the option grant so that the option has the same value before and after the spin-off. Other than the Adjustment, the terms and conditions of the original options will remain unchanged.
On the other hand, option holders who will become employees of the spin-off company will have their existing options converted into options over shares of the spin-off company as of the date of the spin-off (the “Conversion”). The Conversion is intended to serve as a substitution of the existing company options for options over spin-off company shares (which will be traded in the market based on the value of the spin-off company as a separate business). The exercise price of the option and the number of option shares would be proportionally adjusted to preserve the option holder’s intrinsic value immediately before and after the spin-off. Other than the Conversion, the terms and conditions of the original options will remain unchanged. The spin-off company would assume the existing company’s obligations under the stock option plan and the options granted thereunder to the employees who are being transferred.
2.2 Basket Approach
The second way of structuring a spin-off with respect to options is referred to as the “basket approach.” With the basket approach, optionees will be treated in essentially the same way as the existing company’s shareholders. Thus, options will be adjusted and converted to become separate options over the existing company and the spin-off company shares. The existing company options will be for the same number of shares as the old existing company options, but the exercise price will be reduced to reflect the post-spin-off reduction in value of the existing company shares. The new options will be for the relative number of shares reflected in the spin-off and the exercise price will be established to reflect the relative values of the existing and new company. The Adjustment and Conversion of old and new options are intended to preserve the intrinsic value of the
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current options, so that the total options granted to an employee have the same value before and after the spin-off and the optionee’s position is parallel to that of existing company shareholders as a result of the spin-off. Other than the Adjustment and Conversion, the terms and conditions of the original options will remain unchanged.
2.3 Summary
Of these two methods, the basket approach is in theory more favorable to the employee because he or she receives options in both entities. In essence, the basket method reduces the employee’s risk by diversifying his or her holdings such that, if one entity’s stock soars while the other’s languishes, the employee will reap the benefits of holding options over both companies’ shares.
However, the basket approach is more difficult to administer than the concentrated adjustment and conversion method. In addition, the basket approach has the result that both the existing and spin-off companies are left with options held by individuals who are not their employees. Having non-employee optionees may be problematic under the terms of the company’s equity compensation plan or due to tax, securities or accounting issues, as discussed below.
For these reasons, the concentrated adjustment and conversion method is more commonly used, particularly if the company has optionees in multiple countries. For purposes of this Handbook, we will therefore focus only on the international issues raised with respect to the concentrated adjustment and conversion method.
3. Authority under the Plan
An important first step in planning for a spin-off is to review the relevant employee equity compensation plan (“Plan”) to identify the provisions that would govern the Adjustment and Conversion of the options in the event of a corporate transaction such as a spin-off. Generally, a Plan or a stock option agreement will contain a change in control provision. However, change in control provisions do not always clearly address how options will be adjusted and converted in the event of a spin-off or other corporate transaction. Further, a change in control provision may not include a spin-off transaction as a triggering event.
If the Plan and option agreement do not dictate the terms of the Adjustment and Conversion of the options, the terms of the Adjustment and Conversion are generally spelled out in the spin-off transaction documentation itself. Alternatively, if the provisions of the Plan do not adequately address such restructuring or prevent the Adjustment and Conversion of options, an amendment may be considered prior to the restructuring. However, NYSE and NASDAQ shareholder approval rules (which require shareholder approval for material modifications to equity compensation plans) may limit the feasibility of amending the Plan.
The question of whether the Adjustment and/or Conversion are authorized under the Plan and/or option agreement is important for several reasons. Most pertinent to this discussion
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is whether the consent of the optionees is necessary to effect the Adjustment and Conversion. If the Plan and/or the option agreement state that existing company may not adversely alter the terms of an outstanding option without the prior written consent of the optionees and the Adjustment and Conversion is not authorized under the Plan, and thus not a term of the original grants affected by the spin-off, the optionees’ consent may be necessary. As explained more fully below, there will be situations where an optionee will lose favorable tax treatment or suffer other negative tax or legal consequences as a result of the Adjustment and Conversion of the option. In these situations, the optionees’ consent is likely to be required. On the other hand, absent some negative tax or other legal effect, it is possible to argue that consent is not required because the Adjustment and Conversion does not adversely impact the rights of the optionee. This is an issue that should be resolved prior to proceeding with the transaction.
