Selected U.S. Federal Income Tax Implications of Brexit Planning for UK/EU Bank Based Operations of Foreign Parented Groups

Transcription

1 Selected U.S. Federal Income Tax Implications of Brexit Planning for UK/ Based Operations of Foreign ed Groups June 12, 2017

2 UK Inbound Scenario - Incorporate Branch Business and Assets Inbound Scenario 1: Non- EU Holdco contributes UK bank operating assets/branches to a newly formed. Tax nsiderations: Subchapter C - Incorporation of may qualify as a Section 351 transaction. FIRPTA If has assets that constitute United States real property interests (RPIs) under Treas. Reg. Sec , and transfers the RPIs to new, the branch incorporation generally is taxable under FIRPTA. No likely non-recognition scenarios available for FIRPTA purposes because is unlikely to be considered a United States real property holding corporation (RPHC). Treaty Application nsider treaty application for inbound investments (e.g., change in withholding tax exemptions, W-8 compliance and exemption certificates from moving from EU treaty to UK treaty). Branch Termination If the UK branch incorporation includes business assets rising to the level of a trade or business/pe, a deemed branch termination could occur and 30% branch profits tax may apply. This tax could be reduced or potentially eliminated based on s treaty Cross-Border Debt/Derivatives Transactions (e.g., loan to new ) o Treas. Reg. Sec Modifications of Debt Instruments o If recourse liability, lender likely has a taxable event. o If nonrecourse liability, lender generally does not have a taxable event. o Treas. Reg. Sec Modifications of Certain Derivative ntracts (e.g., swaps) o To avoid being treated as a modified contract causing a taxable event to the party: o Both the party transferring or assigning its rights and obligations under the derivative contract and the party to which the rights and obligations are transferred or assigned must be dealers or a clearing houses; o The terms of the derivative contract must permit the transfer or assignment of the contract, whether or not the consent of the nonassigning counterparty is required for the transfer or assignment to be effective; and o The terms of the derivative contract must not be otherwise modified in a manner that results in a taxable exchange under Section o Section 988 Foreign Currency Triggering Event o If the loans in non-d currencies, an exchange of an instrument under Treas. Reg. Sec generally triggers Section 988 foreign currency gain/loss. 2

3 UK Outbound Scenario 1 - Spin-Off to Foreign Holdco Outbound Scenario 1: Non- UK Holdco Non- UK Holdco contributes EU bank operating assets/branches to a newly formed and distributes shares of EU Bank to UK Holdco Tax nsiderations: Subchapter C - Steps intended to constitute a contribution and spin-off distribution governed by the rules of Section 368(a)(1)(D) and Section 355. FIRPTA If. has RPIs under Treas. Reg. Sec , the transaction generally is subject to FIRPTA. Treaty Application nsider treaty application for inbound investments in the if is held by a UK Holdco and is relying on derivative benefits. may not be able to do so on a go forward basis since an "equivalent beneficiary" is a resident of a member state of the European Union or of a European Economic Area state or of a party to NAFTA. Branch Termination - Assuming business assets constituting a branch are transferred to, a deemed branch termination could occur and 30% branch profits tax may apply. This tax could be reduced or potentially eliminated based on treaty Cross-Border Debt/Derivatives Transactions (e.g., loan to new ) o Generally same consequences as Inbound Scenario. 3

4 UK Outbound Scenario 2 - Legal Entity (Cross-Border) Merger Outbound Scenario 2: Non- with European branches merges into an existing. After the merger, operates with a UK branch. Tax nsiderations: Non- Holdco Merger Subchapter C - An EU cross-border merger effected pursuant to UK and EU Law may qualify as a Section 368(a)(1)(A) or 368(a)(1)(D) reorganization. FIRPTA If has RPIs under Treas. Reg. Sec , the transaction generally is subject to FIRPTA. For the merger to qualify for FIRPTA non-recognition treatment under Treas. Reg. Sec T(b)(1)(i) (as modified by Notice ), the merger must qualify as a Section 368(a)(1)(A) or 368(a)(1)(D) reorganization and comply with the compliance requirements under Section 897 and If the transaction does not qualify as a reorganization under either Section 368(a)(1)(A) or Section 368(a)(1)(D), non-recognition treatment generally unavailable. Treaty Application - Generally same consequences as Outbound Scenario 1. UK Branch Termination - If transactions fails to qualify as a reorganization under either Section 368(a)(1)(A) or Section 368(a)(1)(D), a deemed branch termination could occur and 30% branch profits tax may apply. This tax could be reduced or potentially eliminated based on treaty Cross-Border Debt/Derivatives Transactions (e.g., loan to new EU Bank ) o Generally same consequences as Inbound Scenario. o However, if transaction qualifies as an acquisitive reorganization described in Section 381(a), generally no taxable event as to outstanding loans regardless of whether the liability is recourse or nonrecourse. 4

5 UK Outbound Scenario 3 - SE nversion Outbound Scenario 3: Non- Non- Holdco UK converts to an European Societas Europaea ("SE"). The UK SE then migrates to a EU Jurisdiction (e.g., Luxembourg). Tax nsiderations: Subchapter C - The conversion to an SE and the migration to an EU jurisdiction potentially qualify as one (or possibly two) reorganization(s) under Section 368(a)(1)(F). FIRPTA Generally same consequences as noted on prior slide. Treaty Application - Generally same consequences as Outbound Scenario 1. SE SE Branch Termination - If transactions fails to qualify as a reorganization under Section 368(a)(1)(F), a deemed branch termination could occur and 30% branch profits tax may apply. This tax could be reduced or potentially eliminated based on treaty UK Cross-Border Debt/Derivatives Transactions (e.g., loan to SE) o Generally same consequences as Outbound Scenario 2. 5

6 This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation. About Deloitte As used in this document, Deloitte means Deloitte Tax LLP, a subsidiary of Deloitte LLP. Please see for a detailed description of our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting. pyright 2017 Deloitte Development LLC. All rights reserved. 36 C