2015 IADC International Tax Seminar U.S. Inbound Planning ... · International Tax Seminar . U.S. Inbound Planning . Post U.S.-Hungary . Treaty Ratification . Chetan Vagholkar Alexander

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2015 IADC International Tax Seminar U.S. Inbound Planning Post U.S.-Hungary Treaty Ratification Chetan Vagholkar Alexander Hanhan KPMG KPMG June 5, 2015


Notice

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND

CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING

PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons,

without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions,

memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through

consultation with your tax adviser.

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Agenda

Why Hungary (and Poland) − Current Use of Hungary − Treaty Update − U.S. Model Treaty Proposals

Overview of Proposed Hungary Treaty

− Limitation on Benefits (LOB) Analysis Alternative Structures

− Structure 1: Luxembourg Interest Free Loan − Structure 2: Luxembourg using UK ATB − Structure 3: Luxembourg Income Participating Loan − Structure 4: Luxembourg Convertible Loan − Structure 5: UK with Dubai branch

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Why Hungary

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Limitation on Benefits (LOB)

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Foreign MNCs can base erode US operations through rental expense. Under section 881, rents paid to a foreign corporation is subject to a 30% withholding tax subject to reduction under an applicable tax treaty. Please note that section 7701(l) and regulations under Treas. Reg. Section. 1.881-3 may still override the reduced treaty withholding tax rate in the case of a financing arrangement, which may include rentals. Except for certain older treaties (i.e., Greece, Hungary, Pakistan, Philippines, Poland, Romania) all US income tax treaties contain limitation on benefits (LOB) provision.

New treaties have been renegotiated with Poland and Hungary and are awaiting US Senate approval. New treaties have a comprehensive LOB provision.

LOB provisions serves as an anti-treaty shopping provision that limits the benefits of the treaty to true residents. Planning opportunities that exist for Hungary and Poland (among other jurisdictions) due to lack of an LOB provision, will be limited upon ratification of their respective proposed treaties.


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Base Case Facts Cayco, a Cayman corporation, is publicly traded on a recognized stock exchange either in the EU or the US

Cayco is regularly and substantially traded on a recognized stock exchange Cayman income tax rate is 0% on income, dividends Cayman does not withhold on distributions Cayco’s shareholders are primarily based in the U.S Cayco is not a closely held publicly traded company

HungaryCo , a Hungary corporation is 100% directly owned by Cayco

Hungry income tax rate is 10% up to HUF 500M and 19% thereafter Hungry does not have a withholding tax on dividends paid to non-resident companies HungaryCo is 100% equity funded HungaryCo owns rigs (via a Swiss Branch) that command a day rate of USD 500k/day HungaryCo leases a rig on a bareboat charter basis to a USCo for use in the US GOM

Swiss Branch, is a Swiss Branch of HungaryCo

HungaryCo / Swiss Branch has a ruling to exempt [83%] of income from Swiss taxes Swiss income tax rate is [9%] Switzerland does not tax remittances from the Swiss Branch to HungaryCo

US

Applies a 30% rate of withholding on rental payments, unless otherwise reduced by an income tax treaty

Hungary Leasing Structure – US-Hungary Treaty in Force



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Transaction Profile: Swiss Branch leases a rig to USCo @ USD 400k/day (USD 146.0M/year) for

use in US waters Intended Tax Consequences: US HungaryCo qualifies as a resident for purposes of the US-Hungary Income

Tax Treaty (No LOB Article) Rental income is considered other income only subject to tax to the

extent of a US permanent establishment under Article 19 of the US-Hungary income tax treaty

Assuming HungaryCo leases the rig on a pure bareboat charter basis, such activities (i.e., bareboat charter) should not rise to the level of creating a permanent establishment in the US for HungaryCo

Switzerland HungaryCo pays ~USD 2.2M of Swiss income tax (17% of the 146.0M Swiss

Branch income taxed at 9%) No withholding tax on remittance to HungaryCo

Public

Cayco KY

HungaryCo HU

Swiss Branch

CH

USCo US

Bareboat Charter



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Hungary HungaryCo pays ~USD 1.2M of Hungary income tax (5% of the 146.0M Swiss Branch income taxed at 10% on first USD 2.2M,

19% on remainder) No withholding tax on dividend to Cayco

ETR ~2.3% (USD 3.4M tax / USD 146.0M income). Similar global tax result can be achieved through the use of a Lux branch. ***Similar structure can be used with Poland***


Treaty Update

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No income tax treaties approved by US Senate awaiting Exchange of Instruments of Ratification of formal notice to be given Income tax treaties signed, awaiting US Senate Approval:

Country What Signed Status

Chile Treaty 2/4/2010 Sent to the U.S. Senate on May 17, 2012, for advice and consent to ratification. Approved by the Senate Foreign Relations Committee and reported to the full U.S. Senate on April 1, 2014.

