TAX MANAGEMENT INTERNATIONAL FORUM Comparative Tax Law for the International Practitioner >>>>>>>>>>>>>>>>>>>>>>>>>>>> VOLUME 34, NUMBER 1 >>> MARCH 2013 www.bna.com INCOME TAX TREATMENT BY HOST COUNTRY OF A CORPORATE EXPATRIATION Facts HCo, a limited liability business entity formed under the law of Host Country (HC) and treated as a corporation for HC income tax purposes, is the parent corporation of a multinational group of corporations doing business around the world. The group consists of both HC subsidiaries and foreign subsidiaries. In order to achieve a more tax-effi cient corporate structure, HCo is interested in restructuring its multinational group so that the parent corporation is a Foreign Country (FC) corporation (and not an HC corporation) for HC income tax purposes. HCo is considering the following scenarios relating to the creation of an FC corporation as the new parent corporation of the multinational group: 1. HCo remains the same business entity but effects a change (of some type) that changes it from an HC corporation into an FC corporation for HC income tax purposes. 2. A limited liability business entity formed under the law of FC and treated as a corporation for HC income tax purposes (“FCo”) is created with a nominal shareholder. HCo then merges into FCo, with FCo surviving. The shareholders of HCo receive stock in FCo. 3. FCo is created with a nominal shareholder. The shareholders of HCo then transfer all of their stock in HCo to FCo in exchange for stock in FCo. HCo then liquidates. 4. HCo creates FCo as a wholly owned subsidiary. HCo then merges into FCo, with FCo surviving. The shareholders of HCo receive stock in FCo. 5. FCo is created with a nominal shareholder. The shareholders of HCo then transfer all of their stock in HCo to FCo in exchange for stock in FCo. 6. FCo is created with a nominal shareholder and in turn creates HMergeCo, a wholly owned limited liability business entity formed under the law of HC and treated as a corporation for HC income tax purposes. HMergeCo then merges into HCo, with HCo surviving. The shareholders of HCo receive stock in FCo. 7. FCo is created with the same corporate structure as HCo, and with the same shareholders with the same proportional ownership. HCo then sells all of its assets (and liabilities) to FCo and then liquidates. Questions 1. Discuss the viability of each scenario under HC’s (or one of its political subdivision’s) business law and how the scenario would be treated for HC income tax purposes. 2. Are there any other scenarios that HCo might consider and how would they be treated for HC income tax purposes? 3. What difference does it make for HC income tax purposes whether HCo has a “business purpose” for the restructuring? 4. What would be the treatment for HC income tax purposes if FCo were an existing, unrelated foreign corporation, and HCo merged into FCo, with FCo surviving? FORUM0313_members.indd 1 07-Mar-13 3:55:55 PM THE TAXMANAGEMENT INTERNATIONAL FORUM is designed Contents to present acomparative study of typical international tax law problems by FORUM members who are distinguished practitioners in major industrial countries. Their scholarly discussions focus on the operational questions posed by afact pattern under CONTENTS the statutory and decisional laws of their respective FORUM country,with FACTS and QUESTIONS practical recommendations whenever 4 appropriate. ARGENTINA THE TAXMANAGEMENT 5 Manuel M. Benites INTERNATIONAL FORUM is Pere´z Alati, Grondona, Benites, Arntsen &Martı´nez de Hoz, Buenos Aires published quarterly by Bloomberg BNA, 38 Threadneedle Street, London, BELGIUM EC2R 8AY, England. 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INDIA www.bna.com 48 Vandana Baijal &Zainab Bookwala Deloitte, Haskins &Sells, Mumbai Board of Editors Publishing Director IRELAND Andrea Naylor 55 Peter Maher and Philip McQueston Bloomberg BNA A&L Goodbody,Dublin London ITALY Technical Editor Giovanni Rolle Nicholas C. Webb 60 WTS R&A Studio Tributario Associato, Milano Editor Alex Miller JAPAN Bloomberg BNA 66 Yuko Miyazaki London Nagashima Ohno &Tsunematsu, Tokyo Production Manager Nitesh Vaghadia MEXICO Bloomberg BNA 72 Terri L. Grosselin London Ernst &Young LLP,Miami THE NETHERLANDS 75 Maarten J.C. Merkus and Bastiaan L. de Kroon KPMG Meijburg &CoTax Lawyers, Amsterdam 2 02/13 Copyright ஽ 2013 by The Bureau of National Affairs, Inc. TM FORUM ISSN 0143-7941 SPAIN 