1929 HOLDING COMPANIES AND SPFs SOPARFIS

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1 SOPARFI

2 Foreword ABOUT LUXEMBOURG The Grand-Duchy of Luxembourg is small independent country of 500,000 inhabitants located in the heart of Europe. Luxembourg is a founding member of the European Union and is the host country of several EU institutions, such as the European Court of Justice, the European Investment Bank, the European Investment Fund, Euratom, the European Communities Publication office and the European Court of Auditors. Luxembourg is a constitutional monarchy. Members of Luxembourg parliament are elected every five years. The government is traditionally a coalition between the two most representative political parties. Over the years, successive Luxembourg governments have shown constant commitment to the development of the financial activities in Luxembourg by creating a flexible and innovative legal framework that takes into consideration the needs and expectations of both the local and, importantly, the international financial markets. This policy began in the year 1929 with the creation of the 1929 holding company, which has since been replaced, and continues today, as illustrated by the rapid transposition of the UCITS Directives and by legislation such as the law on SICAR (2004), Securitisation (2004), the Specialised Investment Fund (2007), the Private Wealth Management Company-SPF (2007) and the law introducing a partial exemption on royalty income (2008). The flexible approach of the government and the authorities, combined with their willingness to listen to the concerns of the financial sector, as well as other factors such as a highly qualified and multilingual workforce, make Luxembourg an attractive international financial centre that has reached overall leadership in some of its sectors.

3 2 3 Luxembourg provides two types of holding company in order to perform financing and holding activities. Formerly, these were the 1929 holding company and the SOPARFI. The 1929 holding company has been replaced by the SPF HOLDING COMPANIES AND SPFs Following the repeal of the 1929 holding company, the Law of 11 may 2007 introduced a new investment vehicle in Luxembourg for private wealth management: the SPF. The aim was to replace the 1929 holding regime for the private wealth management sector, which was the sector most impacted by the abolition of the 1929 holding regime. SOPARFIS In 1990, the Luxembourg legislator implemented the European Union Parent-Subsidiary Directive 1 for Luxem bourg fully taxable resident corporations. As a result, the so-called participation exemption for dividends and capital gains derived from significant shareholdings was introduced into Luxembourg law. This law gave rise to a new type of Holding Company that was soon to be known under the name of Société de Participations Financières (hereafter Soparfi ). The Soparfi is a fully taxable Luxembourg resident company that takes advantage of the participation exemption in Luxembourg and that may benefit from double taxation treaties signed by Luxembourg as well as the provisions of the EU Parent-Subsidiary Directive. In this brochure, key legal aspects of the Soparfi are described in the first section. In the second section, its tax treatment is analysed. 1 Council Directive of 23 July 1990, as amended by the Council Directive of 22 December 2003 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (90/435/EEC).

4 Contents 3 GENERAL 4 LEGAL FRAMEWORK 5 TAX FRAMEWORK 7 CONCLUSION Luxembourg for Finance thanks ATOZ for granting permission to reproduce this brochure. LFF and ATOZ cannot be held responsible for any errors or omissions or for the results obtained from the use of the information contained in this brochure. Interested parties should seek the advice of qualified professionals before making any decision.

5 GENERAL 4 5 DEFINITION There is no legal definition of a Société de participations financières or Soparfi in the sense that it is most used. This is because Soparfi is a term of convenience rather than a precise legal concept. Literally, a Société de partici pations financières could be translated as a Financial Holding Company. The term Soparfi is generally used to describe a company that has the following two features: it is a normally taxed Luxembourg company (as opposed to an exempt SPF or a regulated investment fund, etc.); its primary activity is a holding and / or financing activity and thus it benefits from the so called participation exemption in respect of some or all of its investments. In this publication, we have focused on companies that have these two features and have not, for example, focused on companies that have a primary activity (such as an industrial or banking activity) and also benefit from the participation exemption. ACTIVITIES OF A SOPARFI A Soparfi is a normal commercial company and as such may have a more or less specific corporate purpose defined in its statutes. There are no prohibited activities or assets as such. Provided the statutes are not specially drafted in such a manner as to remove the company from the normal corporate tax law, the company will be normally taxable and will be eligible for the participation exemption in respect of qualifying participations.