Hungary Treaty 2/4/2010

Sent to the U.S. Senate on November 15, 2010, for advice and consent to ratification. Considered by the Senate Foreign Relations Committee at a hearing held on June 7, 2011. Approved by the Senate Foreign Relations Committee and reported to the full U.S. Senate on July 26, 2011, and again on April 1, 2014.

Japan Protocol 1/24/2013 Sent to the U.S. Senate on April 13, 2015, for advice and consent to ratification.

Luxembourg Protocol 5/20/2009

Sent to the U.S. Senate on November 15, 2010, for advice and consent to ratification. Considered by the Senate Foreign Relations Committee at a hearing held on June 7, 2011. Approved by the Senate Foreign Relations Committee and reported to the full U.S. Senate on July 26, 2011, and again on April 1, 2014.

Poland Treaty 2/13/2013 Sent to the U.S. Senate on May 20, 2014, for advice and consent to ratification. Approved by the Senate Foreign Relations Committee on July 16, 2014.

Spain Protocol 1/14/2013 Sent to the U.S. Senate on May 7, 2014, for advice and consent to ratification. Approved by the Senate Foreign Relations Committee on July 16, 2014.

Switzerland Protocol 9/23/2009

Sent to the U.S. Senate on January 26, 2011, for advice and consent to ratification. Considered by the Senate Foreign Relations Committee at a hearing held on June 7, 2011. Approved by the Senate Foreign Relations Committee and reported to the full U.S. Senate on July 26, 2011, and again on April 1, 2014.


Treaty Update

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Income tax treaties under negotiation

Algeria Israel Romania

Argentina Korea Singapore

Armenia Kuwait Taiwan

Azerbaijan Kyrgyzstan Trinidad & Tobago

Belarus Malaysia United Kingdom

Brazil Moldova Uzbekistan

Colombia Norway Vietnam

Croatia Pakistan

In The Press - 4/1/2015 - US Senate – Rand Paul (R-Ky., Senate

Foreign Relations Committee) has put a procedural hold on all tax treaties in opposition to the Foreign Account Tax Compliance Act

- 1/30/15 – Douglas Poms, senior counsel in Treasury's Office of International Tax Counsel has urged business groups and taxpayers to pressure Congress to ratify stalled treaties

- 2/9/15 – AICPA letter to Senate Foreign Relations Committee - Delay in Treaty Ratification Could Be Eroding Confidence, Hurting Talks

- 4/13/15 – White House Sends U.S.-Japan Tax Protocol To Senate, Urges Ratification Amid Logjam. President Barack Obama urged lawmakers to give the treaty “early and favorable consideration.” Senate referred to the Committee on Foreign Relations by unanimous consent removing the injunction of secrecy.


U.S. Model Treaty Proposals

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May 20, 2015: Treasury released drafts of five proposed revisions to the U.S. Model Tax Convention for public comment

d

Proposed Change Detail

Exempt permanent establishments Art. 1 (General Scope), par. 7

BEPS influenced - intended to prevent taxpayers from obtaining treaty benefits for income that is not subject to tax by a treaty partner because it is attributable to a permanent establishment located outside the country of residence (60% of ETR test or triangular test)

Payment by “expatriated entities” Art. 10 (Dividends), par. 9 Art. 11 (Interest), par. 2(d) Art. 12 (Royalties), par. 5(b) Art. 21 (Other Income), par. 3(b)

Inversion/BEPS influenced – intended to reduce the tax benefits from a corporate inversion for 10 years by imposing full withholding taxes on key payments such as dividends, interest and royalties, made by U.S. companies that are “expatriated entities” as defined under the Internal Revenue Code.

Special tax regimes Art. 3 (General Definitions), par. 1(l) Art. 11 (Interest), par. 2(c) Art. 12 (Royalties), par. 5(a) Art. 21 (Other Income), par. 3(a)

BEPS influenced - Addresses regimes that provide very low rates of taxation in certain countries—in particular to mobile income, such as royalties and interest. Avoids instances of “stateless income” or double non-taxation, whereby a taxpayer uses provisions in the tax treaty, combined with “special tax regimes”, to pay no or very low tax in the treaty partner countries.

