THE FORUM Basic Tax Planning for BELGIUM Howard M. Liebman and Olivier Rousselle ..... 4 Private Equity Funds CANADA Jocelyn Blanchet ...... 12

DENMARK and Hedge Funds Christian Emmeluth ...... 17 FRANCE Stéphane Gelin I. Facts and Johann Roc’h ...... 20 Generally speaking, a private equity fund is a fund (i.e., an ownership arrangement GERMANY involving central management and control of a set of assets and liabilities) that: (1) Dr. Rosemarie Portner .....24 primarily invests in start-up companies and/or distressed companies and sells them ITALY once a significant return is obtainable; (2)primarilyhasinvestorsconsistingof Carlo Galli ...... 31 wealthy individuals, pension funds, and governments; and (3) is generally not THE NETHERLANDS subject to securities regulation by a government body. Carola van den Bruinhorst and Dennis Langkemper....35 A group of individuals is planning to set up a private equity fund (PEF), which will have the following investors (where their nature as either a Host Country or foreign SPAIN person is as defined under Host Country’s income tax law): HI, a Host Country Javier Martín Martín and Montserrat Turrado Alonso . . 39 wealthy individual; FI, a foreign wealthy individual; HPEN, a Host Country pension fund and tax-exempt entity under Host Country’s income tax law; FPEN, a foreign SWITZERLAND pension fund; and FGOV, a foreign government. PEF will be making investments Walter H. Boss ...... 47 both in business entities formed and operating in Host Country (“Host Country UNITED KINGDOM business entities”) and in business entities formed and operating abroad (“foreign Robin Vos and business entities”). PEF will fund its investments only with contributed capital and Tracey Neuman ...... 52 not with any borrowings. UNITED STATES Herman B. Bouma...... 57 “Savvy”, an individual who is considered a Host Country person for purposes of Host Country’s income tax law, will be making the investment decisions for PEF and will be compensated with a 20 percent “carried interest”, i.e., a 20 percent interest in the profits of PEF.

1 TAX MANAGEMENT INTERNATIONAL FORUM

EDITORIAL

Publishing Director Deborah J. Hicks BNA International Inc. London Tax Management International Forum Editor Deborah J. Hicks is now available on the internet at BNA International Inc. London Production Manager www.bnai.com Nitesh V. Vaghadia BNA International Inc. Register for your free trial today London

THE TAX MANAGEMENT INTERNATIONAL FORUM is designed to present a comparative study of typical MEMBERS international tax law problems by FORUM members who are distinguished practitioners in major industrial countries. Their scholarly discussions focus CHAIRMAN & Henri de Feydeau THE NETHERLANDS on the operational questions posed by a fact pattern CHIEF EDITOR Paul, Hastings, Janofsky & under the statutory and decisional laws of their Walker LLP Carola van den Bruinhorst respective FORUM country, with practical Leonard L. Silverstein Paris Loyens & Loeff recommendations whenever appropriate. Buchanan Ingersoll PC Amsterdam Washington, D.C. GERMANY THE TAX MANAGEMENT INTERNATIONAL FORUM Peter Lier is published quarterly by Tax Management BELGIUM Dr. Jörg-Dietrich Kramer KPMG Meijburg & Co. International, 29th Floor, Millbank Tower, 21-24 Dr. Rosemarie Portner Amsterdam Millbank, London SW1P 4QP, England. Telephone: Howard M. Liebman PricewaterhouseCoopers (+44) (0)20 7559 4800; Fax: (+44) (0)20 7559 4840; Jones Day Düsseldorf SPAIN E-mail: [email protected] Brussels Jacques Malherbe HONG KONG Luis F. Briones © Copyright 2007 Tax Management International, Liedekerke Baker & McKenzie a division of BNA International Inc., a subsidiary of Susan Leung Brussels Madrid The Bureau of National Affairs, Inc., Washington, Herbert Smith D.C. 20037 USA. Reproduction of this publication CANADA Hong Kong Javier Martín by any means, including facsimile transmission, Debbie Annells Ernst & Young Heather Kerr Madrid without the express permission of The Bureau of Azure Tax Ltd National Affairs, Inc. is prohibited except as follows: Couzin Taylor LLP/ Hong Kong 1) Subscribers may reproduce, for local internal Ernst & Young L.P. SWITZERLAND distribution only, the highlights, topical summary Toronto IRELAND and table of contents pages unless those pages are Dr. Peter R. Altenburger Jay Niederhoffer sold separately; 2) Subscribers who have registered Joan O’Connor Altenburger Deloitte & Touche LLP with the Copyright Clearance Center and who pay Deloitte Zürich Toronto the $1.00 per page per copy fee may reproduce Dublin Walter H. Boss portions of this publication, but not entire issues. CHINA ITALY von Meiss Blum & The Copyright Clearance Center is located at 222 Partner Rosewood Drive, Danvers, Massachusetts (USA) Qinghua Xu Paolo Mariotti Zürich 01923; tel. (508) 750-8400. Permission to reproduce Ernst & Young Studio Legale Mariotti BNA material otherwise may be obtained by calling Rome Paris UNITED KINGDOM (202) 452-4471; fax (202) 452-4084. For Customer Anthony M. Fay Carlo Galli Service, in the United States call (800) 372-1033. Peter Nias White & Case LLP Maisto e Associati Milan and Nicola Purcell Additional copies of this publication are available to Beijing McDermott, Will & existing subscribers at half price when they are sent JAPAN Emery, London in the same envelope as a standard subscription. DENMARK Orders should be sent to BNA International in Yuko Miyazaki Christian Emmeluth Ashley Greenbank Nagashima Ohno and London. Copenhagen Macfarlanes Tsunematsu London Note: Tokyo Because tax and legal matters are frequently FRANCE subject to differing opinions and points of view, Masatami Otsuka UNITED STATES signed articles contained in the FORUM express the Stéphane Gelin Jones Day Showa Law opinions of authors and not necessarily those of Tax CMS Bureau Francis Offices Patricia R. Lesser Management International or its editors. Lefebvre Tokyo Buchanan Ingersoll PC Paris Washington, D.C.