6 LEGAL FRAMEWORK Depending on the needs of the shareholders or other investors, the Soparfi can adopt one of the five following legal forms: Société anonyme (Public limited company), Société à responsabilité limitée (Private limited company), Société en commandite par actions (Partnership limited by shares - SCA ), Société coopérative ( SC ), or Société européenne (European Company). The information set out below relates to the two main legal forms adopted by holding companies, i.e. Société anonyme ( SA ) and Société à responsabilité limitée ( Sàrl ). COMPARISON S.A. / S.A.R.L. The main characteristics of SA and Sàrl are summarised in the chart below: Founders Société anonyme The public company can be incorporated by one or more investors, who may be resident or non-resident, individuals or legal entities. Société à responsabilité limitée The limited liability company can be incorporated by a single member but no more than 40, who may be resident or non-resident members, individuals or legal entities. Share capital The minimum share capital is approximately EUR 30,000 or the equivalent in another non-euro currency. The minimum must be subscribed in its entirety and paid-up to a minimum of 25%. The capital is represented by shares with or without par (i.e. nominal) value. If the shares have a par value, it may not be lower than EUR 0,01 or the equivalent in another non-euro currency. The minimum capital is approximately EUR 12,400 or the equivalent in another non-euro currency; the minimum must be fully subscribed and 100% paid-up. The capital is represented by corporate units similar to shares with a par value of at least EUR 0,01 or the equivalent in another non Euro currency. Shareholders contributions The contribution may be in cash or in kind: in cash: the founders are required to transfer on to the company s bank account the funds corresponding to the paid-up capital. The bank will issue the blocking certificate required by the notary in order to proceed with the contribution; in kind: a contribution in kind must be subject to an opinion by a Luxembourg independent auditor who will issue a valuation report thereon. The contribution may be in cash or in kind: in cash: the founders are required to transfer on to the company s bank account the funds corresponding to the capital. The bank will issue the relevant blocking certificate required by the notary in order to proceed with the contribution; in kind: for a limited liability company there is currently no legal obligation to issue an auditors report; however, a similar report is strongly recommended by the notaries.

7 6 7 Shares Management: Board of Directors (monistic form) or Management Board (dualistic form) Société anonyme The shares may be in registered or bearer form at the option of the shareholders. However, from the date of incorporation until the publication date of the company s statutes in the Luxembourg official gazette, the shares will remain in registered form, i.e. recorded in the company s register of shares. A public company may be managed either by a single body (monistic form) or through the following 2 bodies (dualistic form): The Management Board; The Supervisory Board. The dualistic form must expressly be provided for in the statutes of the company. The single member public company can be administered by a single director. In the case of a dualistic single member company, a single director is also possible as long as the share capital is less than EUR 500,000. If the company has more than one shareholder, then it is administered by a Board of Directors (monistic form) or by a Management Board (dualistic form) of not less than three members, who may be shareholders or not. These members are elected for a term, which may not exceed six years, by the general meeting of shareholders (monistic form) or by the Supervisory Board (dualistic form) and can be dismissed at any time by the general meeting of shareholders. There are no legal requirements relating to the residence or nationality of the directors. They may be resident or non-resident, individuals or legal entities. The Board of Directors and the Management Board are entrusted with the management of the company within the limits of the corporate object, with the exception of the powers reserved by law or by the statutes to the general meeting of shareholders or those requiring prior approval by the Supervisory Board (dualistic form). Société à responsabilité limitée The units of a limited liability company are always in registered form. The company is managed by one or several managers who need not be members, who are appointed by the general meeting of members for a limited or an unlimited period and who can be dismissed at any time by the general meeting of members. There are no legal requirements relating to the residence or nationality of the managers. They may be resident or non-resident, individuals or legal entities.