4. Adjustment and Conversion of Options Granted Outside the U.S.
There are many potential tax, securities and other legal issues that arise for outstanding stock options within the context of a spin-off where optionees are located outside the United States. In this regard, it is important to recognize that separate issues arise for both the Adjustment and the Conversion. Therefore, tax or other issues could arise both in the countries where only the Adjustment will occur as a consequence of the spin-off (i.e., where no employees will transfer to the spin-off company and the basket approach is not taken) and where both the Adjustment and Conversion will occur (i.e., where employees will transfer to the spin-off company).
4.1 Tax Issues
• Triggering Tax Event
The Conversion of stock options pursuant to a spin-off may be a taxable event in some countries. Under local tax laws, the Conversion may be considered a disposal of one stock option followed by the regrant of a separate stock option. The disposal of the option is what triggers the taxable event in such countries. In those few countries where taxation of stock options is normally at the time of grant, the “grant” of the converted option may result in a new taxable event. The converted option is taxed even though the employee was already taxed at the time of the original option grant. In other countries, the Conversion may be considered a deemed exercise of the original option. For options that are subject to taxation upon exercise, a tax charge will result, absent a tax ruling to the contrary.
Tax issues also arise in relation to the valuation of the options and the calculation of the exchange ratios for the Adjustment and Conversion. Generally, the Adjustment and Conversion rate is calculated to maintain the intrinsic value of the stock option before and after the transaction. In the U.S., companies must follow strict tax rules with regard to the conversion ratio to avoid the possibility that discounted options will trigger a deferred
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compensation benefit, resulting in a severe tax penalty. Outside the U.S., however, local tax authorities may disagree with the U.S. method of calculating the value of the option or the exchange ratios, and the Adjustment and Conversion may be seen as resulting in a gain to the employees, with tax due upon that gain.
The uncertainty of the tax consequences of the Adjustment and Conversion of stock options may be clarified by requesting a tax ruling from the local tax authorities.
• Loss of Tax-Favored Status
If the existing options qualify for a tax-favored regime in a particular country, the spin-off transaction may cause the option to lose its tax-favored status. In some cases, it may be necessary to obtain approval from local tax authorities to confirm that the options remain eligible for tax-favored status.
Again in analyzing these issues, it may be necessary to view the transaction in two steps, the Adjustment and the Conversion. For example, optionees in France with French-qualified options may find that the Adjustment may disqualify the options, thus triggering negative tax and social insurance treatment for the employee and employer if the transaction does not meet the definition of a permitted adjustment under French law. Furthermore, the Conversion to spin-off company shares is likely to be considered a new grant under French tax law. In such case, the option might still be French-qualified; however, it will be treated as a brand new option grant, and the four-year holding period (required for favorable tax and social insurance treatment under the French law) would have to start over from the spin-off/new grant date. This new grant also may require that the spin-off company adopt a sub-plan to its option plan that contains the required terms and conditions for the grant of French-qualified options prior to the spin.
There may also be specific requirements under a tax-favored regime that are triggered by a company restructuring such as a spin-off. For example, one of the requirements of a U.K. “company share option plan” is that the plan sponsor must give prior notice to HM Revenue and Customs of changes in capitalization, such as a spin-off. This notification must be given, even if the outstanding options will be disqualified under the U.K. approved plan as a result of the Adjustment and Conversion. Failure to fulfill this notification requirement can result in HM Revenue and Customs withdrawing its approval of the U.K. approved plan. If HM Revenue and Customs withdraws its approval of the U.K. approved plan, all existing approved options will lose their approved status and will be taxed as unapproved options. In addition, once disqualified, no new approved grants may be made under the U.K. approved plan unless and until HM Revenue and Customs reinstates the plan’s approved status.
Assuming that the existing company maintained a U.K. approved plan, then in addition to the existing company’s obligation to notify HM Revenue and Customs of the spin-off, it would need HM Revenue and Customs’ pre-approval of the Adjustment and Conversion of the options to preserve the approved status of the outstanding options. In all likelihood, this approval will not be forthcoming; in which case, the outstanding options would lose their approved status upon the Adjustment and Conversion.
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If HM Revenue and Customs declines to approve the Adjustment, the outstanding options will no longer qualify under the approved plan. Accordingly, at exercise both the employer and the employee will owe national insurance contributions on the spread (i.e., the difference between the exercise price and the fair market value of the shares at exercise). In addition, the employee will be subject to income tax on the spread at the time of exercise. Furthermore, the existing company must obtain the employees’ consent to the Adjustment and Conversion of the options, or else risk that the entire U.K. approved plan will lose its approved standing. HM Revenue and Customs may expect to be provided with copies of the consent letters sent to the approved options holders, as well as any other communications sent to these employees in relation to the spin-off.