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2 Basic Tax Planning for Private Equity Funds and Hedge Funds

II. Questions purposes of minimising taxation under Host Country’s income tax law, taking into account all of the investors and A. Basic Host Country tax planning for a private equity PEFs investments in both HBE and FBE? For this purpose, fund consideration may be given to the use of one or more 1. Investment in a Host Country business entity special entities and the use of one or more private equity With respect to an investment by PEF in a Host Country funds in a “parallel” arrangement. business entity (HBE), describe, separately with respect to B. Basic Host Country tax planning for a hedge fund each investor, how HBE, PEF, and the investor’s investment in PEF should be set up so as to minimise taxation under Host Suppose the individuals were setting up a hedge fund (HF) Country’s income tax law. In particular, discuss: (1) how HBE rather than a private equity fund. Generally speaking, a should be set up for Host Country income tax purposes (for hedge fund is similar to a private equity fund except that a example, as a corporation or a partnership); (2) how PEF hedge fund invests in marketable stocks, securities, and should be set up for Host Country income tax purposes (for other financial instruments (“passive assets”). Types of example, as a corporation or a partnership); (3) whether PEF assets may include stocks, fixed income securities, should be formed under Host Country law or a foreign law; (4) convertible debt, foreign currencies, exchange-traded whether PEF should have its management office in Host futures, forwards, swaps, options, and other derivatives. Country or elsewhere; and (5) whether the investor in PEF should make its investment in PEF directly or through a Assume that HF will fund its investments not only with special entity. contributed capital but also with substantial borrowings. 2. Investment in a foreign business entity Perform the same analysis as required under Section II. A., With respect to an investment by PEF in a foreign business above but, instead of assuming investments in HBE and entity (FBE), describe, separately with respect to each FBE, assume investments in passive assets generating investor, how FBE, PEF, and the investors investment in PEF Host Country-source income and investments in passive should be set up so as to minimise taxation under Host assets generating foreign-source income. Country’s income tax law. Consider the same issues as set forth under Section II.A.1., above. C. Host Country income taxation of income from a carried interest 3. Overall preferred structure In light of the answers to the questions at Sections II.A.1. How will Savvy be taxed on income from his carried interest and 2., above, what is the overall preferred structure for under Host Country’s income tax law?

3

3 Host Country BELGIUM

Howard M. Liebman and Olivier Rousselle Jones Day, Brussels, Belgium

Howard M. Liebman is a partner of the Brussels office of otherwise provided for in a tax treaty entered into by Belgium Jones Day. He is a member of the District of Columbia with the country in which the recipient shareholder resides. Bar and holds A.B. and A.M. degrees from Colgate For example, Belgium signed a tax treaty with the United University and a J.D. from Harvard Law School. Mr. States on November 27, 2006, that provides for 0 percent withholding tax in certain circumstances. Zero percent Liebman has served as a Consultant to the International dividend withholding tax is also provided for in the tax treaty Tax Staff of the U.S. Treasury Department. He is signed with Hong Kong on December 10, 2003, and in presently the EC correspondent for European Taxation, Belgium’s treaties with San Marino and Singapore. an IBFD publication, and Chairman of the American Chamber of Commerce in Europe Legal & Tax In addition, as a matter of domestic law, Belgium now Committee. He is also the co-author of the BNA Portfolio exempts from withholding tax dividends distributed by a 999-2nd T.M., Business Operations in the European Belgian company to a qualifying parent company resident in Union, (2005). the European Union, or in any other country with which Belgium has signed a tax treaty.2 For this purpose, the parent Olivier Rousselle is an associate in the Brussels office of company must hold at least 15 percent (to be reduced to 10 Jones Day. He received his law degree from the percent as of January 1, 2009) of the capital of the Belgian Université Catholique de Louvain-La-Neuve, an LL.M company for an uninterrupted period of at least one year. It is from Hamline Law School and a Master of Tax also required that the parent company, if it is a resident of an Management from the Solvay Business School. E.U. Member State other than Belgium, be in a form listed in the E.C. Parent-Subsidiary Tax Directive or, if the foreign parent is resident in a non-E.U. tax treaty country, that it be in I. Preferred structure of a private equity fund a form analogous to one of the corporate forms listed in that for Belgian income tax purposes Directive. Finally, the parent company must be subject to corporate income tax (or analogous taxation) and not benefit Private equity investors may invest in Belgium either through a from a tax regime that is out of the norm for its country of holding company subject to the normal tax regime (including residence. the benefits of the participation exemption) or through a closed private collective investment vehicle for private equity 2. Dividend participation exemption purposes (PRICAF Privée/Private PRIVAK). In both cases, the Under Article 202 of the Belgian Income Tax Code, 95 percent investment vehicle would have legal personality. Both tax of the dividends received by a Belgian parent company are regimes are described in detail below. exempt from tax in Belgium, provided that: (1) the parent A. Standard holding company tax regime company has held or has committed to hold the shares relating to the dividends received for at least one year; (2) Traditionally, special purpose vehicles are often established in those shares are considered to be financial fixed assets (i.e., the country of the target in order to obtain the benefit of the shares held for the purpose of creating a “lasting link”, as domestic tax consolidation in place in most European defined under Belgian law); (3) the parent company holds (at countries.1 This allows the acquisition vehicle to deduct the the time of the distribution of the dividends) a participation in interest on any debt contracted for the purpose of acquiring the subsidiary of at least 10 percent or €1,200,000; and (4) the target company against the operational income of that the subsidiary has been subject to normal taxation in target. As Belgium has not yet introduced a tax consolidation accordance with Article 203 of the Income Tax Code regime, the establishment of an acquisition vehicle in Belgium (basically, the subsidiary is not located in a tax haven). is not necessary for that purpose (although there have been discussions as to the possibility of introducing such a regime 3. Deduction of interest in the future). In principle, interest paid on debt for the acquisition of shares That being said, the general Belgian tax regime that applies to is deductible in Belgium. This is based on the general rule holding companies remains favourable to private equity applicable to the deduction of expenses, to the effect that investment for the following key reasons: “the costs made or borne by the taxpayer during a given taxable period for the purpose of acquiring or maintaining 1. Dividend withholding tax professional income” are deductible. However, a few Dividends paid by a Belgian company are subject to a 15 restrictions on the deductibility of interest payments need to percent or 25 percent withholding tax in Belgium, unless be borne in mind, even if their scope is quite limited: 4

