Crossing Borders: International Acquisitions and Related Tax Issues, 2nd Edition John Giakoumakis, B.Sc., M.A., C.A., C.P.A.

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1 PREFACE TO THE 2nd EDITION ACKNOWLEDGEMENTS TO THE 2nd EDITION 1 THE ACQUISITION AND THE ROLE OF TAXES 1.1 INTRODUCTION AND PURPOSE 1.2 THE ACQUISITION TRANSACTION STAGES AND TAXES 1.3 THE MULTIDISCIPLINARY AND MULTI-GROUP APPROACH 1.4 FOLLOWING THE FLOW OF CASH 1.5 TAX PLANNING CRADLE TO GRAVE 1.6 SUSTAINABILITY 2 THE CORPORATE ENVIRONMENT 2.1 INTRODUCTION 2.2 COMMERCIAL OBJECTIVES 2.3 THE ASSETS VERSUS SHARES DECISION 2.4 COMMERCIAL OBJECTIVES AND THEIR TAX IMPACT 2.5 SYNERGIES 2.6 FINANCIAL RESOURCES 2.7 CORPORATE RESTRUCTURING 2.8 SELLER MOTIVATIONS AND THE TRANSACTION ENVIRONMENT 2.9 CLOSING REMARKS 3 THE TAX ENVIRONMENT 3.1 INTRODUCTION 3.2 IDENTIFICATION OF THE AUDIENCE 3.3 THE TAX ENVIRONMENT 3.4 GOVERNMENTS AS PARTNERS 3.5 CONFLICTS 3.6 THE DESIRE FOR CERTAINTY 3.7 CLOSING REMARKS 4 TAXES 4.1 INTRODUCTION 4.2 DEFINITION OF A TAX 4.3 INCOME TAX 4.4 INTERNATIONAL TAX SYSTEMS 4.5 FOREIGN AFFILIATE RULES 4.6 OTHER TAXES 4.7 SPECIAL TAX RULES

2 4.8 INDIRECT TRANSFERS 4.9 COST BASIS 4.10 CLOSING REMARKS 5 STRUCTURING 5.1 INTRODUCTION 5.2 HOLDING COMPANY STRUCTURES 5.3 PARTICIPATION EXEMPTION REGIMES 5.4 HYBRID ENTITIES 5.5 TAXATION OF INTEREST AND OTHER INCOME 5.6 TAX TREATIES 5.7 MIND AND MANAGEMENT CONSIDERATIONS 5.8 OTHER TAX CONSIDERATIONS 5.9 SHAREHOLDER CONSIDERATIONS 5.10 NON-TAX CONSIDERATIONS 5.12 CLOSING REMARKS 6 FINANCING 6.1 INTRODUCTION 6.2 BUSINESS AND TAX OBJECTIVES 6.3 DEBT VERSUS EQUITY 6.4 DIFFERENT FORMS OF DEBT 6.5 THIN CAPITALIZATION LIMITATIONS 6.6 SPECIALIZED FINANCING REGIMES 6.7 HYBRID DEBT 6.8 OECD ON HYBRID MISMATCH ARRANGEMENTS 6.9 THE INCREASING DEBT CHALLENGE 6.10 CLOSING REMARKS 7 TAX PLANNING AND TAX AVOIDANCE 7.1 INTRODUCTION 7.2 TAX PLANNING OBJECTIVES 7.3 DEFINING TAX AVOIDANCE 7.4 GENERAL ANTI-AVOIDANCE PROVISIONS 7.5 SPECIFIC ANTI-AVOIDANCE PROVISIONS 7.6 TAX TREATIES AND ANTI-AVOIDANCE RULES 7.7 ACQUISITIONS, TAX PLANNING AND TAX AVOIDANCE 7.8 CLOSING REMARKS