4.2 Securities Law Issues
To the extent the existing company has made securities filings or availed itself of self-executing securities law exemptions in granting options to its employees, it will need to review those filings and exemptions to confirm whether the Adjustment of the options results in any new filing obligations or changes in the availability of the exemptions. In many countries, it is recommended or required to notify the local securities authority regarding the transaction.
Securities law issues may also arise in relation to the Conversion of the options over existing company shares to options over spin-off company shares. In the U.S., the existing company may need to file a new securities law registration for the offer of its securities to its employees. In other countries, the Conversion of existing company options for options in the spin-off company may be characterized as a cancellation of the existing options and a regrant of stock options in NewCo.
Even though in most transactions the Conversion of options is automatic and employees do not have a choice as to whether their options are converted, the Conversion will be treated as a new offer of securities in some non-U.S. jurisdictions. If the Conversion of stock options is considered a new offer of securities, a governmental filing or notice may be required in order to make that offer of securities, often regardless of whether a filing was already made in relation to the original grant of options by the existing company. For example, under Australian securities laws, the Conversion of stock options pursuant to a restructuring will generally be considered a new offer of securities requiring a registration or an exemption from registration requirements. Similarly, in Canada the Conversion of options pursuant to a restructuring is likely to be considered a new offer of securities subject to provincial securities requirements. Existing securities approvals or self executing exemptions for options from the various provincial securities commissions should be examined to determine if the Conversion is covered under the existing relief.
For countries that are part of the European Union, the EU prospectus directive 2003/71/EC must be considered. As of January 1, 2007, most EU countries implemented the directive into local law. The directive allows a company to file a prospectus in its home Member State and use the prospectus as a “passport” for future securities offerings in other EU
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jurisdictions. Before any spin-off transaction is implemented involving outstanding options held by, or new options granted to, employees in EU, the company must determine whether a prospectus will be required pursuant to the prospectus directive. Some EU countries take the view that non-transferable employee options are not securities subject to the directive, but that is not true for all countries. If a prospectus is required, it may take a matter of months to prepare and obtain approval of the prospectus.
As a general rule, where a securities exemption, registration or approval was required under local law for the original grant of options, the spin-off company should consider carefully whether the Conversion of the options requires additional action. It is also important to consider whether the Conversion of the option may result in a change in either company’s status in such a way as to affect its securities compliance requirements. For example, different securities law issues arise for companies with more than 10% of their shareholders in Canada, or if the spin-off company is traded on a non-U.S. stock exchange, additional securities law issues may arise.
4.3 Other Legal Issues
As noted above, employee consent may be required for the Adjustment and Conversion if it is not authorized by the Plan or option agreement. In any case, employee communications explaining the impact of the restructuring on the options should be prepared.
Conversion of options to options in the spin-off company may lead to employee claims if the employee feels he or she ended up with something less than he or she had prior to the transaction. If the transaction results in an employee having fewer overall benefits than prior to the transaction and the benefits constitute vested rights, he or she may raise a claim for constructive discharge under local law. This reduction in benefits is less likely to be a problem where employee stock options make up a relatively small part of employee compensation, but there is some exposure. Although there is no way to eliminate these concerns entirely, good employee communication is crucial, particularly with regard to the fact that the intrinsic value of the employees’ options is maintained in the Conversion process.
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Section 13 Intellectual Property Considerations
1. IntroductionRegardless of the role intellectual property (“IP”) plays in a particular business, IP frequently gives rise to the most challenging issues in a corporate spin-off or divestiture. Such challenges arise from the intangible and abstract nature of IP, the varied legal regimes that apply to different forms of IP, and the often-pervasive use of specific IP throughout an organization. Complications also arise due to the inherent nature of a divestiture or spin-off itself – a virtual “pulling apart” of a business. On the one hand, IP issues are not as contained as in a license or assignment of specific technology where the asset is specifically identified and usually well understood. On the other hand, there are not the same safeguards as in the sale of a business where, for example, ambiguities in identifying IP are often sufficiently addressed by sweeping catchall language.
This Section provides an overview of the basic IP issues that are likely to arise in relation to the divestiture or spin-off of a business out of a larger company or group of companies as well as strategies for approaching such issues. In particular, this Section identifies (a) certain threshold IP distinctions that are particularly relevant to spin-offs, (b) certain general steps for identifying the IP that the spin-off company should have after separation, and (c) some of the issues and strategies to consider in assessing if and how such IP can be transferred or otherwise made available to the new company.
2. Threshold DistinctionsAs a threshold matter, there are two distinctions useful when addressing IP considerations in preparing a plan for a spin-off or divestiture.