Limitation on benefits changes New Art. 22 (Limitation on Benefits)

The revised LOB article includes a reworked version of the existing “derivative benefits” rule, to provide the opportunity of qualifying for treaty benefits based on a broader concept of ownership that includes certain third-country ownership.

Subsequent changes in law New Art. 28 (Subsequent changes in law)

Addresses subsequent changes to the domestic laws of one or both of the Contracting States that lower taxation (to less than 15% on dividends, interest, royalties and other income) by ceasing effect of treaty benefit.

Overview 2010 Proposed

US-Hungary Income Tax Treaty

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LOB provisions serves as an anti-treaty shopping provision that limits the benefits of the treaty to true residents. 2010 Proposed US-Hungary Income Tax Treaty contains a comprehensive LOB article (Article 22)

- Derivative Benefits Test - Active Trade or Business Test - Publicly Traded Test - Headquarters Test

Can still qualify for treaty benefits if parent is located in a non-EU country/non-Treaty country if active trade or business test can be satisfied.

Overview: 2010 Proposed US-Hungary Income Tax Treaty


Proposed 2010 US-Hungary Income Tax Treaty LOB Overview

Derivative Benefits − Many treaties include a derivative benefits provision under which a company is entitled to treaty benefits if a certain

percentage of its shares are owned by persons who would have been entitled to benefits if they had derived the income directly.

− Article 22(4) of the 2010 proposed US-Hungary treaty provides: A company that is a resident of a Contracting State shall also be entitled to the benefits of the Convention if: a) at least 95 percent of the aggregate voting power and value of its shares (and at least 50 percent of any

disproportionate class of shares) is owned, directly or indirectly, by seven or fewer persons that are equivalent beneficiaries [certain residents of a member state of the European Union, of any other European Free Trade Association state, or of a party to NAFTA]; and

b) less than 50 percent of the company's gross income, as determined in the company's State of residence, for

the taxable year is paid or accrued, directly or indirectly, to persons who are not equivalent beneficiaries, in the form of payments (but not including arm's length payments in the ordinary course of business for services or tangible property), that are deductible for the purposes of the taxes covered by this Convention in the company's State of residence.

Note: US-Luxembourg Treaty has a unique derivative benefits test provision which may allow certain non-Treaty

countries to access the US-Luxembourg treaty if certain facts exists.

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Active Trade or Business − Generally, under Article 22(3), a company resident in a Contracting State (not otherwise eligible for treaty

benefits) may qualify for treaty benefits with respect to income derived from the source State that is connected with, or incidental to, an active trade or business conducted by the enterprise (or certain related person) in the residence State. The test requires the residence State activities be substantial in relation to the income-generating activity carried on by the enterprise (or certain related person) in the source State. Diplomatic note provides for a safe harbor ratio to meet the active trade or business test.

• Gross Income; Payroll; and Assets in residence country deemed substantial in comparison to the US. • Average of the three ratios need to be 10 percent and each ratio should be at least 7.5 percent.

Technical Explanation also provides a facts and circumstances analysis. • Factors taken into account for purposes of determining the substantiality of operations in the

residence country in comparison to the US operations are: (i) Comparative sizes of the trades or businesses in each treaty country; (ii) Nature of activities performed in each country; (iii) Relative contributions made to that trade or business in each country

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Publicly Traded Companies − Publicly traded companies resident in a treaty country are generally entitled to treaty benefits. − US-Hungary treaty Article 22(2)(c) provides that a public company is entitled to treaty benefits if its principal class of

shares (and any disproportionate class of shares) is regularly traded on one or more recognized exchanges, and either: Its principal class is primarily traded on a recognized stock exchange located in the Contracting State of which

the company is resident (in Hungary’s case any EU or EFTA exchange); or its primary place of management and control is the residence State.

− Treaty benefits are extended to qualifying subsidiaries of publicly traded companies, provided that for indirect ownership, each intermediate owner is a resident of either contracting state.

− Look-through the publicly traded corporation to test ownership.

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Headquarter Companies − A few treaties (e.g., Australia, Austria, Belgium, Netherlands, Switzerland, etc.) include a recognized headquarters company as a

qualifying person. − For example, under Article 16(1)(h) of the Austrian treaty and Article 22(1)(d) of the U.S.-Switzerland treaty, a company that is a

resident of a State is entitled to all the benefits of the treaty if the company functions as a headquarters company for a multinational corporate group.

