Techniques for Repatriation of Funds

Transcription

1 Techniques for Repatriation of Funds Baker & McKenzie 11th Annual Latin American Tax Conference March 10 and 11, 2010 The Biltmore Hotel, Coral Gables Florida Martin Barreiro- (Buenos Aires) Jaime Vargas (Bogotá) Carmela Hernandez (Chicago) Jaime Gonzalez-Bendiksen (Juárez) Alberto Maturana (Santiago) Marcos V. Prado (São Paulo) Ronald Evans (Caracas) James H. Barrett ( Miami) Sergio Corredor (Bogotá) Jesus Alvarado-Nieto (Mexico City) Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a partner means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an office means an office of any such law firm.

2 Why do we need Repatriation Techniques in Latin America? Inbound investment dominates in LA countries Tax rates in LA countries several are high-tax jurisdictions Corporate objectives to redeploy cash to other countries or other regions Barriers imposed by high Withholding Taxes Repatriation of profits often subject to restrictions Inflation is always an issue Legal, accounting and tax differences Techniques for Repatriation of Funds from Latin American Operations 2

3 Agenda Objectives/Constraints of Multinational Companies In Redeploying Cash from Latin American Operations Tax Rules Facilitating or Limiting Distribution of Earnings from Latin American Subsidiaries Use of Intercompany Transactions Ideas for Dealing with Issues in Each Jurisdiction Planning for Redeployment of Funds from Latin American Jurisdictions Use of Holding Company Structures Techniques for Repatriation of Funds from Latin American Operations 3

4 Common Objectives and Constraints of Multinational Companies Get Access to Cash Redeploy Cash To Other Countries / Regions Without Paying U.S. Tax Preserve U.S. Foreign Tax Credits Timing and source of dividends from high tax or low tax pools Techniques for Repatriation of Funds from Latin American Operations 4

5 Common Objectives and Constraints of Multinational Companies Maximize Foreign Tax Credit Under U.S. Source Rules Payments for services performed in the U.S. are U.S. source Potential for no foreign tax credit for LA withholding tax Get Cash Back to the U.S. Without WHT and Without Triggering Dividend or Subpart F Income Techniques for Repatriation of Funds from Latin American Operations 5

6 Common Objectives and Constraints of Multinational Companies Strategies Depend on Tax Situation of Parent Company Companies with Overall Foreign Losses or Losses in the U.S.: Care required to avoid loss of U.S. foreign tax credits May want to avoid payments characterized as dividends Companies That Are Profitable in the U.S.: Often want payments characterized as dividends for U.S. tax purposes Techniques for Repatriation of Funds from Latin American Operations 6

7 Alternatives for Getting Funds Out Planning in Advance Dividends Need for book earnings to declare a dividend Obtaining the necessary funds Redemptions of Shares Characterization issues Interest Payments / Royalties / Payments for Services Techniques for Repatriation of Funds from Latin American Operations 7

8 Alternatives for Getting Funds Out Planning in Advance Consider Likely future situation of parent company and the LA subsidiary Tax Issues withholding taxes, transfer pricing, limits on deductions Hybrid instruments to manage characterization of the payments Exchange controls Techniques for Repatriation of Funds from Latin American Operations 8

9 Alternatives for Getting Funds Out Planning in Advance Potentially applicable Proposals from President Obama s 2010 Greenbook Outbound transfers of foreign goodwill and going concerns value New Subpart F rules for excessive income shifting relating to transferred intellectual property Techniques for Repatriation of Funds from Latin American Operations 9

10 Alternatives for Getting Funds Out Planning in Advance New foreign tax credit rules Pooling of all foreign taxes paid by foreign subsidiaries Matching creditable foreign taxes with associated foreign income Deferral of interest deductions apportioned to U.S. taxpayer s foreign-sourced income that is not currently subject to U. S. taxation Techniques for Repatriation of Funds from Latin American Operations 10

11 Distribution of Earnings from Latin American Subsidiaries Techniques for Repatriation of Funds from Latin American Operations 11

12 Local Tax Treatment of Dividend Distributions Exceptions to General Rule of No Dividend WHT in Latin American Jurisdictions Peru generally applicable dividend WHT of 4.1% Uruguay new 7% dividend WHT effective July 1, 2007 Other Exceptions Limited to Withholding Tax on Distributions in Excess of Previously Taxed Income Argentina 35% withholding tax Venezuela 34% withholding tax Colombia 33% withholding tax Mexico extra corporate level tax of approximately 39% Techniques for Repatriation of Funds from Latin American Operations 12