4 Belgium

■ Any interest paid must be at arm’s length and fixed by of the capital of each of those two companies for an reference to the market rate, taking into account the uninterrupted one-year period. specific risk elements of the transaction (including the 5. Exit tax financial situation of the debtor and the duration of the loan); Proceeds from liquidations and share buy-backs are considered to be dividends in Belgium and are therefore ■ Interest is not deductible if it is paid to a non-resident subject to a 10 percent withholding tax. No such withholding lender that is not subject to income tax in its country of tax is levied if the shares of the Belgian company being residence or that is subject to a tax regime significantly liquidated are held by a qualifying entity located in another more favourable with respect to interest income than the E.U. Member State or in a country with which Belgium has tax regime applicable in Belgium; signed a tax treaty (as liquidation and share buy-back ■ Interest paid or granted to an effective beneficiary that is proceeds are eligible for the same withholding tax exemptions not subject to tax in its country of residence or that is as other dividends). Traditionally, in order to avoid the 10 subject to a tax regime significantly more favourable with percent liquidation (or exit) tax (if it were to apply respect to interest income than the tax regime applicable notwithstanding the aforementioned exceptions), practitioners in Belgium is not deductible, if the total amount of the have recommended that the shares of the Belgian company loans (other than bonds or analogous instruments issued be held by (usually) a Luxembourg entity. Other alternatives by public offering) exceeds seven times the sum of the can be thought of, but the need for these should decrease in taxable reserves at the beginning of the taxable period the future, in view of the recently introduced exception from plus the paid-up capital at the end of that period (in other withholding tax for dividends (including liquidation proceeds) words, a 7:1 debt-to-equity ratio is enforced); and paid to a resident of a country with which Belgium has signed a tax treaty, as discussed above. ■ Interest paid to a Belgian individual who is also a director or a shareholder of the Belgian debtor, or to a foreign 6. Capital gains tax corporation acting as a director of that Belgian debtor, is Capital gains realised by a legal entity on the sale of shares considered to be and treated for tax purposes as a are tax exempt in Belgium, provided the subsidiary is subject dividend, and hence as non-deductible, either if the to tax as set forth in Article 203 of the Income Tax Code. interest is not fixed at market rates or if (and to the extent There is no minimum participation threshold – as is the case of the excess) the total amount of loans exceeds the sum in Luxembourg (where a participation of at least €6 million or of the taxable reserves at the beginning of the taxable 10 percent is required) – for benefiting from this regime. period plus the paid-up capital at the end of that period (a Following a recent modification of the Income Tax Code, the 1:1 debt-to-equity ratio). exempt capital gain is the net gain realised after deduction of 4. Interest withholding tax the sales costs relating to the shares from which the capital gain has arisen (for example, financial costs, bank fees, Interest paid by Belgian debtors is subject to a 15 percent consulting fees, etc.). withholding tax. The recipient of the interest may, however, benefit from a reduced rate (generally as low as 5 percent), or Conversely, capital losses on shares are not deductible, even be entirely exempt, under the terms of an applicable tax unless the losses are incurred in the context of a liquidation, treaty. For example, Belgium’s tax treaties with Germany, and then only to the extent of any loss of paid-up capital. In Hong Kong, Luxembourg, The Netherlands and Switzerland order to benefit from that exception, and bearing in mind the provide for exemptions from withholding tax on interest in existing anti-abuse provisions, a private equity investor might certain circumstances. There are also a number of exceptions consider setting up an intermediary holding company, the to the 15 percent withholding tax provided for under Belgian paid-up capital of which would then solely be used to acquire domestic law, the key exceptions being for: shares in the target company. If the value of the shares of the target company has fallen below the price paid for their ■ Interest paid to a Belgian resident financial institution or to acquisition (which, by hypothesis, is equal to the paid-up a foreign credit institution established in the European capital of the holding company) by the time of the holding Economic Area (EEA) or in a country with which Belgium company’s liquidation, the loss would become deductible for has signed a tax treaty; the private equity investor, since it would then be a loss ■ Interest arising from Belgian registered bonds subscribed incurred in the context of a liquidation. Of course, any interest by non-resident investors; in using that approach will depend on the existence of profits ■ Interest paid to a Belgian resident creditor; against which the loss may be deducted, which might not always be the case in the context of private equity ■ Interest paid by certain qualifying Belgian “holding transactions. companies” that are listed on a recognised stock exchange (or part of a quoted group) to a foreign creditor; B. Belgian holding company v. PRICAF privée/private and PRIVAK ■ Interest paid to an associated company resident in Private equity investors may establish their acquisition vehicle Belgium or in another E.U. Member State. in Belgium either as a holding company subject to the A company is deemed to be an associated company of standard corporate income tax (but benefiting from the another company if both are established in the European participation exemption for dividends and the tax-exempt Union and: (1) one of them holds directly or indirectly at least treatment of capital gains on shares, as described above) or 25 percent of the capital of the other for an uninterrupted as a closed private collective investment vehicle for private one-year period; or (2) a third company established in the equity purposes (a PRICAF Privée/Private PRIVAK). Aside European Union holds directly or indirectly at least 25 percent from the PRICAF Privée/Private PRIVAK,itisalsopossibleto 5