8 Supervisory Board (dualistic form) Interim Dividend distribution Société anonyme The Supervisory Board is composed of not less than three members, shareholders or not, who are elected for a term which may not exceed six years by the general meeting of shareholders and who can be dismissed at any time by the general meeting of shareholders. There are no legal requirements relating to the residence or nationality of the members of Supervisory Board. They may be resident or non-resident, individuals or legal entities. The Supervisory Board shall supervise and exercise an ongoing control over the management of the company by the Management Board without interfering in the management. CONDITIONS the statutes authorise the board of directors to distribute an advance dividend; interim accounts must be drawn up showing sufficient funds available for distribution; the decision of the board of managers to distribute an advance dividend may not be taken more than two months after the date at which the interim accounts referred to above have been drawn up; an independent auditor shall verify that the above conditions have been satisfied; ratification by the following annual shareholder meeting. MAXIMUM DISTRIBUTABLE AMOUNT The maximum distributable amount is computed as follows: + profit for the period + profits carried forward, or - losses carried forward - 5% allocated to the legal reserve, until the legal reserve amounts to 10% of the share capital - additional reserves required by law or the statutes - unamortised establishment costs. EXCESS PAYMENT Where the payments on account of advance dividends exceed the mount of the dividend subsequently decided upon by the general meeting, they shall, to the extent of the overpayment, be deemed to have been paid as an advance on the next dividend. Société à responsabilité limitée The statutes can authorise the setting up of a Supervisory Board and determine its role, rights, responsibility and rules. CONDITIONS the statutes authorise the board of managers to distribute an advance dividend; interim accounts are drawn up showing that the funds available for distribution are sufficient; the decision of the board of managers to distribute an advance dividend may not be taken more than two months after the date at which the interim accounts referred to above have been drawn up; no requirement for an independent auditor; ratification by the following annual shareholder meeting. MAXIMUM DISTRIBUTABLE AMOUNT The maximum distributable amount is computed as follows: + profit for the period + profits carried forward, or - losses carried forward - 5% allocated to the legal reserve, until the legal reserve amounts to 10% of the share capital - additional reserves required by law or the statutes - unamortised establishment costs. EXCESS PAYMENT Where the payments on account of advance dividends exceed the amount of the dividend subsequently decided upon by the general meeting, they shall, to the extent of the overpayment, be deemed to have been paid as an advance on the next dividend.

9 8 9 Control of the company Annual general meeting Dividend distribution Société anonyme Depending on the size of the company, it must be supervised either by a statutory auditor (small company) or by an independent auditor (medium and large company): the statutory auditor may be one or several individuals or legal entities, that may, but do(es) not need to be shareholder(s) and who is/are appointed by the general meeting. The statutory auditor can be dismissed at any time. The term of the mandate is fixed by the general meeting of shareholders for a period that may not exceed six years. an independent auditor is required by law if two of the following three criteria are fulfilled by the company during two successive years: - total balance sheet: exceeds EUR 3,125 million - net turnover: exceeds EUR 6,25 million - average number of employees: exceeds 50 The independent auditor must be a member of the Institut des Réviseurs d Entreprises in Luxembourg. Each year, at a date determined in the statutes, the board of directors is required to convene the share holders to an annual general meeting which will deliberate on the annual accounts. This meeting must be held within a six month period after the close of the financial year. The maximum distributable amount is computed as follows: + profit for the period + profits carried forward, or - losses carried forward - 5% allocated to the legal reserve; until the legal reserve amounts to 10% of the share capital - additional reserves required by law or the statutes - unamortised establishment costs. Société à responsabilité limitée If the number of members is between 1 and 25, then a statutory auditor is not compulsory. Sàrls with more than 25 members require the appointment of a statutory auditor, who may be an individual or a legal entity. An independent auditor is required by law if two of the following three criteria are fulfilled by the company during two successive years: total balance sheet: exceeds EUR 3,125 million net turnover: exceeds EUR 6,25 million average number of employees: exceeds 50 The independent auditor must be member of the Institut des Réviseurs d Entreprises in Luxembourg. Within a six month period after the year-end closing of the financial year, the member(s) have to approve the annual accounts. No precise date for the members meeting is required by law. The maximum distributable amount is computed as follows: + profit for the period + profits carried forward, or - losses carried forward - 5% allocated to the legal reserve; until the legal reserve amounts to 10% of the share capital - additional reserves required by law or the statutes - unamortised establishment costs.