− The proposed Hungary treaty (as with the treaties with Australia, Belgium and the Netherlands) set forth the criteria under which an entity will be considered a recognized headquarters company. Article 22(5) of the proposed Hungary treaty provides:

(5) A person that is a resident of a Contracting State shall also be entitled to all the benefits of this Convention otherwise accorded to

residents of a State if that person functions as a headquarters company for a multinational corporate group and that resident satisfies any specified conditions for the obtaining of such benefits other than those of this Article. A person shall be considered a headquarters company for this purpose only if:

(a) it provides in its State of residence a substantial portion of the overall supervision and administration of a group of companies, which may

include, but cannot be principally, group financing; (b) the group of companies consists of corporations resident in, and engaged in an active business in, at least five countries (or groupings of

countries), and the business activities carried on in each of the five countries (or groupings of countries) generate at least 10 percent of the gross income of the group;

(c) the business activities carried on in any one country other than the Contracting State of residence of the headquarters company generate less than 50 percent of the gross income of the group;

(d) no more than 25 percent of its gross income is derived from the other Contracting State; (e) it has, and exercises, independent discretionary authority to carry out the functions referred to in subparagraph (a); (f) it is subject to generally applicable rules of taxation in its country of residence (as persons engaged in active conduct of a trade or

business); and (g) the income derived in the other Contracting State either is derived in connection with, or is incidental to, the active business referred to in

subparagraph (b). If the gross income requirements of subparagraphs b) , c) or d) of this paragraph are not fulfilled, they will be deemed to be fulfilled if the

required ratios are met when averaging the gross income of the preceding four years.

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Alternative Structures

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Alternatives: Structure #1

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Transaction Profile: Same facts as base case Cayco management migrates to Luxembourg HungaryCo migrates/transfers assets to Luxembourg (LuxCo) Effective management of LuxCo is in Luxembourg LuxCo shares contributed to GibCo, a Gibraltar limited LuxCo forms new Irish Company (IrishCo) by contributing rigs. IrishCo makes a

CTB election to be disregarded form LuxCo LuxCo buys rigs back from IrishCo in exchange for an interest free loan (IFL) LuxCo will remain the legal and beneficial owner of the rig Intended Tax Consequences: US USCo is able to deduct the rental paid to LuxCo LuxCo should not be subject to US withholding tax under US-Lux Treaty

(qualifies via publicly traded company) Cayco is resident in Luxembourg LuxCo is a qualifying subsidiary of Cayco (ownership can be direct or

indirect in US-Lux treaty without requirement that each intermediate company be a qualified treaty resident)

Assuming LuxCo leases the rig on a pure bareboat charter basis, such activities (i.e., bareboat charter) should not rise to the level of creating a permanent establishment in the US for LuxCo

The Irish IFL should not impact the qualification of LuxCo for treaty benefits under the US-Luxembourg treaty

Public

USCo US

Rig Lease

LuxCo LU

GibCo GI

IrishCo IE

IFL

Cayco (Lux Tax Resident) KY



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Luxembourg LuxCo is taxable in Luxembourg on lease income earned from USCo, but gets an imputed interest deduction to IrishCo

Recognition of a deemed variable tax deductible interest charge on the Irish IFL that should be automatically adjusted in such a way to leave a taxable margin of approximately 2-7% of the net operating income (i.e., basically the leasing income net of depreciation charges) including potential gains upon exit at level of LuxCo.

IrishCo should be a qualifying company for the purposes of the Luxembourg participation exemption for income tax and net wealth tax purposes.

Key terms of the Irish IFL include: (i) Term of 20 years with early repayment on demand by the lender; (ii) Interest free; (iii) No subordination; (iv) No convertibility.