5 Belgium create a closed public collective investment vehicle for private subject to limited prudential control by the Belgian Banking, equity purposes (a PRICAF Publique/Publieke PRIVAK), which Finance and Insurance Commission, PRICAF Privée/Private is governed by the Royal Decree of April 18, 1997.3 Although PRIVAK must be registered with the Ministry of Finance and the purpose of both vehicles is to invest in unquoted may not remain in existence for more than 12 years. companies, PRICAF Publique/Publieke PRIVAK are listed on stock markets, whereas PRICAF Privée/Private PRIVAK are Therefore, even though the conditions for benefiting from the not. To date, only two entities are reported by the Belgian favourable tax regime have been somewhat relaxed by the Banking, Finance and Insurance Commission to have taken Royal Decree of May 23, 2007 (especially for management the form of a PRICAF Publique/Publieke PRIVAK. This paper buy-out transactions), private equity investors are likely to does not seek to describe this vehicle in any further detail, as prefer using a standard holding company for their investments it does not come within the scope of the facts presented, but rather than a PRICAF Privée/Private PRIVAK (especially since focuses instead on the PRICAF Privée/Private PRIVAK. the introduction of the 0 percent withholding tax on dividends paid to a parent company residing in a tax treaty country, as The possibility of establishing a PRICAF Privée/Private PRIVAK described below).9 for private equity purposes was introduced by the Belgian legislature on April 22, 2003, in an effort to promote venture C. Legal form of private equity fund capital investments in Belgium. To that end, Belgium has When private equity investors decide to establish their Belgian accorded a favourable tax regime to such entities, the key acquisition vehicle as a holding company, their next choice aspects of which can be summarised as follows: concerns what type of company to incorporate. The primary ■ PRICAF Privée/Private PRIVAK are subject to the legal forms are a joint stock company (SA/NV), a limited standard corporate income tax (at the normal rate of liability company (SPRL/BVBA) or a partnership limited by 33.99 percent), but their taxable base is limited to the shares (SCA/CVA). “abnormal and benevolent advantage” they have received (essentially any reallocated income as a result of transfer The choice of legal form can be influenced by various criteria, pricing) and any disallowed expenses (except capital including foreign tax rules such as those in the United States losses and depreciation on shares).4 motivating many U.S. controlled groups to “check-the-box” and thereby elect to be treated as a partnership (for U.S. tax ■ The entity qualifies for tax treaty protection. In addition, purposes only). However, joint stock companies (SAs/NVs) and even if no treaty applies, there is no Belgian may not “check-the-box”, as they are considered per se withholding tax on dividends, interest and royalties paid corporations. One of the other available forms must, to a PRICAF Privée/Private PRIVAK, unless the dividends therefore, be used instead. derive from a Belgian source (in which case, the investment vehicle can claim a refund of such withholding There may be other reasons justifying the choice of one legal tax from the competent tax authorities).5 form over another. Both a joint stock company (SA/NV) and a partnership limited by shares (SCA/CVA), for example, allow ■ No withholding tax is levied on dividends distributed by a for the issuing of profit participation certificates (participation PRICAF Privée/Private PRIVAK, provided that: (1) the bénéficiaire/winstbewijzen), warrants, convertible bonds, and dividends arise from capital gains on shares realised by tracking stock,10 which is not possible when using a limited the latter; or (2) if the beneficiary of the dividends is a liability company (SPRL/BVBA).11 On the other hand, a foreign company, the dividends arise from dividends paid, partnership limited by shares (SCA/CVA) and a limited liability in turn, by foreign companies.6 In addition, there is no company (SPRL/BVBA) offer greater security to their withholding tax on the proceeds distributed on the management than a joint stock company (SA/NV) offers to its liquidation of a PRICAF Privée/Private PRIVAK (nor is any directors, who can be dismissed at any time by the withholding tax levied in the event of a redemption of shareholders.12 shares).7 Despitetheexistenceofthisfavourabletaxregime,private D. Structuring a business entity for Belgian income tax equity investors have, to date, preferred to establish a purposes standard form of company (which may be called a holding Only a very limited number of entities qualify as partnerships company if its activities are limited to the ownership of shares) under Belgian corporate law (i.e., a société de droit for the purpose of making their investments, rather than commun/maatschap,asociété momentanée/tijdelijke utilising a PRICAF Privée/Private PRIVAK. This is because the handelsvennotschap and a société interne/stille venootschap). useofaPRICAF Privée/Private PRIVAK is subject to some These entities do not have legal personality and are, therefore, rather substantial regulatory requirements and restrictions. transparent for tax purposes.13 In addition, some entities First, until recently, 80 percent of the shares of a PRICAF considered to have legal personality from a corporate point of Privée/Private PRIVAK hadtobeheldbyatleastfiveandno view are deemed to be transparent for tax purposes, such as more than 20 investors. This requirement has now been European Economic Interest Groupings (EEIGs), Belgian repealed by Royal Decree of May 23, 2007, which only Economic Interest Groupings and commercial companies that requires that the shares of a PRICAF Privée/Private PRIVAK are not validly incorporated (these are known as “translucent be held by at least six investors. In addition, leaving aside any entities”). Such entities are, however, rather rare in practice. other investment conditions that must be met to benefit from By contrast, the Belgian Company Code accords legal the favourable tax treatment, PRICAF Privée/Private PRIVAK personality to a variety of other legal forms, such as the joint may not, in principle, hold a participation where they have stock company (SA/NV), the limited liability company power to influence the management of the company or the (SPRL/BVBA) and the partnership limited by shares appointment of its directors.8 Finally, although they are only (SCA/CVA). 6