10 FINANCIAL STATEMENTS An annual balance sheet, a profit and loss account and notes to the accounts must be prepared in the form required by the law of December 19, 2002 and submitted for shareholders approval within six months after the financial year end. Furthermore, the following documents have to be filed with the Trade Register within a month after the approval of the annual accounts by the shareholders: the balance sheet and the notes to the accounts including the appropriation of profit or loss; audit report; the list of directors and auditors (if necessary); the list of shareholders who have not yet fully paid up their shares, together with an indication of the amounts for which they are still liable. A notice must be published in the Memorial that these documents have been filed with the trade register.

11 TAX FRAMEWORK The Soparfi is a fully taxable company subject to the common tax regime in Luxembourg. As a result, taxation can occur at different stages of the existence of the Soparfi (from its incorporation until its liquidation) or in the case of particular events. Provided certain requirements are fulfilled, some types of income realised by the Soparfi will benefit from the participation exemption. Furthermore, the Soparfi is entitled to benefit from the reduced withholding tax rates provided for in double tax treaties concluded by Luxembourg. DUTIES Since 2009, the Soparfi is no longer subject to the 0.5% capital duty that was formerly levied on the value of the assets contributed to the Soparfi upon incorporation and capital increases. Contributions of real estate assets situated in Luxembourg are however now subject to the following regime: contributions remunerated by shares are subject to a 0.6% registration duty + a 0.5% transcription tax; contributions remunerated by other means than shares are subject to a 6% registration duty + a 1% transcription tax (4% for Luxembourg city); transfers made in the context of a corporate restructuring (i.e. contributions of all assets and liabilities, contributions of one or more branches of activities as well as contributions of all assets and liabilities of the 100% held subsidiary) are exempt from proportional duties. The transfers have however to be mainly remunerated (i.e. more than 50%) with securities that represent share capital of the companies involved. CORPORATE INCOME TAX A Soparfi is subject to Corporate Income Tax (hereafter CIT ). CIT is levied at a rate of 21%. A surcharge of 4% is payable to the unemployment fund. As a result, the effective CIT rate applicable is 21.84%. A Soparfi is taxed on its worldwide income. The taxable profit for the year is calculated by using a balance sheet approach, i.e. by comparing the net worth of the company at year-end to the net worth as of the end of the previous year. Allowable expenditure includes all expenses that were incurred exclusively and directly for the business activity of the company. However, certain types of business expense are not deductible 1. In principle, Luxembourg companies may credit the foreign withholding tax suffered against Luxembourg corporate income tax. This tax credit is limited to the extent of the Luxembourg corporate income tax that is due on this foreign income. 1 The most important non-deductible expenses are : directors fees, self-insurance provisions, creditable foreign taxes and expenses connected with exempt income, e.g. dividends or capital gains.

12 Foreign taxes that are not creditable against Luxembourg tax may be deducted as operating expenses as long as they do not relate to exempt income (e.g. dividends). Withholding taxes paid in Luxembourg are considered to be an advance payment on income tax finally due. If the final income tax due is lower than the withholding taxes suffered in Luxembourg, then the balance will be reimbursed. Provided the conditions necessary in order to benefit from the participation exemption regime are fulfilled, dividends or liquidation proceeds received by a Soparfi as well as capital gains realised upon the sale of shares in its subsidiary will be exempt (Please refer to sections and for more details). There are some tax credits available for certain types of investment in tangible/ fixed assets for use within the Grand Duchy of Luxembourg. Losses can be carried forward indefinitely, but not back. MUNICIPAL BUSINESS TAX Municipal Business Tax (hereafter MBT ) is due on profits derived from business activities carried out by companies resident in Luxembourg. The basic rate of 3% is multiplied by a factor that varies between 140% and 300% depending upon the municipality. The taxable basis of the MBT is essentially equal to the basis applied for CIT purposes. The above rates result in an overall tax rate on income (including CIT, MBT and the contribution to the unemployment fund) of 28.80% for 2011 in Luxembourg City. DEBT -EQUITY RATIO As far as a Soparfi is concerned, practice has shown that a 85/15 debt-equity ratio is acceptable to the Luxembourg tax authorities. Within this limit, interest on debt paid or accrued is tax-deductible and payments do not suffer Luxembourg withholding tax. Should this ratio be exceeded, then the tax authorities may consider part of the shareholder s loan to be equity. The related interest payments would then be recast as a hidden dividend payment. This would imply that such payments are not deductible for tax purposes. In addition, withholding taxes would apply, depending upon the country of residence of the recipient.