2.1 Owned vs. Licensed IP
The first distinction is between IP owned by the existing company and IP licensed to the existing company by third parties. Typically, the existing company can easily assign or license its owned IP. Rights to third party IP may be transferred by assigning the underlying license agreement or by granting a sublicense. Either method, however, may require consent from the third party licensor. Such consent may be conditioned on additional fees or on other terms and conditions. If consent is withheld, the new company may need to negotiate its own license for the third party IP or do without.
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2.2 Registered vs. Unregistered IP
The second distinction is between IP that is registered with a government agency and IP that is not. In the United States, for example, patents and trademarks are registered with the United States Patent & Trademark Office (the “USPTO”) while copyrighted works are registered with the United States Copyright Office. Registration is not required with respect to trademarks and copyrights. Registered IP is easier to identify, and registration often establishes a legal presumption of ownership. Conversely, unregistered IP is more difficult to identify, and proof of ownership is most often dependent on contractual documentation.
3. Identifying Intellectual Property (Due Diligence)The first step in preparing for a spin-off from an IP perspective is to create an inventory of relevant IP and any pertinent use or transfer restrictions. A general needs assessment can then help identify the IP that should be made available to the spin-off company, if possible. An analysis of such IP, as well as the party’s business plans, priorities and position, can help determine how to structure the transfer for maximum effectiveness. For simplicity, this Section separately addresses IP inventory generation and IP relevance assessment. This may suggest that a complete inventory must be established before considering IP relevance. In practice, however, these inquiries are undertaken concurrently, so that the scope of assets subject to inventory is continually defined by an assessment of the relevance of particular existing company IP to the spin-off business.
3.1 Owned Technology Inventory (What IP does the Existing Company Have?)
Separate inventory strategies are considered below for each of the principal forms of IP. It is important to note, however, that many assets may be subject to multiple forms of IP protection. Commercially distributed software might, for example, constitute key copyright assets. If the source code (human readable form) of such software is not generally distributed externally, such code may also constitute an important trade secret. The inventory should not only include the identity and description of the relevant IP but also an indication of how the IP was acquired – i.e., through internal development, a third party developer or an acquisition.
• Patents. Patents are the easiest IP to inventory, as patent attorneys typically maintain detailed files and patent lists. Moreover, a search for patents on the national registries is easily undertaken to verify ownership, inventors, assignments and certain recorded liens. In certain jurisdictions, however, patent applications are either not publicly available or only become publicly available after a certain period (usually 18 months) after their initial filing. A patent search should not be limited to records referencing the existing company if the existing company has: (a) a history of mergers, acquisitions or corporate reorganizations; (b) no standard employee invention assignment procedures (or low compliance with such
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procedures); or (c) regularly involved third parties in development activities. In such cases, it may be prudent to conduct searches with respect to the applicable employee inventors, third party developers, predecessor companies and other applicable third parties.
• Copyrights. An effective inventory of copyright assets should, at a minimum, contain a listing of all registered copyrights as well as any other key works of authorship constituting commercial products of the company (e.g., software for a software company, film for a movie studio, etc.) as well as supplemental material distributed with such products (e.g., manuals, guides, inserts and so forth). Key copyright assets may also include material used only internally or produced for limited distribution, including manuals and training material, as well as software and tools used in the production or manufacturing process.
• Trade Secrets. In certain cases, there may be specifically documented trade secrets in internal operations or procedures manuals, in recipes and formulas, and in invention disclosures and pending patent applications. In many cases, however, trade secrets consist of undocumented know-how. In such circumstances, there may be no substitute for interviewing engineers and other personnel to identify if any trade secrets exist and their relative value. This may be particularly important where the company has not otherwise pursued patent protection for its inventions and where it is important to understand the scope and significance of a company’s trade secrets for valuation purposes.
• Trademarks. As with patents and copyrights, it is relatively straightforward to inventory the existing company’s registered trademarks through the applicable national registry. Note that in the United States, trademarks are occasionally registered with individual state registries. As with copyrights, however, companies frequently decline to register a substantial portion of their trademark portfolio. A thorough trademark inventory, then, may require a more deliberate consideration of product names, marketing collateral and other promotional material. In addition, in identifying unregistered trademarks, it is important to bear in mind the broad scope of matter subject to trademark protection including, for example, certain trade names, service marks, logos, slogans, and trade dress (which, in turn, can encompass such matter as product shapes and packaging, uniforms and company colors).