6 Belgium

It is generally best for a target company of a PEF (HBE) to be distribution (for example, in the context of a sale and incorporated as a company with legal personality, if only for leaseback transaction, with the leaseback being effected on a the purpose of obtaining beneficial capital gains or dividend finance lease basis in order to keep the assets transferred on treatment. the balance sheet of the operating target). In both cases, the acquiring vehicle would use the dividends received to First, capital gains realised by a Belgian legal entity, such as reimburse the loans contracted for the purpose of acquiring PEF (if incorporated as a Belgian holding company), on the the operating target. sale of shares of another Belgian company, such as HBE, are tax-exempt in Belgium, provided the subsidiary is subject to Another alternative is for the operating target to acquire tax as set forth in Article 203 of the Income Tax Code.14 assets belonging to the acquiring company using debt Partnerships and “translucent entities” are not subject to tax, financing for that purpose. Again, the idea is to provide cash as they are transparent for tax purposes. Thus, the sale of an to the acquiring company so that it can reimburse the loans it interest held by PEF in a partnership or a translucent entity has contracted (such loans being thereby “pushed down” as would normally not qualify for the capital gains tax exemption, a result). A downstream merger could also be considered, in unless it could be demonstrated that the assets of the which the operating target would absorb the acquiring partnership included shares that themselves qualified for a vehicle, so that interest to be paid by the latter can directly be capital gains tax exemption. But even in that case, it is not offset by the profits of the former. However, it should be certain that the tax authorities would allow the capital gains stressed that this alternative is currently somewhat tax exemption for the sale of an interest held in a partnership. controversial and carries with it a substantial risk of being Indeed, the tax authorities have traditionally denied such a challenged on various grounds. benefit in the case of the sale of any interest in collective The above alternatives, as well as variations on them, are investment funds (fonds commun de used in practice. But before embarking on any placement/gemeenschappelijke beleggings fondsen), which, debt-pushdown strategy, a private equity investor would be like partnerships, are transparent for tax purposes. It is true well advised to conduct an in-depth review and careful that the position of the Belgian Tax Administration has not analysis of Belgium’s panoply of anti-abuse provisions. been upheld in this regard by the Tribunals of First Instance of Brussels and Ghent; but in both cases, the taxpayer had E. Overall preferred structure failed to prove that the underlying shares held by the collective investment fund qualified for the capital gains On balance, and acknowledging that any deal is specific by exemption. nature and requires a careful analysis, private equity investors are likely to prefer, at least from a Belgian tax point of view, The same applies to the Belgian dividend participation investing through a normal holding structure in a company exemption. Indeed, as indicated above, 95 percent of the with legal personality. dividends received by a Belgian parent company is exempt from tax on condition that the subsidiary has been subject to normal taxation in accordance with Article 203 of the Income II. Preferred structure of a hedge fund for Tax Code. Again, as partnerships are tax transparent, the Belgian income tax purposes income received by a partnership is deemed to be received As a general matter, there is no tax regime in Belgium that by the partners directly – PEF in the present case – and would be specifically tailored for hedge fund activities, hence taxed at the level of PEF at the standard tax rate of pursuant to which private investors (such as HI, FI, HPEN, 33.99 percent (but benefiting from the participation exemption etc.) could create a vehicle the purpose of which is to invest if the income of the partnership consists of dividends). While in marketable stocks, securities and other financial this may not be a problem in itself (since, in a non-transparent instruments (such as convertible debt, foreign currencies, context, the income of HBE would be taxed at the level of swaps,options,etc.).Indeed,thePRICAF Privée/Private HBE and then distributed almost tax-free to PEF), it may PRIVAK (the tax regime for which is described in Section I.B., create practical difficulties (for example, how to stream or above) may only invest in certain types of instruments issued allocate the income) and may not fit well within the policies or by unquoted companies (for example, shares, bonds or, since goals of a pure private equity transaction (as operating the Royal Decree of May 23, 2007, loans granted to unquoted income may then be mixed with passive income from other companies).15 Belgian law does provide a specific tax regime sources, which may not be desirable). for open and closed public collective investment vehicles That being said, for the sake of completeness, it should be (respectively, SICAV/BEVEKs and SICAF/BEVAKs),16 but the noted that establishing HBE as a partnership could offer some shares of such vehicles must be listed on a stock exchange.17 interesting possibilities for “debt pushdown” purposes Interestingly, the Law of July 20, 2004 provides for two new (Belgium does not have a tax consolidation regime, except for forms of investment vehicles, namely, the open/closed VAT purposes). This is not decisive in itself, however, as other institutional collective investment vehicle and the alternatives have been devised over time to allow for the open/closed private collective investment vehicle.18 The effective utilisation of the interest paid on loans contracted by former allows institutional investors (such as governments, the acquiring vehicle for the purposes of purchasing an banks, insurance companies, pension funds, etc.) to create operating target that has legal personality as an offset against a vehicle the purpose of which is to invest in marketable the income of the latter in “debt-pushdown” scenarios. instruments (such as shares, options, etc.). The latter This can be achieved, for example, through a capital decrease allows private investors to create a vehicle the purpose of or a dividend distribution post-acquisition, financed by a loan which is also to invest in marketable instruments. The entered into by the operating target. The operating target may second vehicle could prove especially interesting in the also sell assets to generate the cash necessary for a dividend context of the current scenario, as it fits the key parameters 7

7 Belgium of the scenario, i.e., private investors investing in ■ Real estate located abroad that is exempt from tax in marketable stocks, securities and other financial Belgium pursuant to an applicable tax treaty; and instruments through a special purpose vehicle. ■ Certain miscellaneous items for anti-abuse purposes (i.e., Unfortunately, the entry into force of these two vehicles has the book value of those items that, by their nature, are been expressly made contingent upon the issuance of a not designed to generate taxable income; the net book Royal Decree, which has not yet been enacted.19 value of assets the costs of which unreasonably exceed As a result, private investors (such as HI, FI, HPEN, etc.) business needs; and the book value of real estate used that wish to create a vehicle in Belgium for the purpose of by managers). investing in marketable instruments would have to In sum, HF’s tax burden will vary depending on its investment incorporate a company, subject to the normal Belgian tax policy and the assets derived from those investments. regime (the key features of which are briefly described in Section I.A., above), or a partnership. Admittedly, the use of III. Belgian taxation of income derived from a a partnership is likely to, in and of itself, create a number of issues, if only with respect to the tax treatment of any carried interest capital gains generated by the sale of an interest in the There are various alternatives available under Belgian law partnership (see Section I., above) and, for HI or FI, with allowing the manager, i.e., Savvy, an interest in the profits respect to the tax qualification of the income received of the company it manages, i.e., PEF. Of course, one of the 20 through the partnership. alternatives is to grant Savvy a bonus equal to 20 percent Consequently, the use of a company is likely to be the of the profits of PEF. However, any such bonus will be preferred route for setting up HF. This may result in some considered normal remuneration subject to progressive taxation at the level of HF, if its income does not qualify as income tax rates of up to 50 percent (plus provincial and dividends or capital gains eligible for the participation communal surcharges) and social security contributions. exemption described in Section I.A. above (which would be Indeed, pursuant to Articles 30.2° and 32 of the Income Tax the case if the company derives interest, for example). The Code, any and all sums or benefits-in-kind paid or granted 21 standard tax rate in Belgium is equal to 33.99 percent, but to an individual acting as a manager of a company are the total tax burden will be reduced by the considered management remuneration, and hence taxable newly-introduced notional interest deduction. at progressive rates.

Pursuant to this measure, a Belgian resident company is According to the Official Administrative Commentary on the entitled to deduct from its profits a percentage of its Income Tax Code, the intent of the legislator was to include adjusted net assets (see below), specifically linked to the any and all payments that constitute, in the hands of the rate of 10-year Belgian Government bonds (which is beneficiary, a return for the performance of management currently 3.781 percent for the 2008 taxable year). In other functions. The debtor, the qualification and the method of words, a Belgian corporate taxpayer may automatically calculation or payment are not relevant in determining that deduct 3.781 percent of its adjusted net assets from its income is to be deemed to constitute management 22 annual profits. The precise percentage will be revised remuneration. For that reason, management participation annually, but in principle, it may not vary by more than one in the profits of a company has usually taken one of the 23 percentage point from one tax year to another (and, in any forms briefly described below. case, may not exceed 6.5 percent in total). If the taxpayer A. Stock options/warrants24 does not earn enough taxable income for the notional interest deduction to be utilised in any one year, the Following the entry into effect of the Law of March 26, remaining deduction may be carried forward for up to seven 1999, stock options granted for no consideration are years. taxable in Belgium on the date on which the options are deemed to have been granted to the beneficiary.25 Under The adjusted net equity for these purposes is equal to the Belgian law, an option is deemed granted 60 days after the net equity of the company as it appears on its books (i.e., offer, provided the beneficiary accepts the offer in writing capital, share premium, re-evaluation gains, reserves, within that 60-day period.26 Otherwise, the option is carried-forward profits, and subsidies) less a number of deemed to have been rejected by the beneficiary for technical deductions, specifically: Belgian tax purposes. If the option is nevertheless accepted ■ Any re-evaluation gains; by the beneficiary after the 60-day period, the option will no longer qualify as an option for the purposes of the Law of ■ Subsidies; March 26, 1999 and taxation will take place on the exercise ■ Tax credits for research and development; of the option, based on the difference between the fair market value of the underlying shares and the exercise ■ The net tax value of the company’s own shares held in its price of the option.27 This provides a certain flexibility to books; management, which can decide to be taxed at the moment ■ The net tax value of shares issued by investment of grant or at the moment of exercise simply by accepting companies (in certain circumstances); the option before or after the 60-day deadline. ■ The net tax value of the shares held in other companies Under the Law of March 26, 1999, the taxable income as a financial fixed asset; relating to the grant of the option varies, depending on ■ The net equity of any foreign permanent establishment whether the option is quoted or not.28 If the option is not (PE) that is exempt from tax in Belgium pursuant to an quoted (which is the most likely scenario in the context of a applicable tax treaty; private equity transaction), the taxable income is calculated 8

