Error! No text of specified style in document. Error! Use the Home tab to apply Section title to the text that you want to appear here. Pre-completion guidance on UK Tax implications of the sale of shares in Berendsen plc: prepared pre-shareholder approval and completion 28 July 2017 01/11
1 Background and scope This document should not be regarded as a substitute for reading the full Scheme Document. In particular, your attention is drawn to paragraph 7 of Part 9 (Additional Information) which contains a discussion of certain limited aspects of the UK tax treatment of the Scheme, including the UK tax implications of the Transaction for an individual shareholder who is UK tax resident. The information set out below does not constitute tax advice and is based on current United Kingdom tax law as applied in England and Wales and HM Revenue & Customs' published practice (which may not be binding on HM Revenue & Customs) as at 28 July 2017, both of which are subject to change, possibly with retrospective effect. The tax treatment of each individual shareholder depends on such shareholder's particular circumstances. This document does not address all possible tax consequences relating to an investment in any relevant shares. Certain categories of shareholders, including those carrying on certain financial activities (including market makers, brokers, dealers, intermediaries and persons connected with depository arrangements or clearance services), those subject to specific tax regimes or benefiting from certain reliefs and exemptions, those connected with Berendsen or Elis, and those for whom the shares are employment-related securities may be subject to special rules and this document does not apply to such shareholders. If you are in any doubt about the contents of this document or if you are in any doubt about your tax position, you are recommended to consult your own professional tax adviser immediately. 1.1 Background and scope This document was prepared independently by our tax advisors and provides answers to a series of frequently asked questions ("FAQ") on the generic tax implications of the Transaction for an individual shareholder who is UK tax resident. Full details of the Transaction, which is to be effected pursuant to a scheme of arrangement under Part 26 of the Companies Act 2006, are provided in the Scheme Document dated 28 July 2017. 2
The Transaction implements a recommended offer which has been made by Elis SA ( Elis ) to the shareholders of Berendsen plc ( Berendsen ) to acquire the entire issued share capital of Berendsen in exchange for the following: 5.40 of cash consideration; and 0.403 new Elis shares per Berendsen share. The Mix and Match Facility details of which are set out in the Scheme Document is based upon a cash offer of 5.40 with the 0.403 Elis share valued at 7.37 giving an indicative value of 12.77 per Berendsen share and an equivalent value per Elis share of 18.28. This document assumes that the Mix and Match Facility operates as described in the Circular and that any election is not subject to scaling back which may happen in accordance with the terms of the Mix and Match Facility. Shareholders will also be entitled to a dividend of 11p per Berendsen share held in addition to the price per share. The transaction remains subject to conditions including approval of the Berendsen and Elis shareholders and the value of the consideration may change prior to completion which is expected to take place in September 2017. The figures in the FAQ will be updated post completion to reflect the final position with a revised version posted at that time. Small individual shareholders (retail investors holding less than 5% of the shares in Berendsen) have been offered a Mix and Match Facility under which they can elect to vary the proportion of cash and shares they receive (between 100% cash consideration and 100% share consideration) provided there are sufficient off -setting elections from other shareholders. If there are insufficient off-setting elections, elections made under the Mix and Match Facility, may be subject to scaling back. To aid understanding of the FAQs, we have written the document describing the impact on you as an individual with a stake of less than 5% in Berendsen at the date of the transaction. 1.2 Assumptions and Limitations The tax analysis has been prepared on the basis of the following assumptions and limitations: The issue of new Elis shares in exchange for Berendsen shares will constitute a reorganisation for UK tax purposes under the terms of S135 Taxation of Capital Gains Act 1992 ("TCGA 92"). The shareholder is a UK tax resident and UK domiciled individual who acquired their shares on the open market. The information provided in this paper sets out the position for a typical UK resident tax payer; as such it does not and cannot take account of the shareholder's personal circumstances. For the avoidance of doubt shareholders remain responsible for determining their own tax position, for determining whether they wish to use the Mix and Max Facility to vary the split between cash and shares and we have no responsibly for the information the shareholder includes in their tax return or in calculating the tax due on the transaction. 3
If you are not clear about how this FAQ relates to your own tax position you should take advice from your own tax advisor to ensure you complete your tax return correctly. 4