3.2 Licensed Intellectual Property Inventory
Inventory of licensed IP has historically focused on licenses for specific IP that is incorporated in or that constitutes a specific component of the spin-off company’s technology or products. While such traditional in-bound agreements are often critical, it is important to also consider:
• Settlement License Agreement
• Cross-License/Non-Assertion Agreements
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• Commercial Off the Shelf License Agreements
• Development Agreements
• Development Tool License Agreements
• Joint Venture Agreements
• Founders Contribution Agreements
• Non-Disclosure Agreements
These agreements should specifically be reviewed for limitations directly restricting either the transfer of the agreement to the spin-off company or the grant of a sublicense by the existing company to the new company. In addition to the license scope, license restrictions, non-compete arrangements and similar provisions in the agreements, these should be reviewed to determine whether the disclosure to or use of confidential information by the new company would constitute a breach of any such agreements.
3.3 Owned IP Encumbrances
Although companies generally have broad rights to exploit and transfer their owned IP, such flexibility is often compromised as discussed below. These considerations impact the extent to which an IP asset can be made available to the spin-off company, the relative value of the IP asset to the parties, and the most effective manner in which the asset can be made available to the new company.
• Co-Ownership. Co-ownership of IP with third parties might arise, for example, if the IP is developed through a joint venture or under a collaboration agreement. Co-ownership limits the exclusivity that either co-owner has and can grant third parties with respect to such IP. In addition, under certain copyright regimes, unless the owners expressly agree otherwise, each owner of a copyrighted work is obligated to account for and share in the profits from the exploitation of such work with the other co-owners. Similarly, it may be impossible to enjoin an infringer of co-owned IP, unless all co-owners joined in the applicable action.
• Retained Rights. Retained rights in IP otherwise owned by the existing company can take a variety of forms. Some of the most common include:
– Broad Reservations (Grant-back) – An assignor of IP rights may receive a grant-back to enable the assignor to continue its business or to exploit a particular field.
– Rights in Incorporated Elements (Background Technology) – A developer, for example, may retain rights to pre-existing IP that is incorporated into a deliverable. Licenses for software development kits frequently retain rights in libraries, reference files or portions of the tool itself that is incorporated in the resulting software product.
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– Reversionary Rights – A technology assignment agreement may include various recapture rights for IP that proves commercially successful or, on the other hand, for IP deemed to be abandoned by its original owner (either expressly or by failure to commercialize).
• Ownership Uncertainty.
– Prior Third Party Owners – Did the government registry fail to properly identify the existing company as the owner of the IP and instead list a prior owner?
– Employee Assignments – Are there appropriate assignments from employees or contractors that have developed IP for the existing company? If not, it may be necessary to execute confirmatory assignments. Note, however, that such assignments may not be effective for previously created works unless further consideration is provided.
– Third Party Claims – Is the IP the subject of any pending or threatened litigation?
• Outbound Licenses. Outbound agreements are critical as they identify the technology commercialized by the existing company prior to the spin-off. In addition, such agreements identify commitments with respect to the licensed IP including:
– Rights Availability – Is the IP already exclusively licensed to a third party?
– Future IP – Is the existing company committed to provide/license its future IP (improvements or new technology) to any third party?
– Know-How Transfer and Support Commitments – Is the existing company obligated to teach third parties how to use its IP or to maintain and support the use of its IP by third parties (e.g., with respect to licensed software)? Has the existing company placed any of its sensitive IP into an escrow agreement (to be released, for example, if the existing company defaults under a support agreement)?
• Liens and Security Interests. Care should be taken to identify any liens or security interest applicable to any IP that may be transferred to the new company. This should include consideration both of liens granted with respect to general intangibles of the existing company as well as liens and security interests that specifically identify the subject IP. Of particular concern are any liens or security interests for which a transfer to the new company would trigger a “due on sale” or other right of acceleration for the secured party.
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4. Structuring the Transaction (Who will Get What and How)Once it is clear what IP the existing company itself owns and uses, and what the various encumbrances with respect to such IP are, the parties can: (a) undertake a needs assessment to identify the IP to be made available to the new company; and (b) identify how the IP aspects of the spin-off should be structured in terms of the allocation of IP ownership and other rights.
4.1 Needs Assessment (What You should Look for)
Frequently parties limit the needs assessment for the new company to an identification of existing IP covering products, tools and processes used by the new company as of the proposed closing date. NewCo’s IP needs assessment should also include careful consideration of:
• IP Needed for Future Spin-Off Company Business Operations. Consider, for example:
1. Current software that enables general business/administrative functions such as general IT operating systems, docketing programs, payroll and human resource tools; SAP/invoicing processing
2. Current development efforts to be transferred to the new company (and the new company’s plans for its future development). – Does the existing company control any IP that is necessary to pursue potential development projects?