13 Local Tax Treatment of Dividend Distributions Chile 35% Withholding Tax on Dividends Part of Integrated Tax System 17% Corporate Tax creditable against the 35% WHT on dividends (total effective tax burden 35%) Application of 35% WHT to distributions in excess of cumulative after-tax profits (FUT) depends on several factors. Double Taxation Treaties Do Not reduce WHT on dividends Techniques for Repatriation of Funds from Latin American Operations 13

14 Reducing or Avoiding Local Tax on Cash Distributions Consider Owning LA Subsidiary from a Treaty Jurisdiction (or Transfer of LA Subsidiary to Treaty Jurisdiction) Not useful in: Chile tax treaties don t reduce the dividend tax Mexico tax on excess distributions is at the corporate level Peru Generally applicable local rates lower than treaty rates Techniques for Repatriation of Funds from Latin American Operations 14

15 Reducing or Avoiding Local Tax on Cash Distributions Mexico, Venezuela, Argentina take care in timing of distributions In Chile Find an Alternative to Dividends Consider Making a Capital Reduction Generally tax free locally Note pitfalls in Mexico Treated as a dividend in the United States Techniques for Repatriation of Funds from Latin American Operations 15

16 Use of Hybrid Instruments Objective - Get Dividend Characterization in Foreign Jurisdiction For Interest Payments Useful if interest is deductible and WHT on interest is low Mexico impact of new single rate tax No deduction for interest other than interest paid to a seller of goods Techniques for Repatriation of Funds from Latin American Operations 16

17 Dealing with Limits on Ability to Pay Dividends Lack of Book Earnings Lack of Funds Limits or Doubts on Ability to Deduct Interest on Debt Incurred to Fund Dividend Payments Specific limitations Mexico income tax and new single-rate tax Some questions on implications of generally applicable rules Argentina, Brazil, Chile, Colombia, Peru, Venezuela Techniques for Repatriation of Funds from Latin American Operations 17

18 Dealing with Limits on Ability to Pay Dividends Planning Ideas Transfer of Shares Sale of the Usufruct Financial Factoring Techniques for Repatriation of Funds from Latin American Operations 18

19 Loaning Money to the U.S. Parent Company Usually Treated as a Dividend for U.S. Tax Purposes Potential Recharacterization of Loan to Parent as a Dividend Specific recharacterization in Mexico Some risk of recharacterization Chile, Colombia, Peru, Venezuela Transfer Pricing Rules on Interest Techniques for Repatriation of Funds from Latin American Operations 19

20 Dealing With Exchange Controls Issues In Distributions of Dividends Limited to Registered Foreign Equity Interest Brazil, Colombia, Venezuela Documentary burdens and formalities vary Chile now more of a reporting mechanism Need to Obtain the Foreign Currency Venezuela Special CADIVI rules on providing foreign currency for dividends Alternatives may be available at a less favorable exchange rate Techniques for Repatriation of Funds from Latin American Operations 20

21 Planning for Other Intercompany Payments from Latin American Affiliates Techniques for Repatriation of Funds from Latin American Operations 21

22 Intercompany Transactions with Latin American Subsidiaries Dealing with High Local Withholding Taxes Minimizing Tax Costs on Cross-Border Interest Payments Other Planning Opportunities Will depend on composition of the global group and capabilities of different group members Transfer Pricing Objectives / Requirements Establish tax objectives based on overall tax costs, including withholding tax and anticipated tax position of parent company Transfer pricing rules allow flexibility in pricing Techniques for Repatriation of Funds from Latin American Operations 22

23 Comparison WHT in LA Countries WHT on WHT on WHT on Tax on Dividends Interest Royalties Capital Gains Argentina 0% if pre-tax profits, 35% WHT on excess over pretaxed profits 35% generally; 15.05% Financial Institution; 21% / 28% / 31.5% Exempt for shares. Taxable for quotas sold to an Argentine party. Brazil 0% Generally; 15% Generally; 25% Tax Haven 15% Generally; 25% Tax Haven 15% Generally; 25% Tax Haven Chile 35%: CIT (first level tax of 17%) may be credited 35% generally; 4% Financial Institutions 15% / 30% Exempt / 17% / 35% Mexico 0% WHT; Corp Level Tax on dividends in excess CUFIN (1.3889% x div x 28% CIT rate in 2006) 4.9% FI, 40% tax haven, 10%, 15%, 21%, and 28% 25% Generally; 40% - Tax Haven 25% WHT on Proceeds or 30% of Net gain (Exempt if over Stock Exchange) Techniques for Repatriation of Funds from Latin American Operations 23