8 Belgium by reference to the value of the underlying shares. Again, That being said, if the shares acquired upon the exercise of there is a split decision-making tree. If the underlying the stock option are shares in a foreign company, the shares are quoted, their value is equal to, at the choice of management may be subject to withholding tax abroad, in the grantor, the average closing price of the shares during addition to the Belgian withholding tax. (It should be noted the 30-day period before the offer or the closing price of the that foreign dividend withholding taxes will normally not be shares on the day before the offer. If the underlying shares creditable against Belgian withholding tax; they are are not quoted, their value is determined by the grantor and deductible, but only for the purposes of computing the net must be approved by the Statutory Auditor of the company amount of the 15 percent or 25 percent Belgian withholding issuing the underlying shares (with some limitations set by tax that is to be paid). Admittedly, this must be reviewed in law). light of the applicable tax treaty (for example, some taxpayers have argued, with success, that Belgium is The taxable income will then be equal to 15 percent of the required to accord a foreign tax credit based on the terms value of the underlying shares as determined using the of the relevant tax treaty).32 In order to avoid potential rules described above, to be increased by 1 percent per taxation abroad (or having to argue a case for tax credits year (or part thereof) in excess of five years if the exercise period exceeds five years from the offer date.29 Those based on the text of an applicable tax treaty), Belgian percentages will be reduced, respectively, to 7.5 percent resident managers are instead likely to request that they (increased by 0.5 percent for each year, or part thereof, obtain shares in a Belgian company upon the exercise of exceeding five years following the offer) if the following their stock options. conditions are fulfilled: Capital gains realised on the sale of the shares obtained ■ The exercise price must be definitely fixed at the moment upon exercise of the stock option should be exempt from of the offer; tax in the hands of Belgian resident individuals, such as Savvy, provided the gains are deemed to result from the ■ The option may not be exercised before the end of the normal management of the managers’ private assets and third year following the year in which the offer occurs nor wealth (patrimony). Under Article 90(1) of the Income Tax after the end of the 10th year following the year of the Code, an individual is taxed on the profits arising from any offer; services, operations or speculative activities at the rate of ■ The option may not be transferable, except in the case of 33 percent (plus local tax), unless such services, operations death; or speculation fall within the normal management of the ■ The risk of a reduction in value of the underlying shares individual’s private wealth. Whether the acquisition and may not be covered, directly or indirectly, by the grantor subsequent sale of shares would qualify as speculation, or by any other person with which the grantor has a triggering taxation at the rate of 33 percent (plus local tax) relationship of interdependence; and is a matter of facts and circumstances, primarily depending on the level of risk undertaken. This, however, is assessed ■ The option must relate to shares in the company for based on factual elements such as the managers’ which the beneficiary exercises his employment or in a knowledge of the activities of the company the shares of company that has a direct or indirect participation in that which are being acquired, how the acquisition is being company.30 financed, the financial situation of the individual in question, If the beneficiary is required to pay a price for the option, and various other criteria. Interestingly, the Tribunal of First the amount paid may be deducted from the taxable Instance of Brussels has refused to tax a manager of an income. There will be an additional element of taxation unquoted company who had bought shares therein, using should the exercise price be lower than the value of the financing granted by a financial institution, and then sold underlying shares at the moment of the offer (i.e., if the them a few years later to the acquirer of the majority stake exercise price is “in-the-money”). In that case, the in the company in question. The Court considered that this difference between the exercise price and the value of the operation remained within the scope of normal shares must be added to the taxable amount. The taxable management by that manager of his private assets.33 income so determined will then be subject to taxation at the normal progressive tax rate. B. Shares

Interestingly, the grant of stock options is not considered a If shares are acquired at their market value, there is no benefit-in-kind from a social security point of view, and taxable benefit-in-kind for the acquirer. By contrast, if hence does not trigger any social security contribution, shares are acquired for a discounted price, the discount will provided the exercise price of the option is not less than the be viewed as a benefit-in-kind taxable in the hands of the value of the underlying shares at the moment of the offer beneficiary.34 Unfortunately, there are no guidelines under (and there is no “certain” advantage).31 Belgian tax law as to how such a benefit-in kind should be The exercise of stock options does not trigger any tax for calculated. However, the tax authorities accept that if the the beneficiary (provided the option is accepted within the underlying shares are quoted on a stock market, the value 60-day period following the offer, as indicated above). of the benefit-in-kind may be limited to the difference Dividends received by managers (in the present case, between 100/120ths (or 83.33 percent) of the market value Savvy, who will receive a 20 percent share of the profits of the shares acquired and the price paid for them, through dividend distributions upon exercise of the option) provided the shares cannot be transferred for a period of will be subject to a 15 or 25 percent dividend withholding two years after their acquisition.35 In practice, a similar tax in Belgium. No other tax should be levied thereon in discount is generally considered acceptable for unquoted Belgium. shares.36 9