Effective taxation between [0.5% and 2%] in Luxembourg

No net wealth tax issues

To the extent LuxCo is the legal and economic owner of the Vessel, and provided LuxCo performs operational leasing, the Luxembourg Transfer Pricing regulations relating to intra-group financing may not apply

Substance: a part-time employee and office space required in Luxembourg

Advance tax clearance required with Luxembourg tax authorities



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Ireland No corporate income taxation

Irish transfer pricing rules do not apply as IrishCo should be regarded as a non trading company

No capital duty issues

No advance tax ruling is available Gibraltar

Dividends received by GibCo should not be taxed in Gibraltar (territorial system and/or EU parent-subsidiary directive applies)

Withholding tax should not apply on distributions from Gibraltar to Cayco under domestic Gibraltar law Luxembourg (for Cayco) Dividend income should not be taxable provided participation exemption applies

BEPS Action 9/10 - consider transfer pricing risk shifts



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Transaction Profile: Same facts as base case HungaryCo migrates/transfers assets to LuxCo Existing UKCo has significant operations in the UK sector of the North Sea CayCo transfers LuxCo to UKCo LuxCo leases the rig on a bareboat charter basis to USCo for use in the US

GOM Intended Tax Consequences: US USCo is able to deduct the rental paid to LuxCo LuxCo should not be subject to US withholding tax under US-Lux Treaty

(qualifies via derivative benefits test) 95% of shares ultimately owned by seven or fewer residents of a state

(UK) that is a member of the EU and there is a US-UK treaty. Under US-Luxembourg Treaty, the derivative benefits test can be satisfied by reference to an owner that meets the ATB test (under the US treaty with the owner’s country of residence).The intermediate owner can be an EU/NAFTA country company.

Deductible amounts paid or accrued to residents that are not a party to NAFTA or part of EU (or US citizens) other than in ordinary course of business do not exceed 50% of LuxCo’s gross income

Assuming LuxCo leases the rig on a pure bareboat charter basis, such activities

(i.e., bareboat charter) should not rise to the level of creating a permanent establishment in the US for LuxCo

Public

Cayco

KY

USCo US

Rig Lease

UKCo GB

North Sea Ops

LuxCo LU



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Luxembourg Additional Luxembourg planning to needed to address tax base and net wealth tax Dividends distributed by LuxCo (legal form of a Sàrl) to UKCo should be free of Luxembourg withholding tax provided the relevant

conditions of the Luxembourg participation exemption are met. Luxembourg tax ruling required to achieve certainty on Luxembourg tax consequences UK UKCo participation exemption applies to dividends received UKCo does not withhold on dividends under domestic law UK CFC rules should be considered with respect to LuxCo; however, no adverse impact suspected BEPS Considerations Action 9/10 – Consider transfer pricing risk shift



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Transaction Profile: HungaryCo migrates/transfers assets to Luxembourg (LuxCo) Effective management of LuxCo is in Luxembourg LuxCo shares contributed to GibCo, a Gibraltar limited GibCo forms new Lux FinCo Lux FinCo establishes a US Branch LuxCo declares a reduction of capital/share premium by distributing a

receivable to Gibco. The receivable resulting from reduction of capital/share premium is converted into an income participating loan (“IPL”).

GibCo transfers the IPL to Lux FinCo in exchange for Lux FinCo share capital and share premium

Lux FinCo allocates the IPL to US Branch

Intended Tax Consequences: US USCo is able to deduct the rental paid to LuxCo LuxCo should not be subject to US withholding tax under US-Lux Treaty

(qualifies via publicly traded company) Cayco is resident in Luxembourg LuxCo is a qualifying subsidiary of Cayco (ownership can be direct or

indirect in US-Lux treaty without requirement that each intermediate company be a qualified treaty resident)


Public

USCo US

Rig Lease

Lux FinCo LU

GibCo GI

US Branch US

IPL


LuxCo LU



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United States (con’t) The IPL should neither adversely impact the qualification of treaty benefits under the Luxembourg-US Tax Treaty nor cause any adverse implication under Treasury Reg. Sec. 1.881-3.

If certain controls are in place to mitigate risk of a US taxable presence, Lux FinCo, as a result of its US Branch activities, should not be subject to US income tax. Luxembourg US Branch should qualify as a US permanent establishment from a Luxembourg tax perspective.

The interest income on IPL allocated to the US Branch should not be subject to tax in Luxembourg based on the US-Luxembourg double tax treaty.

US Branch shall pay to Lux FinCo, as head office, an annual remuneration for its head office function equal to 5% of the income derived by the US Branch on the IPL capped at EUR 500,000. Such remuneration should be fully taxable at the level of Lux FinCo at a rate of 29.22%.

LuxCo taxable in Luxembourg on rig lease income received from US OpCo but should obtain an interest deduction from its IPL with US Branch. Therefore, LuxCo should be taxable on a margin of approximately 3% to 5% of the net operating lease income. This margin is subject to corporate tax at a rate of 29.22%.