13 12 13 Finally, it should be mentioned that third party debt is generally not subject to any debt-equity limitations, as long as the debt is not guaranteed by related parties. NET WORTH TAX Net Worth Tax ( NWT ) is levied annually at a rate of 0.5% on the adjusted net asset value of a corporation as at January 1 st of each year. Broadly, the net asset value is calculated as assets less liabilities and corresponds to net equity.the NWT due may be reduced by a tax credit through the creation of a special reserve, provided the following conditions are met: the company has to submit a written request to the competent tax office. This request must be attached to the tax return of the financial year for which net wealth tax is to be credited; the company must allocate to a special reserve account an amount equal to five times the amount of net worth tax it wishes to reduce. The net worth tax to be reduced may not be higher than the CIT due by the company for the given year. The special reserve has to be booked in the accounts of the company before the end of the subsequent financial year; the company must commit itself to maintain the special reserve in its balance sheet for at least five financial years. Provided certain conditions are fulfilled, substantial shareholdings may be exempt from NWT. THE LUXEMBOURG PARTICIPATION EXEMPTION REGIME Provided certain conditions are met, the Luxembourg participation exemption regime allows for the following exemptions: dividends received by the Soparfi are exempt from corporate income and municipal business tax; capital gains realised by the Soparfi on the sale of shares are exempt from corporate and municipal business income tax; dividends remitted by the Soparfi are exempt from withholding tax; qualifying participations are exempt from NWT.

14 DIVIDEND EXEMPTION According to article 166 of the Income Tax Law (hereafter ITL ) dividends (as well as liquidation proceeds) are exempt from corporate income tax and municipal business tax if the following conditions are met: the beneficiary of the income is: - a fully taxable collective entity which is resident in Luxembourg and has adopted one of the legal forms listed in the annex of the article 166, paragraph 10 ITL; or - a fully taxable capital company that has been incorporated outside of the EU but which is a resident of Luxembourg; or - a Luxembourg permanent establishment of a collective entity referred to in the article 2 of the Council Directive of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States; or - a Luxembourg permanent establishment of a capital company which is resident in a State with which Luxembourg has concluded a double tax treaty; or - a Luxembourg permanent establishment of a corporation or cooperative company which is resident in an EEA country other than a EU member State. the distributing subsidiary is: - a collective entity referred to in article 2 of the Council Directive of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States; or - a fully taxable capital company which has been incorporated outside of the EU but is a resident of Luxembourg; or - a non-resident capital company which is liable to a tax corresponding to Luxembourg corporate income tax 1. at the date the dividend is placed at the disposal of the recipient company, the latter holds or commits to hold a continuous shareholding for at least 12 months. This shareholding should represent at least 10% of the capital of the distributing company, or its acquisition price should amount to at least Euro 1,2 million. The beneficiary may hold its participation through a tax transparent entity as defined in article 175(1) 2 ITL. The underlying shareholding will be valued according to the proportion held in the net assets of the tax transparent entity. 1 Luxembourg tax authorities generally consider that the foreign tax must be assessed at a minimum tax rate of 10,5% on a basis comparable to the Luxembourg taxable basis (rate applicable since the tax year 2002). 2 General partnerships ( sociétés en nom collectif ), limited partnerships ( sociétés en commandite simple ), economic interest groups ( groupements d intérêt économique ), European economic interest groups ( groupements européen d intérêt économique ) and private partnerships ( sociétés civiles ) are considered as tax transparent, with the exception of non-resident entities referred to in the article 2 of the Council Directive of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.