• Defensive Needs. If the new company will operate in a field with pervasive patents and litigious competitors, what IP might the new company need to be able to compel a settlement with or otherwise deter would-be claimants?
4.2 Ownership Allocation
The mere fact of the new company’s need to have the benefits of certain existing IP, of course, does not necessarily mean that the owned IP should be assigned to the new company (or that an agreement for licensed IP should be assigned to the new company).
• Benefits of Ownership. While freedom to use matter covered by IP may be obtained through either assignment or license, the IP owner is typically best positioned to use and control IP and thus to determine, for example: the form of IP protection; where (in what countries) IP protection is sought; when IP rights may be compromised/sacrificed; and when (and against whom) IP rights are enforced.
• General Ownership Allocation Considerations. A variety of factors influence whether the specific IP assets should be assigned or licensed to the new company (or whether the new company must make other arrangements) including:
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– Contractual or Regulatory Transfer Restrictions – For example, PRC technology transfer rules impose restrictions and requirements with regard to the transfer of IP.
– Availability of Third Party Consent – Can required consents be obtained without additional cost? Would approaching the licensor for consent otherwise be problematic?
– Relevance to Current and Future Business – Does the IP primarily relate to the business or technology of one or the other party?
– Employees Transfer – Will the employees that developed the IP be transferred to the new company or be retained by the existing company?
– Capacity to Exploit – Will one entity or another be better situated financially, or with market position, to exploit the technology?
– Defensive Use – Is either the new company or the existing company in greater need of the IP for defensive purposes (either to bolster the patent portfolio as a whole or to avoid sector gaps)?
– Pending Disputes – Is the existing company or the new company better positioned to favorably resolve any pending dispute?
• Jurisdictional Consideration. Ownership allocation decisions may also be affected by the IP rules specific to the jurisdictions in which the existing company or the new company is based or has subsidiaries (or in which the IP is located). Some countries, for example, require that technology developed within the country be owned by entities based in the country and require that the government also have use rights with respect to such technology. Certain countries also only permit trademark registration by entities based in such countries.
4.3 Transaction Documents
Having decided which IP should be assigned and which should be retained, the IP transaction documents can be prepared to execute this plan. Whether the IP is assigned or licensed to the new company, however, is only the first aspect of structuring the IP transaction documents. Although it is impossible to canvass all of the various issues and potential transaction solutions, the following is a general selection of certain issues the parties may encounter.
• Assignments.
– Timing of Transfer – Should a planned assignment of IP initially be licensed until an encumbrance can be cleared (e.g., a consent, dispute, or related agreement)?
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– Restrictive Covenants – If IP is to be shared, should the parties’ respective rights be limited to separate and distinct fields of use?
– Subsidiaries and Related Companies – If any IP to be assigned is owned by an existing subsidiary or affiliate, the parties will need to determine how the transfer will be accomplished. Strategies include: (a) transferring such IP to the new company prior to the spin-off; (b) including a requirement that the existing parent company “cause” its subsidiary to transfer the IP to the new company; and (c) arranging for the direct transfer between the parties’ respective subsidiaries or affiliates, as applicable.
• License Grants and Grant Backs. IP licenses granted in connection with a spin-off are not necessarily equivalent to an assignment and, instead, are generally far more nuanced in that, for example:
– Upstream Limitations – The license to the new company must conform to any in-bound license agreement or other third party commitments regarding restrictions on use.
– Downstream Restrictions – The licenses granted to the new company must be consistent with other licenses granted by the existing company to other third parties (e.g., where the existing company has already granted an exclusive license to the IP to a third party).
– Protection of Core Business – Even if not required by upstream or downstream compliance considerations, the parties often create field of use limitations so as to prevent either party from using shared IP to compete with the other party, but subject to antitrust constraints.
– Background vs. Foreground IP – The license between the parties may have distinct license grants for “Foreground IP” (IP that is specifically identified and associated with a specific product or project) and “Background IP” (general IP that is not specifically identified, is not unique to a particular product or project). While rights to Background IP is often necessary to ensure that the parties have the IP they need to carry on their current business after separation, there is often discomfort in granting broad rights since the parties do not know exactly what they are “giving up.” Accordingly, Background IP licenses only permit the use of such IP to make and sell products that the licensee is making and selling as of the separation date.