9 Belgium

An even higher discount could be claimed, depending on options are subject to tax at grant.42 There is also a the restrictions built into the shares so acquired (such as Supreme Court case dated February 4, 2005, however, in the requirement not to transfer them for a certain period of which the Court follows the reasoning of the Antwerp Court time, their vesting conditions, any restrictions as to voting of Appeals developed in a decision of February 19, 2002, to or dividend rights, good or bad “leaver” provisions or the effect that if the stock options are forfeited upon tag-along or drag-along rights).37 Indeed, a wide range of termination of the employee, their grant was “continuously rights and restrictions can be attached to the shares uncertain” until they had been exercised and, hence, the granted to a manager of the funds such as Savvy.38 For moment of taxation should only be on exercise.43 Since example, Savvy’s rights to obtain dividends can be then, however, the Court of Appeals of Antwerp has issued subordinated to the payment of a dividend equal to, for four judgments, all dated September 20, 2005, in which it example, 15 percent per annum to the other investors abandons this position and considers non-regulated stock (taking into consideration a “hurdle rate”). The transfer of options to be taxable at grant, independent of the fact that the shares could also be prohibited for a certain period of they are forfeited if termination of employment takes place time, combined with a forfeiture period during which the before their exercise.44 And this reasoning has, in the shares granted will be forfeited on the occurrence of certain meantime, been followed by the Court of Appeals of events such as the termination of the management Brussels in its judgment of December 13, 2006.45 agreement/employment. In this respect, it might be noted Again, the proper tax treatment of the RSUs and profit units that independent studies have valued illiquidity discounts at will depend on the terms and conditions thereof, and 20 to 35 percent of the value of the underlying shares of whether their vesting is made conditional upon certain stock.39 Managers may also subscribe to a special category events, such as the termination of the management of shares, pursuant to which they would obtain additional agreement of Savvy, as well as how such conditions are shares in the target company if a given hurdle rate is structured (condition precedent v. condition subsequent). reached (an “equity ratchet”). This allows management to Some authors consider that if the restrictions built into the increase its participation if the company performs well. But granting of profit units are such that any valuation thereof is it may also provide for the opposite effect and trigger a not possible, no tax or social security contribution should reduction in the management’s participation if the company be levied on the granting thereof, but in that case, the risk performs poorly (a “reverse equity ratchet”).40 Those is that the dividends distributed subsequently in connection restrictions or preferred rights, depending on how they are with those profit units could be deemed to be remuneration structured, could not only affect the value of the subject to the progressive tax rate (and not to the 15/25 benefit-in-kind, but also, in our view, influence the timing of percent final dividend withholding tax).46 taxation, i.e., at grant or upon vesting. 1 Some European countries, such as Denmark, France and Italy, The tax treatment of dividends and capital gains received or even provide for a worldwide tax consolidation system, subject to realised by Savvy in connection with the shares obtained, certain conditions. whether for a discounted price or not, is the same as that 2 In the latter case, the tax treaty in question must provide for an described above in connection with the shares obtained adequate exchange of information procedure. Article 106 §§5 & 6 upontheexerciseofastockoption. of the Royal Decree implementing the Belgian Income Tax Code 1992, as amended (BITC or Income Tax Code). See Ch. Chéruy, C. Restricted Stock Units (RSUs) and Profit Units “Belgium extends dividend withholding tax exemption”, 2007 (Participation Bénéficiaire/Winstbewijzen) Worldwide Tax Daily 11-3 (January 17, 2007). 3 Moniteur Belge of June 24, 1997. This Royal Decree also makes it The acquisition for no consideration of RSUs and profit possible to create a transparent closed public collective investment vehicle (a Prifonds). To date, no entity is reported by the Belgian units is not regulated under Belgian law (as opposed to the Banking, Finance and Insurance Commission to have taken that granting, for no consideration, of stock options and form. warrants). It would of course be considered a taxable 4 PRICAF Privée/Private PRIVAK are also excluded from the dividend benefit-in kind in the hands of Savvy, but whether taxation participation exemption regime and the foreign tax credit for tax would take place at grant or upon vesting (if restrictions are paid on interest and royalties pursuant to Article 185bis §2 of the built in to the instrument granted) and the valuation of the Income Tax Code (which might be in violation of certain tax treaties). The impact of these restrictions is de minimis, however, taxable benefit-in-kind depends on the terms and given the limited tax base. conditions of the relevant profit unit or RSU, and is likely to 5 Royal Decree implementing the BITC, Articles 116, 117 §9, 118 remain rather uncertain in the absence of a specific ruling §1, 6° & 119 or more general pronouncements by the Belgian tax 6 Royal Decree implementing the BITC, Article 106 §9 authorities. 7 BITC, Article 21.2° The jurisprudence relating to unregulated stock options 8 There are some exceptions, however, such as: (1) if the (i.e., stock options offered before the entry into force of the participation is not held for more than two years or if the influence does not arise from the direct or indirect holding of more than 50 Law of March 26, 1999) could, in the authors’ view, offer percent of the shares with voting rights of the company in question; some guidance as to the tax treatment of profit units and or (2) if the participation arises from a management buy-out RSUs.41 Unfortunately, this jurisprudence is not as clear as transaction (Royal Decree of May 23, 2007, Article 14, Moniteur might have been wished. Indeed, there is a decision of the Belge of June 12, 2007). Brussels Court of Appeal, dated May 21, 2003, that 9 The use of a PRICAF Privée/Private PRIVAK might become stipulates that the tax treatment of convertible profit units interesting if the investment made by that vehicle in other entities did not qualify for the dividend participation exemption, (e.g., if the should be the same as the tax treatment of non-regulated €1.2 million or 10 percent participation threshold was not reached). stock options. It refers, in turn, to a Supreme Court case of But even in that case, the complexity of the regime and the January 16, 2003, stipulating that non-regulated stock regulatory restrictions might outweigh its benefits. 10