2 FAQs for Individual Shareholders 2.1 How is the Transaction taxed for UK tax purposes? The Transaction would be a disposal of your shares in Berendsen plc and may give rise to a capital gain for UK tax purposes. The Transaction is subject to shareholder approval but if it proceeds it will take place in the tax year 2017/18 and should be returned on your 2017/18 tax return. The Transaction involves payment for your Berendsen shares through a mix of cash and new Elis shares. The cash consideration will be taxable in 2017/18. However, the exchange of shares in Berendsen for shares in Elis SA is expected to be treated as a reorganisation for UK capital gains tax with a "roll over" of the capital gain on that part of the consideration under the provisions of S135 TCGA92. The impact of S135 TCGA92 is set out below. The relief under S135 TCGA92 applies automatically where the requirements are met. The payment of the Interim Dividend is taxed as part of your UK dividend income and should be returned as usual on your 2017/18 tax return. It is not treated as part of the consideration for capital gains tax purposes and should not be included in the capital gains tax calculations. 2.2 Impact of the Mix and Match Facility 2.2.1 Option 1: Accept the offer as presented The Transaction will result in you receiving, in addition to the interim dividend of 11p per share, the purchase of each of your Berendsen shares for consideration of: 5.40 of cash consideration; and 0.403 new Elis shares (per Berendsen share) The total consideration under the Mix and Match Facility estimates a value for your Berendsen shares of 12.77/share. Normally, when you sell shares for cash only, the whole of the gain (the increase in value from the date of purchase) is taxable. Under the reorganisation provisions, the new Elis shares will be treated as standing in the shoes of the Berendsen shares for UK tax purpose. The Elis shares inherit the original acquisition date and the tax base cost of the Berendsen shares. No capital gains tax arises at the time of the share for 5
share exchange but you will pay tax on the full growth in value covering both the Berendsen shares and the Elis shares when you sell the new Elis shares. The Transaction consideration comprises part cash and part shares, and so a shareholder would be treated as disposing of only the part of their shareholding relating to the cash consideration (and rolling over the other part relating to the share consideration). Under the Mix and Match Facility Berendsen shareholders can elect to accept a greater or smaller number of Elis shares with a corresponding adjustment to your cash consideration. Your tax calculations would be adjusted accordingly. Please see below for more details on how to calculate the gain arising and how to calculate the future tax base cost of the new Elis shares. 2.2.2 Option 2: Full consideration taken in cash If you successfully elect to accept the whole of the consideration in cash, you will be disposing of the whole shareholding for cash and a capital gain will arise on the full amount of the consideration based on the cash received of 12.77 per share, less the tax base cost of the shares (see below on how the gain is calculated). 2.2.3 Option 3: Full consideration taken in shares If you successfully elect to accept the whole of the consideration in shares, then it is treated as if there was no disposal of your Berendsen shares for capital gains tax purposes. The Elis shares would be treated as standing in the shoes of the Berendsen shares and all of your gain would be rolled over into your new shareholding. As there would be no disposal for tax purposes, no taxable capital gain will arise on the transaction. However you may still wish to disclose the transaction on your 2017/18 tax return, detailing that S135 TCGA92 applies to the transaction and no gain arises so that the source of the Elis shares and their tax history is clear for future disposals. 2.3 How do I calculate my taxable gain? The capital gain arising is calculated as the cash proceeds received, less the tax base cost of the shares disposed of (i.e. not rolled over ). Please see below for details on calculating the tax base cost. 2.3.1 Tax base cost 2.3.1.1 General rule Broadly, the tax base cost of an asset for capital gains tax purposes is the amount you paid for the asset when you acquired it. As the transaction is a disposal of all the Berendsen shares your total tax base cost is the cumulative cost of the shares you hold after taking account of any earlier transactions. 6
2.3.1.2 Taking all cash If you successfully elect to take all cash, you would be treated as making a full disposal of your Berendsen shares. When calculating the capital gain arising, your tax base cost would be deducted in full from the cash proceeds received. 2.3.1.3 Taking all shares If you successfully elect to take all new Elis shares, you would be treated as not making a disposal of your Berendsen shares, nor an acquisition of your Elis shares and therefore no gain will arise on the transaction. In this case, your new shareholding in Elis are treated as standing in the shoes of the old shareholding in Berendsen. This means that the Elis shares are treated as having been acquired on the same day and for the same price as the shares in Berendsen were (i.e. the Elis shares have the same tax base cost as the Berendsen shares did). 2.3.1.4 Taking a mix of cash and shares If you accept the Elis Offer as presented (part cash and part shares), you would be part-disposing of your Berendsen shares and part rolling over. As such, you will need to identify the appropriate proportion of the total tax base cost to be deducted in calculating your gain. This proportion would be calculated based on the market value ( MV ) of the cash consideration compared to the market value of the total consideration as follows: Deductible tax base cost = MV - cash (i.e. cash received) X Total base cost MV - total consideration MV of the total consideration being 12.77 per share. The analysis given above applies where you take some shares and also take more than 5% of the proceeds in cash. You should seek separate advice if you decide to take a small percentage of proceeds in cash as special rules apply where the relative amount of cash taken is small (ie less than 5% of the whole). 2.4 How am I taxed on this? Each UK tax resident individual is entitled to an annual exempt allowance from capital gains arising in the tax year. In tax year 2017/18, the allowance is 11,300. Note, tax years run from 6 April to 5 April for example, the current tax year 2017/18 covers the period from 6 April 2017 to 5 April 2018. If the capital gains arising on the transaction are less than the allowance (and the allowance hasn t already been utilised on other gains arising in the tax year), no taxable gain arises and you will not be taxed on this. 7