24 Comparison WHT in LA Countries WHT on WHT on WHT on Tax on Dividends Interest Royalties Capital Gains Venezuela 0% generally; 34% WHT on excess over pretaxed profits 4.9%Financial Institution; otherwise 34% on 95% of payment 34% on 90% of payment 1% if over Stock Exchange; Otherwise 34% Colombia 0% 33% WHT on excess over pretaxed profits 0% Financial Institution (CONPES) (Art 25 CTC) 33% 33% Peru 4.1% 1% foreign credit lines of Financial 30% 5% / 30% Institutions 4.99% Financial Institution 30 % General Techniques for Repatriation of Funds from Latin American Operations 24

25 Corporate & Withholding Tax Rates in Latin America Country VAT Corporate IT Capital Gains Branch Tax Dividends WT Interest WT Royalties WT Technical Assistance WT Argentina / (3) 15.05/35 21/28/ / 28 Brazil (1) 34 (2) / / 25 Chile / 4 30 / / 15 Colombia (3) 33 / 0 33/ Ecuador Mexico /10/15/ 21/ Peru / / 4.99 / /30 Venezuela (3) 4.95 / / 10.2 (1) Combined rate (Corporate Income Tax at 25% plus Social Contribution on Net income at 9%) (2) Rate applicable to Brazilian entities. In case of foreign entities the capital gain tax rate is 15% (or 25% if the seller is domiciled in a low tax jurisdiction) (3) Withholding applies on dividends in excess of the distributing company s previously taxed income - at 35% in Argentina, 33% in Colombia, and 34, 50 or 60% in Venezuela. Techniques for Repatriation of Funds from Latin American Operations 25

26 Argentina Brazil Chile Colombia Ecuador México Perú Venezuela 1. Argentine 1. Argentina 1. Germany 1. Canada 1. Spain 1. Argentina 1. Germany 2. Austria 2. Canada 2. Brazil 2. Australia 2. Brazil 2. Belgium 2. Andino 3. Canada 3. Argentina 3. Mexico 3. Chile 3. Chile 3. Chile 3. Canada 4. Chile 4. Belgium 4. Brazil 4. Switzerland* 4. United States 4. US 5. China 5. Mexico 5. Canada 4. Andino 5. France 5. Mexico* 6. Czech Republic/ 5. Norway 6. S. Korea 6. Canada* 6. Italy 6. Netherlands Slovakia 6. S. Korea 7. Chile 7. Germany** 7. France 7. Italy 7. Korea 8. Denmark 7. Ecuador 8. Switzerland 8. Norway 8. Belgium** 8. Belgium 9. Ecuador 8. Spain 9. Netherlands** 9. Andino 9. Portugal 9. Denmark 10. Spain 10. UK 9. Poland 10. Luxembourg** 10.Ecuador 11. U.S.A. 11. Sweden 11. Korea** 11.Spain 10. Peru 12. Finland 12. U.S.A.** 12. Spain 12. Philippines 11. UK 13. Italy 13.Switzerland 13. India** 13. Finland 14. Israel 12.Denmark 14. Trinidad and 14. Czech 14. France 15. Ireland 13. Croatia Republic** Tobago 15. Netherlands 16. Japan 15. Czech Rep 16. Hungary 14. Sweden 17. Luxemburg 16. Indonesia *not yet 17. India 15. New Zealand 18. Norway ratified 17. Barbados 18. Italy 16. France 19. Netherlands 18. Denmark ** Under negotiation 19. Japan 20. Poland 17. Sweden 19. Brazil 20. Luxembourg 21. Portugal 18. Paraguay 22. UK 20. China 21. Norway 22. Portugal 19. Portugal 23. Czech Republic 21. Cuba 23. Sweden 20. Ireland 24. Rumania 22. Iran 24. South Africa 21. Malaysia 25. Singapore 23. Kuwait 25. Israel 26. Sweden 27. Switzerland 24. Russia 26. Mexico 27.Ukraine 28. France 25. Austria 28. Paraguay (pending Decree) 29. Austria 26. Qatar* 29. Russia (pending Decree)1 30. Brazil *not in force 31. China 32. Singapore Techniques for Repatriation of Funds from Latin American Operations Bolivia 2. Chile 3. Germany 4. Austria 5. Italy 6. France 7. Brazil 8. Spain 9. Canada 10. Finland 11. Sweden 12. Denmark 13. Holland 14. UK 15. Belgium 16. Swiss 17. Norway 18. Russia

27 Argentina Minimizing Tax on Other Payments Withholding Tax of 35% on Specific Percentages of Presumed Net Income Debt Consider Borrowing from Financial Institutions or Parties in Tax Treaty Jurisdictions Otherwise Not Tax Efficient 35% WHT on cross border interest payments 15.05% WHT on interest paid to Financial Institutions Possible use of back-to-back loans Techniques for Repatriation of Funds from Latin American Operations 27