15 14 15 Where a dividend is exempt, the amount of expenses in direct economic connection with this dividend income (e.g. interest expenses that are in relation with the financing of the shareholding) will not be deductible, up to the amount of dividends received. If a write-down of the participation takes place, then this write-down will only be deductible to the extent that the write-down exceeds the amount of dividends received during the current as well as previous financial years. Where a write-down of participation was undertaken in the past and the participation has to be subsequently revalued above the written down value, then the income derived from the revaluation of the participation is deemed to be an exempt dividend distribution. However the amount to be exempted may not exceed the sum of all related expenses and write-downs, that were considered to be non deductible in the current and in previous years, in accordance with the rules described above. CAPITAL GAINS EXEMPTION According to the Grand Ducal Decree of 21 December 2001, related to article 166 ITL, the capital gains realised upon the disposal of shareholdings are exempt from corporate income tax, provided the following conditions are met: the seller is: - a fully taxable collective entity which is resident in Luxembourg and has adopted one of the legal forms listed in the annex of the article 166, paragraph 10 ITL; or - a fully taxable capital company that has been incorporated outside of the EU but which is a resident of Luxembourg; or - a Luxembourg permanent establishment of a collective entity referred to in the article 2 of the Council Directive of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsi diaries of different Member States; or - a Luxembourg permanent establishment of a capital company which is resident in a State with which Luxembourg has concluded a double tax treaty; or - a Luxembourg permanent establishment of a corporation or cooperative company which is a resident of an EEA country other than an EU member State.

16 the subsidiary whose shares are disposed of is: - a collective entity referred to in the article 2 of the Council Directive of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States; or - a fully taxable capital company which has been incorporated outside of the EU but is a resident of Luxembourg; or - a non-resident capital company which is liable to a tax corresponding to Luxembourg corporate income tax; at the date of the disposal, the seller has held or commits itself to hold for an uninterrupted period of 12 months, a shareholding that amounts to either 10% of the shares issued by the company or to an acquisition cost of at least EUR 6 million. The beneficiary entity may hold its participation in one of the above-mentioned qualifying subsidiaries through a transparent entity as defined by article 175(1) 1 ITL. The shareholding will be valued according to the proportion held in the net assets of the transparent entity. Notwithstanding what is mentioned above, the capital gains realised upon disposal of a participation are subject to a recapture rule. According to this recapture rule, capital gains will remain subject to tax up to the sum of all related expenses that were deducted for tax purposes in the year of disposal or in previous financial years. Expenses include, for instance, interest expenses on loans used to purchase the shares or any write-downs of the participation. This recapture rule merely implies that in certain cases the deduction of related expenses will give rise to a tax deferral rather than to an absolute saving. WITHHOLDING TAX EXEMPTION Dividends distributed by a Luxembourg company are in principle subject to a withholding tax at a rate of 15%, unless a reduced rate under the provisions of a double tax treaty applies. However, a general exemption from withholding tax applies if the following conditions are fulfilled: the distributing company is: - a fully taxable collective entity which is resident in Luxembourg and has adopted one of the legal forms listed in the annex of the article 166, paragraph 10 ITL; or 1 General partnerships ( Sociétés en nom collectif ), limited partnerships ( Sociétés en commandite simple ), economic interest groups ( groupements d intérêt économique ), European economic interest groups ( groupements européen d intérêt économique ) and private partnerships ( Sociétés civiles ) are considered as not having a distinct legal personality from its partners, except for the non-resident entities referred to in the article 2 of the Council Directive of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.

17 a fully taxable corporation (i.e. SA, Sàrl or SCA) which has been incorporated outside the EU but is a resident of Luxembourg. the beneficiary of the dividends is: - another collective entity referred to in article 2 of the Council Directive of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States; or - a fully taxable corporation which is a resident of Luxembourg and not listed in the annex of the article166, paragraph 10 ITL; or - the State, a municipality, a municipal union or a Luxembourg state organisation; or - a fully taxable collective entity 1 which is a resident of a country with which Luxembourg has concluded a double tax treaty; - a permanent establishment of a collective entity referred to above; or - a Luxembourg permanent establishment of a capital company which is resident in a State with which Luxembourg has concluded a double tax treaty; or - a corporation or cooperative company which is a resident of an EEA country other than an EU member State and which is liable to a tax corresponding to the Luxembourg corporate income tax; - a permanent establishment of a corporation or cooperative company which is a resident of an EEA country other than an EU member State. at the date the dividends are placed at the disposal of the beneficiary company, the latter holds or commits to hold for a continuous period of at least 12 months a direct shareholding of at least 10% in the capital of its subsidiary, or a shareholding that was acquired for at least EUR 1,2 million. The beneficiary may hold its participation through a transparent entity as defined by article 175(1) ITL. The underlying shareholding will be valued according to the proportion held in the net assets of the transparent entity. 1 Luxembourg tax authorities generally consider that the foreign tax must be assessed at a minimum tax rate of 10,5% on a basis comparable to the Luxembourg taxable basis (rate applicable since the tax year 2002).