79 A´ lvaro de Lacalle and Luis Briones Baker &McKenzie, Madrid SWITZERLAND 84 Dr.Silvia Zimmermann and Jonas Sigrist Pestalozzi Attorneys at Law Ltd, Zu¨rich UNITED KINGDOM 91 Charles EV Goddard Rosetta TaxLLP,London UNITED STATES 97 Herman B. Bouma, Esq. Buchanan Ingersoll &Rooney PC, Washington, DC 106 Forum Members and Contributors 02/13 TaxManagement International Forum BNA ISSN 0143-7941 3 Income tax treatment by Host Country of a corporate expatriation FACTS 5. FCo is created with anominal shareholder.The shareholders of HCo then transfer all of their stock Co, alimited liability business entity formed in HCo to FCo in exchange for stock in FCo. under the law of Host Country (HC) and 6. FCo is created with anominal shareholder and in treated as acorporation for HC income tax H turn creates HMergeCo, awholly owned limited li- purposes, is the parent corporation of amultinational ability business entity formed under the law of HC group of corporations doing business around the and treated as acorporation for HC income tax pur- world. The group consists of both HC subsidiaries and poses. HMergeCo then merges into HCo, with HCo foreign subsidiaries. In order to achieve amore tax- surviving. The shareholders of HCo receive stock in efficient corporate structure, HCo is interested in re- FCo. structuring its multinational group so that the parent 7. FCo is created with the same corporate structure as corporation is aForeign Country (FC) corporation HCo, and with the same shareholders with the (and not an HC corporation) for HC income tax pur- same proportional ownership. HCo then sells all of poses. its assets (and liabilities) to FCo and then liqui- HCo is considering the following scenarios relating to the creation of an FC corporation as the new parent dates. corporation of the multinational group: 1. HCo remains the same business entity but effects a change (of some type) that changes it from an HC QUESTIONS corporation into an FC corporation for HC income tax purposes. 1. Discuss the viability of each scenario under HC’s(or 2. Alimited liability business entity formed under the one of its political subdivision’s) business law and law of FC and treated as acorporation for HC how the scenario would be treated for HC income income tax purposes (‘‘FCo’’) is created with a tax purposes. nominal shareholder.HCo then merges into FCo, 2. Are there any other scenarios that HCo might con- with FCo surviving. The shareholders of HCo re- sider and how would they be treated for HC income ceive stock in FCo. tax purposes? 3. FCo is created with anominal shareholder.The 3. What difference does it make for HC income tax shareholders of HCo then transfer all of their stock purposes whether HCo has a‘‘business purpose’’for in HCo to FCo in exchange for stock in FCo. HCo the restructuring? then liquidates. 4. What would be the treatment for HC income tax 4. HCo creates FCo as awholly owned subsidiary. purposes if FCo were an existing, unrelated foreign HCo then merges into FCo, with FCo surviving. The corporation, and HCo merged into FCo, with FCo shareholders of HCo receive stock in FCo. surviving? 4 02/13 Copyright ஽ 2013 by The Bureau of National Affairs, Inc. TM FORUM ISSN 0143-7941 Host Country ARGENTINA Manuel M. Benites Pere´zAlati, Grondona, Benites, Arntsen &Martı´nez de Hoz, Buenos Aires I. Introduction II. Forum questions rgentine income tax applies on aworldwide For purposes of the discussion below,HCwill be re- basis to resident entities; nonresident entities ferred to as Argentina and HCo will be referred to as A are subject to tax only on their Argentine- ArgeCo. source income. Similarly,Argentina imposes atax on the assets of resident entities on aworldwide basis, A. Viability under Argentine corporate law.Treatment for while nonresident entities are subject to this tax only Argentine income tax purposes with respect to certain assets located in Argentina. 1. ArgeCo remains the same business entity but In this context, the jurisdiction in which acorpora- effects achange (of some type) that changes it tion has its domicile has significant consequences for from an Argentine corporation into an FC taxation in Argentina, in particular where the corpo- corporation for Argentine income tax purposes ration, like the one envisaged here, holds participa- tions in subsidiaries located both in Argentina and ArgeCo may become aforeign corporation by moving abroad.