10 Belgium

10 W. Heyvaert & B. Springael, “Het gebruik van de Belgische Association) whereas stock options are mere contractual holdingvennootschap als persoonlijke houdstermaatschappij door commitments (See H. Lamon, “ Financial Buy-Outs: Structuring the Belgische ingezetenen en voor “private equity” investeringen door Managers’ Participations”, May/June 2005 Derivatives & Financial buiten België gevestigde investeerders”, Fiscale Studies, 2004, at Instruments 123). Warrants may only be issued by joint stock p. 26. companies (SA/NV) and partnerships limited by shares (SCA/CVA). 11 Belgian Company Code, Article 232 25 Article 42 of the Law of March 26, 1999, Moniteur Belge of April 1, 12 Belgian Company Code, Article 518 §3, which is a matter of public 1999 order according to the Belgian Supreme Court (Judgment of 26 Id. January 22, 1981, Pas., 1981, at p. 543). 27 Response to the Parliamentary Question No. 228 of January 20, 13 BITC, Article 29 2004; Circ. No. 2005/0652 of May 25, 2005 14 BITC, Article 192 28 Article 43 §§ 1, 2,3&4oftheLawofMarch26,1999, see note 15 Article 119 of the Law of July 20, 2004 25, above 16 Open and closed public collective investment vehicles that are 29 Id., Article 43 §5 transparent are designated, respectively, by the terms open and 30 Id., Article 43 §6. Options on shares issued in accordance with a closed collective investment funds (fonds commun de placement à specific procedure provided for in Article 609 of the Company nombre variable de parts/gemeenschappelijk beleggingsfonds met Code will not be subject to tax. Id., Article 49. This procedure may een veranderlijk aantal rechten van deelneming and fonds commun only be used for those members of the workforce who qualify as de placement à nombre fixe de parts/gemeenschappelijk employees, and it is subject to stringent conditions (such as a beleggingsfonds met een vast aantal rechten van deelneming). requirement that the company has distributed at least two 17 Articles 10 & 17 of the Law of July 20, 2004, Moniteur Belge of dividends during the three previous fiscal years). It is therefore not March 9, 2005. (See Article 185bis of the Income Tax Code for the relevant for a private equity transaction in which the management special tax regime applicable to open and closed public collective takes a participation, whether directly or indirectly, in the target investment vehicles.) company. 18 Articles 97 et seq. & 113 et seq. of the Law of July 20, 2004. See 31 Article 19 (18) of the Royal Decree of November 28, 1969, note 17, above Moniteur Belge of December 5, 1969 19 Article 240 the Law of July 20, 2004 32 Court of Appeal of Liège of March 10, 2006, (2006) T.F.R. at p. 670 20 Article 29 of the Income Tax Code provides a tax “fiction” to the (pursuant to which a foreign tax credit should be available for effect that the profits derived by a partnership are deemed to be dividends received from the United States based on the provisions profits of the partners for tax purposes and may not be otherwise of the Belgium-United States tax treaty). qualified (e.g., as dividends or real property income). If the 33 J. Pattyn, “Aankoop aandelen vennootschap door bedrijfsleider: partnership does not realise benefits or profits, the Belgian Tax geen diverse inkomsten bij veredere verkoop”, 11 Fiscale Actualiteit Administration considers that the income collected by the (March 2006) at p. 5 partnership retains its initial characteristics and qualification in the 34 Belgian Commentary to the BITC, No. 36/14 hands of the partners. This tax “fiction” could have a substantial 35 Belgian Commentary to the BITC, No. 36/16. Shares can also be impact on the Belgian tax treatment of the income derived by obtained under a favourable regime pursuant to the procedures individuals in their capacity as partners of the partnership. provided for in Article 609 of the Company Code or in the Law of Unfortunately, the interpretation of this tax “fiction” is somewhat May 22, 2001, Moniteur Belge of June 9, 2007, but the benefit of controversial among legal commentators, and this paper does not those procedures is limited to employees and does not extend to attempt to describe the particulars of the controversy. See generally self-employed persons such as managers (see note 21, above). Ph. Hinnekens, “Le régime fiscal international des sociétés de personnes en matière d’impôt sur le revenu”, (1995) J.D.F. at p. 209 36 H. Lamon, note 24, above, at p. 120. If the shares are not quoted, et seq.; M. Van Keirsbilck, “Internationale samenwerkingsbverband the Administrative Commentary provides that the benefit-in-kind is tussen fiscaal transparente maatschap”, (January 2001), T.F.R. at p. equal to the difference between the book value (by reference to the 193 et seq. net equity) and the price paid for the shares. The reference to the book value seems contrary, however, to the language of the 21 For tax purposes, an individual is considered to act as the manager Belgian Income Tax Code, which refers to the “real value” of the of a company if: (1) he exercises a mandate of Director shares. It is therefore safer, in the view of the authors, for a (bestuurder/administrateur or zaakvoerder/gérant) or liquidator or a taxpayer to use the market value of the shares as a reference (if similar function; or (2) he carries out a management function such market value is higher than the book value), especially as a involving the daily management or the commercial, technical or reference to book value could be challenged as contrary to Belgian financial management outside the scope of an employment tax law, which is of public order. agreement. It is assumed for purposes of this paper that Savvy will exercise a mandate of Director of PEF, as it will make the 37 Id., p. 118 investment decisions. 38 Taking into account the limits set by law such as, for example, the 22 Tiberghien, Manuel de droit fiscal (2006), at p. 126 prohibition of “leonine” clauses, the requirement to set up a legal 23 Only the key forms of management participation traditionally used reserves, the net asset threshold below which dividends may not in practice have been (briefly) described. Other forms of be distributed, the prohibition of super voting stock, the limitation management profit participation techniques can be devised, on the issuance of non-voting shares, the rules relating to the depending on the specifics of the deal in question. For example, protection of capital, etc. management’s participation in the future profits of the company can 39 A. Damodaran, “Valuing Private Firms”, take the form of an earn-out clause providing for deferred http://pages.stern.nyu.edu/~adamodar/ compensation depending on the results of the acquired company. 40 H. Lamon, supra note 24, at p. 123; V. Simonart & T. Tilquin, “Le Such clauses are traditionally used to incentivise the vendor(s) to Ratchet”, (2004) Mélanges John Kirkpatrick at p. 875 et seq. remain with the target company for at least a certain number of 41 E. De Plaen, “L’actionnariat salarié”, (January 2007) R.G.F. at p. 6 years (especially in deals where the management is key to the 42 Court of Appeal of Brussels of May 21, 2003, (2003) Courr. Fisc. at operation of the acquired company), and the deferred p. 533 compensation arising thereunder could qualify as an exempt capital 43 Belgian Supreme Court of February 4, 2005, (2005) T.F.R. at p. 540 gain on shares if properly structured. No attempt has been made to 44 To which the decision of the Court of Appeal of Brussels of provide further details, as Savvy is not the vendor in the present December 13, 2006 refers (see note 45, below). fact pattern, and would therefore not, in any event, be eligible for such a capital gains tax exemption. 45 Court of Appeal of Brussels of December 13, 2006, 24 Warrants differ from stock options, as they include the right of the www.fisconet.fgov.be holder to subscribe to newly-issued shares. Although both are 46 C. Chevalier, Vennootschapsbelasting (2007) at p. 293; P. De subject to the same tax regime under the Law of March 26, 1999, Koster & I. Vanderreken, Financiële participatie voor werknemers: warrants are more frequently used than options since they offer Resultaats, deling, opties en aandeelhouderschap (2001) at p. 9 greater protection (as they are embedded in the Articles of &10 11

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