To the extent the capital gain arising on the transaction exceed the allowance available (for example, if the gain exceeds 11,300 or other capital gains arising in the tax year may have utilised the allowance already), you will be taxed on the unrelieved capital gain. The rate of capital gains tax applying will depend on your marginal rate of income tax as follows: Total taxable income (including dividends) Bands for 2017/18 Marginal tax rate applied to gain Nil and basic rate band Up to 45,000 10% Higher and additional rate band Over 45,001 20% If your taxable income plus your taxable gain exceeds 45,000 the excess gain will be taxable at the 20% rate. If capital gains tax is payable on the transaction, this will be due by the 31 January following the end of the tax year (i.e. 31 January 2019 for a transaction in 2017/18). 2.5 What about my tax return? 2.5.1 Do I need to report this on a tax return? If any assets you sell in the year are worth less than 44,400, your total gains for the tax year are less than your annual exempt allowance and you are not registered for self-assessment (i.e. you do not submit a tax return to HMRC each year), then you do not need to file a tax return. Unless you satisfy all these requirements you will need to complete a tax return. If your total gains for the tax year are less than the annual exempt allowance but you are registered for self-assessment then you will still need to fill in the capital gains section of your tax return but will only be required to provide limited details. You may still wish to disclose the transaction even if you decide to take the whole of the consideration in shares so that HMRC are aware that you are assuming S135 TCGA92 applies to the share exchange. If your total gains for the tax year exceed the allowance, you will need to report the capital gains arising on your tax return. You will need to provide full details of the disposal. The Berendsen shares are listed securities and should be included on the appropriate capital gains tax pages. 2.5.2 What should I do if I don t currently submit a tax return? If you are required to report the gain, but you don t currently submit a tax return, you are required to register for a self-assessment tax return by the 5 October following the tax year of the transaction (i.e. 5 October 2018 for the 2017/18 tax year). A failure to register and to report a taxable gain can result in penalty charges and interest on outstanding tax due. Your self-assessment tax return for the 2017/18 year end must be submitted by 31 January 2019. 8
2.6 Taxation of dividends received on Elis shares Following the transaction, shareholders would hold shares in Elis SA, a French company rather than a UK listed company (Berendsen). Any dividends received from Elis will continue to be taxable in the UK as UK tax resident individuals ( UK individuals ) are subject to UK taxation on their worldwide income and gains. However these will be overseas dividends and should be returned as such. UK individuals are subject to Income Tax to the extent they receive dividends in excess of the dividend allowance. The dividend allowance for the current tax year (2017/18) is 5,000, but is scheduled to reduce to 2,000 for following tax year (2018/19). Broadly, dividends in excess of the dividend allowance will be taxed in the UK at the individual s marginal rate as follows: Total taxable income (excluding dividend) Bands for 2017/18 Marginal tax rate applied to dividend Nil rate band Up to 11,500 0% Basic rate band 11,501-45,000 7.5% Higher rate band 45,001-150,000 32.5% Additional rate band Over 150,000 38.1% Dividends received from Elis will continue to be taxed in this way however, in addition, French tax will be due ( withholding tax ) at a rate of 15% of the gross dividend. This will be deducted/withheld at source and paid to the French tax authorities on your behalf by Elis. As such, only 85% of the gross dividend will be received by you. On the basis that the dividend would otherwise be taxed twice (i.e. by both HMRC and French tax authorities), the UK tax authorities permit double tax relief. This works by providing relief from UK tax up to the lower of: the UK tax due; and the French tax suffered. If the dividend is taxed at a rate lower than 15% in the UK, the UK tax liability should be relieved in full but you will not get credit for any part of the withholding tax that is not utilised. If the dividend is taxed at a rate higher than 15% in the UK, additional UK tax will arise over and above the French withholding tax already suffered. e.g. if the higher rate band applies (32.5%), the additional tax payable would represent 17.5% of the gross taxable dividend income. 9
3 Example calculations We have provided the following illustrative calculations assuming that: 10,000 shares are held by the shareholder. The shares were acquired by the shareholder for 8.50 in August 2013. No shares were acquired on the same day as the disposal and no shares were acquired in the subsequent 30 days following disposal (i.e. all shares are, and always have been, part of the share pool for capital gains tax purposes). 3.1 Accept the original split as per the offer Cash proceeds ( 5.40 per share) Less tax base cost: (MV cash / MV total consideration) X Total tax base cost ( 5.40 / 12.77) X ( 8.50 X 10,000) 54,000 (35,944) Capital gain arising 18,056 While part of the shares are treated as having been sold, part are treated as being rolled over into the Elis shares. In this case, it is considered that the 4030 new Elis shares (4,030 = 10,000 X 0.403) issued to the shareholder are treated as standing in the shoes of the Berendsen shares. As such, the tax base cost not utilised in respect of the cash proceeds represents the tax base cost of the 403 new Elis shares. For tax purposes the shares are treated as having been acquired in August 2013 for a tax base cost of 49,056 ( 85,000 less 35,944). 3.2 All cash Cash proceeds ( 12.77 per share) Less tax base cost: ( 8.50 X 10,000) 127,700 (85,000) Capital gain arising 42,700 10
All tax base cost is utilised as all shares are sold. 3.3 All shares On the basis that no shares are treated as having been disposed of, no gain will arise on the transaction. The new Elis shares will be treated as having been acquired at the same time (August 2013) and for the same price ( 85,000) as the shares in Berendsen. 11