3 8 TAX TREATIES AND OTHER LAWS 8.1 INTRODUCTION 8.2 OVERVIEW 8.3 COMMON TAX TREATY PROVISIONS 8.4 TREATY SHOPPING 8.5 EUROPEAN UNION 8.6 CLOSING REMARKS 9 TRANSFER PRICING 9.1 INTRODUCTION 9.2 THE ARM S LENGTH PRINCIPLE 9.3 TYPES OF RELATED PARTY TRANSACTIONS 9.4 APPLICATION OF THE ARM S LENGTH PRINCIPLE 9.5 TRANSFER PRICING ANALYSIS AND DOCUMENTATION 9.6 IMPLEMENTATION, MONITORING AND MAINTENANCE 9.7 MANAGEMENT AND SERVICE FEES 9.8 RELATED PARTY FINANCING 9.9 TRANSFER OF INTANGIBLE PROPERTY 9.10 COST SHARING ARRANGEMENTS 9.11 UNITED STATES REGULATIONS FOR COST SHARING ARRANGEMENTS 9.12 OECD RESTRUCTURING GUIDELINES 9.13 TRANSFER PRICING CASES 9.14 COMPETENT AUTHORITY 9.15 ADVANCE PRICING AGREEMENTS 9.16 TRANSFER PRICING AND CROSS-BORDER ACQUISITIONS 9.17 CLOSING REMARKS 10 BUSINESS VALUATIONS 10.1 INTRODUCTION 10.2 TAX AND THE FAIR MARKET VALUE REQUIREMENT 10.3 OVERVIEW OF VALUATION METHODOLOGIES 10.4 VALUATION OF INTANGIBLES 10.5 PURCHASE PRICE ALLOCATION 10.6 CLOSING REMARKS 11 BILATERAL INVESTMENT TREATIES 11.1 INTRODUCTION 11.2 FOREIGN INVESTMENT ISSUES AND RISKS 11.3 BILATERAL INVESTMENT TREATIES

4 11.4 ICSID CONVENTION 11.5 UNCITRAL ARBITRATION RULES 11.6 BILATERAL INVESTMENT TREATIES AND INVESTMENT CONTRACTS 11.7 CLOSING REMARKS 12 SUPPLY CHAIN 12.1 INTRODUCTION 12.2 NATURE OF SUPPLY CHAIN 12.3 BUSINESS OBJECTIVES 12.4 TAX PLANNING AND TAX ISSUES 12.5 CLOSING REMARKS 13 RISK ASSESSMENT AND INTERNAL CONTROLS 13.1 INTRODUCTION 13.2 KEY CATEGORIES OF TAX RISK 13.3 JURISDICTIONAL ANALYSIS 13.4 OTHER RISK AREAS 13.5 INTERNAL CONTROL PROCESSES AND POLICIES 13.6 DESIRE FOR CERTAINTY 13.7 LEVEL OF ACCEPTABLE RISK 13.8 COMMUNICATION AND DISCLOSURE 13.9 CLOSING REMARKS 14 PRE-ACQUISITION DUE DILIGENCE 14.1 INTRODUCTION 14.2 TAX DUE DILIGENCE 14.3 TAX REGIME REVIEW 14.4 CURRENCY REGULATIONS 14.5 AUDITS, APPEALS AND COURTS 14.6 TAX RULINGS 14.7 TAX INCENTIVES 14.8 INFORMATION REQUESTS 14.9 ASSET TRANSACTIONS DUE DILIGENCE REPORT CLOSING REMARKS 15 FINANCIAL ACCOUNTING MATTERS 15.1 INTRODUCTION 15.2 IFRS 3 BUSINESS COMBINATIONS

5 15.3 ACCOUNTING FOR INCOME TAXES 15.4 INCOME TAX UNCERTAINTIES 15.5 CLOSING REMARKS 16 CHECKLISTS 16.1 INTRODUCTION 16.2 PURPOSE AND USE 16.3 SOME KEY ITEMS AND CONSIDERATIONS 16.4 ANALYSIS OF THE TARGET 16.5 CLOSING REMARKS 17 POST-ACQUISITION STEPS 17.1 ASSET VERSUS SHARE ACQUISITION 17.2 BUSINESS OBJECTIVES 17.3 TAX OBJECTIVES 17.4 OTHER MATTERS 17.5 CLOSING COMMENTS APPENDIX A: Sample Checklist Assessment of Tax, Political and Legislative Environment, and Determination of Tax Risk APPENDIX B: Sample Checklist Procedures for Acquisition Transactions APPENDIX C: Sample Due Diligence Information Request BIBLIOGRAPHY INDEX