18 NET WORTH TAX A shareholding will be exempt from NWT at the level of the shareholder provided that the following conditions are met: the shareholder is: - a fully taxable collective entity which is resident in Luxembourg and has adopted one of the legal forms listed in the annex of article 60, paragraph 4 of the Evaluation Act of 16 October, 1934; or - a fully taxable capital company (i.e. SA, Sàrl, SCA or European Company) which has been incorporated outside the EU but is a resident of Luxembourg; or - a Luxembourg permanent establishment of a collective entity referred to in article 2 of the Council Directive of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States; or - A Luxembourg permanent establishment of a corporation or cooperative company which is resident of an EEA country other than an EU member State. the subsidiary is: - a collective entity referred to in article 2 of the Council Directive of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States; or - a fully taxable capital company which is a resident of Luxembourg and not listed in the annex of article 60, paragraph 4 of the Evaluation Act of 16 October, 1934; or - a non-resident capital company which is liable to a tax corresponding to Luxembourg corporate income tax. the shareholder holds a participation of at least 10% in the subsidiary or a shareholding that was acquired for at least EUR 1,2 million. The holding of a company through a transparent entity will be considered as a direct participation, in proportion to the net assets held in the transparent entity.

19 18 19 DOUBLE TAX TREATIES Luxembourg has signed double tax treaties with 64 other countries, many of which follow the OECD Model Tax Convention (See II for a list of the countries that have concluded a double tax treaty with Luxembourg). As Soparfis are fully taxable resident companies they benefit from the protection of double tax treaties 1. In this context the Luxembourg tax authorities will issue resident certificates. Broadly speaking, double tax treaties provide that corporate entities are subject to tax on their world-wide income in the country in which they are resident (the Treaties contain tie-breaker clauses to resolve cases in which both countries assert residence), except in the case where an entity which is resident in one country maintains a permanent establishment in the other country. In such cases, the profits from that permanent establishment are taxed in the other country. Most Luxembourg treaties then exempt the profits from that foreign permanent establishment 2 in Luxembourg. Double tax treaties normally provide for a withholding tax on dividends at a lower rate than the usual internal rate. Furthermore, in the case where a company holds an important stake in a subsidiary in another country (usually 25% or greater), an even lower or zero rate is applied. Likewise, reduced rates of withholding tax are applied to interest and royalty payments (although, in principle, Luxembourg does not apply withholding tax to interest or to most royalties payments 3 ). Withholding tax paid in one country normally reduces the income tax due on the same income in the other country (tax credit mechanism). Income from real estate property is usually taxed in the country in which it is situated. In addition to withholding tax relief, a number of Luxembourg tax treaties contain a treaty based participation exemption which, in some cases, is more favourable than the internal participation exemption. In such a case the most favourable provisions of the treaty apply, as a double tax treaty may only improve on the tax treatment of a Luxembourg resident. VALUE ADDED TAX The mere acquisition and holding of shares is not regarded as an economic activity for VAT purposes. In the same vein the disposal of such holdings does not in itself constitute an economic activity. As a consequence, a purely passive Soparfi whose sole purpose is to hold shares in other undertakings does not have the status of taxable person for VAT purposes. 1 The one exception could be under the limitation of benefits clause in the US/Luxembourg double tax treaty, which contains restrictions on treaty benefits depending on factors such as the shareholders of the Soparfi, erosion of the Soparfi s tax base etc. 2 Prior to 1 January 2001, the old US/Luxembourg double tax treaty was an exception to this rule. 3 In accordance with the EU Savings Directive, Luxembourg currently levies a withholding tax (at a rate of 35%) on interest paid to individuals who are resident in another EU Member State (Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments).

