Cover INT26766 VDickens Chicago (PTR) · Baker & McKenzie 1 Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 1 – Overview Section 1 Introduction The aim of this

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.

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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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Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 1 – Overview

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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Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 1 – Overview

• 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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Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 2 – Pre-Transaction Restructuring: Overview of Key Issues

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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Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 3 – Tax Planning for the Spun-Off Group

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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Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 4 – Tax Planning for the Separation Steps

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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Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 5 – Separation Methods: Business and Asset Sales

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.

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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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


– 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


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


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


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


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


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


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


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


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


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


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


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


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


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.



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


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.



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


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.



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


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.



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


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.



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


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.



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


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

.



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


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.



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


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.



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


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.



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


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),



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


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.



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


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%.



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


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.



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


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



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


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

.



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


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



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

135Baker & McKenzie


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.


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:

137Baker & McKenzie


• 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.



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

139Baker & McKenzie


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



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



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).


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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Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 10 – Branches and Representative Offices

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.


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



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



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



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.



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.



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.



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.


Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 12 – Stock Options and other Equity Compensation Issues

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



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



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



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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Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 13 – Intellectual Property Considerations

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.



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



• 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.



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)?



– 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



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.


Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 14 – Transition Services and Other Post-Separation Matters

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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Baker & McKenzie’s Pre-Transaction Restructuring Handbook Section 14 – Transition Services and Other Post-Separation Matters

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.


Baker & McKenzie’s Pre-Transaction Restructuring Handbook Baker & McKenzie Locations

Baker & McKenzie Offices Worldwide

Office phone numbers and addresses change from time to time. Please refer to www.bakermckenzie.com for current contact information.

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