IPL allocated to US Branch not subject to net wealth tax in Luxembourg. BEPS Considerations BEPS Action 2 should not apply to US Branch structure but Action 6 may potentially apply.

Switzerland or Barbados can be used as an alternative to the US for the branch (low effective taxation in Switzerland or Barbados while no taxation at all in the US for a branch).

Action 9/10 - consider transfer pricing risk shifts



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Transaction Profile: Same facts as base case Cayco management migrates to Luxembourg HungaryCo shares contributed to GibCo, a Gibraltar limited HungaryCo forms LuxCo 2 HungaryCo transfers its assets to LuxCo 2 in exchange for a Convertible Loan (“CL”;

convertible into LuxCo 2 stock at any moment, at the option of HungaryCo, and at fair market value)

HungaryCo migrates/transfers assets to Luxembourg (LuxCo) Effective management of LuxCo is in Luxembourg LuxCo 2 performs leasing activity

Intended Tax Consequences: US USCo is able to deduct the rental paid to LuxCo LuxCo 2 should not be subject to US withholding tax under US-Lux Treaty (qualifies

via publicly traded company) Cayco is resident in Luxembourg LuxCo is a qualifying subsidiary of Cayco (ownership can be direct or indirect

in US-Lux treaty without requirement that each intermediate company be a qualified treaty resident)


Public

USCo US

Rig Lease

LuxCo LU

GibCo GI

Convertible Loan


LuxCo 2 LU



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Luxembourg Based on the Luxembourg GAAP, a loss can be booked/recognized in the commercial accounts (even if the risk is not effectively realized) if the risk is important enough. Therefore, LuxCo 2 is taxable in Luxembourg on lease income but the features of the CL should allow LuxCo 2 to annually book a tax deductible provision (for convertibly risk) The provision charge on the CL should be annually adjusted in such a way to leave a taxable margin of the operating leasing income including potential gains upon exit (i.e. low effective tax rate of 2% at most) Based on the Luxembourg GAAP, a gain cannot be booked/recognized in the accounts if the gain is not effectively realized. Therefore, as long as the CL is not converted, no income should be book in the Profit and Loss account of LuxCo for the annual increasing FMV of the CL (i.e., no taxation at level of LuxCo on the deemed annual gain) Transfer pricing analysis and accounting opinion required

Advance tax ruling available BEPS Considerations Some interest could be charged on the CL so that the structure can be out of the scope of BEPS Action 2.

Action 9/10 - consider transfer pricing risk shifts



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Transaction Profile: Same facts as base case Cayco migrates management to the UK HungaryCo migrates/transfers its assets to UKCo (UKCo) Effective management of UKCo is in UK UKCo establishes a Dubai Branch Dubai Branch leases rigs to USCo All day to day functions related to management of the rig are conducted in Dubai Intended Tax Consequences: US USCo is able to deduct the rental paid to Dubai Branch UKCo should not be subject to US withholding tax under US-UK Treaty (qualifies

via publicly traded test) Cayco is resident in UK for purposes of treaty via management UKCo is a qualifying subsidiary of Cayco (ownership can be direct or

indirect in US-UK treaty and there are no intermediate companies that are not a qualified treaty resident)

UK treaty does not include a triangular provision to apply withholding tax to a foreign branch of UKCo.

Assuming UKCo leases the rig on a pure bareboat charter basis, such activities (i.e., bareboat charter) should not rise to the level of creating a permanent establishment in the US for UKCo

Public

Cayco (UK Tax

Resident) KY

USCo US

Rig Lease

UKCo GB

Dubai Branch

AE



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Dubai/UAE No Dubai/UAE taxes. Dubai/UAE does not currently enforce income tax regime (or Dubai Branch established in a free trade

zone). UK UKCo does not tax income from a foreign branch under a branch exemption rule (profits and losses of a foreign PE are excluded

from UK taxable income) UKCo does not withhold on dividends under domestic law UK CFC rules should be considered with respect to USCo; however, no adverse impact expected. BEPS Considerations Action 9/10 - consider transfer pricing risk shifts


BEPS – Other Structures Potentially Impacted

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Notional Interest Deduction Structures Swiss Leasing Structure

Questions?

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Documents

2015 IADC International Tax Seminar U.S. Inbound Planning ... · International Tax Seminar . U.S. Inbound Planning . Post U.S.-Hungary . Treaty Ratification . Chetan Vagholkar Alexander