20 Where a Soparfi is directly or indirectly involved in the management of its subsidiaries, then it could become a taxable person, and may need to register for VAT. This could for instance be the case where a Soparfi renders administrative or management services for a consideration. A distinction must therefore be made between an active and a passive Soparfi. The granting of interest bearing loans also falls within the scope of VAT, even if this activity is exempt from VAT. The VAT status of a Soparfi can have an impact on the place of supply of certain services it receives. Intangible services (e.g. services of a legal, advisory or consulting nature) rendered to a Luxembourg taxable person by a taxable person established abroad are deemed to be supplied in Luxembourg. In practice an active Soparfi may need to register for VAT if and when it receives intangible services from suppliers outside Luxembourg. An active Soparfi may be entitled to the deduction of input VAT incurred on goods and services used for the purposes of its economic activity as well as VAT incurred on its general overhead costs. Whether it is active or passive a Soparfi must register for VAT purposes when they perform intra-community acquisitions of goods in Luxembourg.

21 CONCLUSION Since 1990, the Soparfi has developed into a widely used corporate investment vehicle. For many global and regional holding and financing activities it has come to be regarded as an industry standard. This is due to a track record of continuous improvement in its tax and legal regime and a strong supporting infrastructure at all levels. Insofar as the Soparfi fulfils the requirements provided by the Luxembourg participation exemption regime, the Company may be exempt on the following income: income received from its shareholdings; capital gains realised upon the sale of shares in its holding. In cases where the Parent-Subsidiary Directive does not reduce withholding tax rates to zero, the Soparfi will be entitled to benefit from the reduced withholding tax rates provided by the double tax treaties signed by Luxembourg or by domestic law. As regards the net wealth tax applicable to a Soparfi, the exemption of qualifying participations will, in practice, substantially reduce or eliminate any taxes due. Depending on the circumstances, VAT due by a Soparfi may be an important source of cost. Therefore, the VAT situation of each Soparfi needs to be analysed carefully in order to assess and efficiently manage opportunities for VAT savings. Furthermore, dividend distribution to corporate shareholders will also be exempt from withholding tax under certain conditions.

22 Map of double tax treaties as at April 2012 Double tax treaties in force Armenia Austria Azerbaijan Bahrain Barbados Belgium Brasil Bulgaria Canada China Czech Republic Denmark Estonia Finland France Georgia Germany Greece Hong Kong Hungary Iceland Indonesia Ireland Israel Italy Japan Latvia Malaysia Malta Mauritius Mexico Moldavia Monaco Mongolia Morocco Netherlands Norway Panama Poland Portugal Qatar Rumania Double tax treaties pending Russia San Marino Singapore Slovakia Slovenia South Africa South Korea Spain Sweden Switzerland Thailand Trinidad and Tobago Tunisia Turkey United Arab Emirates United Kingdom USA Uzbekistan Vietnam Sri Lanka Albania Syria Argentina Tajikistan Cyprus Ukraine Croatia Uruguay Egypt India Kazakhstan Kyrgyzstan Kuwait Lebanon Liechtenstein Macedonia New Zealand Oman Pakistan Saudi Arabia Serbia and Montenegro Seychelles

23 22 23 Luxembourg for Finance Agency for the Development of the Financial Centre Luxembourg for Finance is a public-private partnership between the Luxembourg Government and the Luxembourg Financial Industry Federation (PROFIL). It consolidates the efforts made by the public authorities and principal actors of the financial sector to ensure the development of an innovative and professional financial centre through a coherent and structured communications policy. Thus Luxembourg for Finance works to enhance the external presentation of the financial centre, communicating the advantages of its products and services to a wider public and highlighting the numerous opportunities available to investors and clients, whether institutional or private, from around the world. Luxembourg for Finance organises seminars in international financial centres and takes part in selected world class trade fairs and congresses. The agency also develops its contacts with opinion leaders from international media and is the first port of call for foreign journalists.

24 Agency for the Development of the Financial Centre 12, rue Erasme P.O. Box 904 L-2019 Luxembourg Tel. (+352) Fax (+352) lff@lff.lu LFF April 2012