• Rights to Improvement. Because the general intent of a spin-off is to separate the existing company and the new company going forward, rights to future technology are often of less importance. Nonetheless, rights to future improvements on the IP assigned upon divestiture may be pertinent where:
– Continuing Commercial Relationship – The parties will continue an existing service relationship between themselves post-separation. In
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connection with such an agreement, the parties may make commitments to continue to provide access improvements to its technology in connection with the services (e.g., upgrades and updates to software developed by the party to software used by the other party).
– Unblocking Licenses – Both companies contemplate independently pursing substantial development work on shared IP after separation. Because independent development is not a defense to patent infringement, each party’s development has the potential to block development avenues available to the other party with respect to the shared IP. The cross license between the companies, then, may include patent licenses to improvements as necessary to prevent such development blocking.
• Defensive Rights Rescue. Because a spin-off necessarily decreases the IP assets of both the parties, frequently one or both parties will feel more vulnerable to an infringement action by a third party (e.g., that party has fewer weapons with which to “fight back”). To mitigate such risk subject to antitrust restrictions, the parties might agree that if one party is sued, the other party may be required to: (a) bring whatever claims it may have against the original plaintiff; (b) assign certain relevant patents that may be asserted in a counterclaim against the original plaintiff; and/or (c) terminate any sublicense granted to the plaintiff under the defending party’s IP.
• Technology Transfer (Key Personnel). The parties should not overlook the transfer of any material and learning necessary to enable the new company to understand and effectively exploit the IP assigned or licensed by the existing company. Such a transfer may include the provision of materials including IP embodiments, instruction manuals, notebooks and similar items explaining the IP. Where the know-how is undocumented, the spin-off documents may include commitments to provide training and technical support necessary to effectuate a satisfactory technology transfer. If there are key individuals holding critical know-how (e.g., in the form of in-depth experience or expertise), it is important to ensure either that there is agreement (from the company and the individuals concerned) that such individuals will be transferred to the new company, or that they will be made available for a period post-completion to provide training and transitioning assistance.
• Tax Considerations. While tax related matters are beyond the scope of this Section and addressed elsewhere in this Handbook, the parties should remember to carefully consider IP-related tax considerations including transfer taxes and the establishment of IP holding companies.
• Antitrust and Competition Considerations (A Word of Caution). In considering any allocation of use rights for assets shared between the existing and new companies (whether by co-ownership, license or otherwise), it is important to consider the potential applicability of antitrust and competition law. While a detailed
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exploration of such laws is beyond the scope of this Section, it is sufficient to note that in certain jurisdictions a number of restrictions in IP license and transfer arrangements are unenforceable and in some cases illegal. Depending on the parties’ shares in the respective markets, problematic restrictions may include limitations on a party’s right to use its own IP as well as license restrictions that expressly or effectively allocate markets or customers amongst potential competitors.
5. Effectuating the TransactionIn addition to the basic structural issues described above, there are other issues that should be addressed to properly effect the divestiture or spin-off from an IP perspective.
5.1 Repair Ownership Gaps
To effectively transfer ownership of IP owned by the existing company prior to separation, the parties should ensure that any problems identified in the course of due diligence with respect to the documented chain of title have been corrected. That is, the parties should ensure that the existing company is the documented and, for registered IP, the record owner of all IP it purports to assign to the new company. Where chain of title problems exist, the parties may need to compile documents necessary to document ownership and chain of title (including prior assignment agreement, employee invention agreement). If any of such documents are missing, replacement documents may need to be executed. As mentioned above, however, where no prior assignment obligation can be documented, it may be necessary to provide the assignee at least some nominal consideration in order to ensure the new assignment document is legally binding. Once the existing and replacement documents have been compiled and executed with respect to registered IP, the assignments should be recorded with all of the applicable government registries.
5.2 Record Assignment of IP
Typically, a number of short form confirmatory deeds of assignment are used to record the transfer of registered IP. Each jurisdiction’s registry has its own requirements with regard to the form of assignment documentation. Some jurisdictions require an assignment in local language; some countries require the assignment to be certified, notarized, legalized or even apostilled; some require assignment to be in the form of a deed, etc. Thus, in each jurisdiction in which registered IP is to be transferred, separate documents are used for each form of registered IP (patents, trademark registrations, registered designs and any applications for any of these). These short form documents may be executed at the time of separation. More often, however, the forms for such agreements are attached as exhibits to the general assignment document executed at separation. The individual pro-forma agreements can then be executed and recorded as a post-completion exercise.
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5.3 Record License Agreements
In addition to recordation of assignments to owned IP, the assignment of certain contract rights to IP can also be recorded with the applicable national registries. This is not always essential, but failure to do so may have negative consequences under local law, including loss of priority and enforcement rights. Recordation of license assignments is most important where the license grants exclusive rights in the applicable IP, or the IP license consists of trademarks. Bear in mind that such recordation applies to certain of the third party licenses assigned to the new company as well as the licenses granted under the principal transaction agreements between the existing and new companies (including grants by the existing company to the new company as well as grant back license from NewCo to OldCo).
5.4 Obtain and Document Third Party Consents and Acknowledgements
All consents obtained for an assignment of IP, for the assignment of an IP license or to sublicense IP should be documented in writing. Where the assignment of an agreement is at issue, it is ideal (whether or not consent is required) to document a complete novation (i.e., an express acknowledgement from the other party to the agreement that the new company takes the place of the existing company for all matters under the agreement going forward) to effectively release the existing company from liability incurred by the new company after the agreement is assigned. Note that even where an agreement by its terms does not expressly require consent or notice, written notice to the licensee of the assignment may be required for the assignment to be effective under local law.
5.5 Allocate Value
As discussed above, in those jurisdictions where there may be requirements to pay a stamp duty on the transfer of a registered intellectual property right, it will be necessary to include both an apportionment of value in the asset transfer agreement for each of the registered rights, and a fair valuation figure for the national registration should be included in the short form assignment for each relevant country.
5.6 Comply with Other Jurisdiction Transfer Protocol
Identifying the jurisdiction of creation and development is also critical for ascertaining and implementing the appropriate transfer process and requirements. In addition to following the proper registration and notice practices, if any, some jurisdictions have significant substantive transfer requirements. For copyright works (but not computer software), it is also important to check that any assignment documentation includes confirmation that an express waiver of the so called “moral rights” of the creator has been granted.
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Section 14 Transition services and other post-separation matters
The separation of businesses cannot be effectively implemented overnight. The separated business will continue to depend on the parent company to provide certain services essential to its operations. To ensure a smooth transition following the separation and in order to manage and sustain the new structure that results immediately subsequent to the separation process, one or more transition services agreements should be put in place between the parent company and the separated business for the provision of administrative, financial, management and other services. Typically, shared/transitional services include:
• information technology services, including desktop, data center, mainframe, voice communication and email systems and support;
• human resource services, including payroll processing and employee benefits plan administration;
• financial and accounting services;
• logistics services;
• procurement services; and
• marketing services.
Even though transition services relate to the post-separation period, the process for identifying the types and scope of services to be provided, the length of time the services are likely to be needed and identifying how the services will be charged for should be started well before the target date for the separation. Representatives from different constituencies within the company should participate in this process, including employees who will remain with the existing company and employees who will be transferred with the separated business. It is vital, in this respect, to involve individuals who have intimate knowledge of the business operations being separated. Such a transition team should ideally be involved throughout the entire life-span of this process, from identifying the services to be provided to their eventual termination.
The separated business will need to receive transition services to effectively operate during an interim period until such time as it can source its own services, at which point the transition services can be terminated. A schedule for phasing out and eventually terminating transition services must be considered and included in the transition services agreements. Certain services may only be needed for a short term and can be phased out over a span of 6 to 18 months. However, the parties may identify other services that they do not anticipate to be separated in the near term (more than 18 months generally serves as a guideline), and such services may be more appropriately addressed in a separate, long term shared services agreement.
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As the separated business becomes more independent and develops its own business goals, careful attention must be paid by both parties to observing the terms of the transition services arrangements and monitoring progress towards the agreed termination of services. The transition team that, ideally, was formed during the early stages of the process can be helpful in resolving issues before they develop into disputes and can serve to propose and monitor any changes to the transition arrangements that are necessary to fit the evolving needs of both parties.
It should be noted that transition services related to information technology (“IT”) often present particularly thorny issues. For example, the company will need to determine whether any third party licensor or supplier consents are required to sublicense contracts relating to IT services and, if so, develop a plan for addressing such consents in a time-efficient manner. In some cases, additional seats or licenses may be required in order to transfer rights to the new entity. Another consideration is whether existing IT systems can be used without change or whether modifications are required in relation to the separated business.
Finally, it should not be overlooked that the provision of transition services after the separated business is sold to a third-party buyer or is spun-off as a separate, publicly held company may have other legal ramifications, such as giving rise to data privacy questions or to implications under the Sarbanes-Oxley Act. For example, if in connection with the provision of payroll services, the parties are sharing systems that contain data on employees, it may be necessary to put in place a data privacy contract or other protections with respect to the use of such information. Sarbanes-Oxley compliance issues may arise in the context of accounting and financial transition services and the ability to assess internal controls over financial reporting.
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