28 Argentina Minimizing Tax on Other Payments Use of Contracts with Parties in Tax Treaty Countries To Avoid High Tax on Payments for Services and Use of Intangibles 21% WHT for technical assistance agreements registered with INPI 28% WHT for patent/trademark license agreements registered with INPI 31.5% WHT for agreements not registered with INPI Techniques for Repatriation of Funds from Latin American Operations 28

29 Argentina Impact of Tax Treaties Tax Treaty WHT on Dividends WHT on Interest WHT on Royalties Tax on Capital Gains With No Tax Treaty (e.g. US, Luxembourg) 0% generally, 35% WHT on excess over pretaxed profits 15.05% Financial Institutions; 35% generally 21% / 28% / 31.5% Exempt for shares. Taxable for quotas sold to an Argentine party. Netherlands Yes limited to 10%, 15% o%, 12% 3%, 5%, 10%, 15% Arg. Tax limited to 10% or 15% if not exempt under D Law Spain Yes limited to 10%, 15% 0%, 12.5% 3%, 5%, 10%, 15% Arg. Tax limited to 10% or 15% if not exempt under D Law Switzerland Yes limited to 10%, 15% 0%, 12% 3%, 5%, 10%, 15% Taxing rights Switzerland only Canada Yes limited to 10%, 15% 0%, 12.5% 3%, 5%, 10%, 15% D Law Techniques for Repatriation of Funds from Latin American Operations 29

30 Argentina When Possible, Plan to Avoid Limits on Deduction of Expenses General Limitations on Deductions: Payments for transfer of technology Deduction only if the agreements are registered with INPI Deduction up to: a) 3% of the sales or profits; b) 5% of the investment effectively made as a consequence of the advice. Payments made for license of trademarks and patents under agreements registered with INPI Deduction limited to 80% of their amounts. Techniques for Repatriation of Funds from Latin American Operations 30

31 Argentina When Possible, Plan to Avoid Limits on Deduction of Expenses Limitations on Interest Deductions: Expense must be necessary to obtain a taxable income or preserve the source of income Thin cap rules Techniques for Repatriation of Funds from Latin American Operations 31

32 Brazil Tax on Interest Payments Interest on Debt Generally Tax Efficient Deduction at 34% CIT rate and WHT at 15% 0% on interest/commissions on credits to finance exports On December, 2009, Federal Government created thin capitalization rules. Debt equity ratio 2:1. For transactions carried out under privileged tax regime or with parties located in low-tax jurisdictions, ratio 0.3:1. Consider Using Capital Reductions Tax free up to the amount registered as foreign investment with the Central Bank of Brazil Losses must be absorbed against capital Techniques for Repatriation of Funds from Latin American Operations 32

33 Brazil Interest on Equity A Brazilian Company Can Pay Interest on Equity to its Equity Holders Amount payable each tax year is limited to 50% of current or retained earnings Operates Like a Hybrid Loan Often Attractive to Parent Companies with an Appetite for Dividends from a High-Tax Jurisdiction Deductible in Brazil at the full corporate rate of 34% Brings back deemed paid foreign tax credits for U.S. tax purposes Techniques for Repatriation of Funds from Latin American Operations 33

34 Brazil Interest on Equity 15% WHT on payment or credit to equity holders Higher rate if equity holder is resident in a low tax jurisdiction Rate of Interest on Equity The government monitored long term interest rate (TJLP) Issue: whether the jurisdiction of beneficiary treats this payment as deemed dividends, interest or other nature? Interest on equity is treated as interest in the Tax Treaties executed with Chile, Israel, Mexico, Portugal, South Africa and Ukraine. Techniques for Repatriation of Funds from Latin American Operations 34

35 Brazil Payments for Cross-Border Services Note Pitfall of High WHT or WHT+CIDE on Payments for Services and Royalties High taxation applicable currently 25% total tax burden (WHT or WHT+CIDE) WHT applies whether services take place in Brazil or offshore Techniques for Repatriation of Funds from Latin American Operations 35

36 Brazil Payments for Cross-Border Services CIDE 10% CIDE ( Contributions of Intervention in the Economy ) levied on Brazilian residents on certain payments to foreign parties Royalties Supply of technology Technical assistance Technical services, administrative assistance and other similar services Trademark license and assignment, and Patent license and assignment Techniques for Repatriation of Funds from Latin American Operations 36

37 Brazil Payments for Cross-Border Services CIDE Application 10% CIDE To Software Payments CIDE does not apply to software licensing fees except in case where there is transfer of the source code (transfer of technology). This provision has retroactive effects to January 1, 2006 Law No. 11,452/07 Techniques for Repatriation of Funds from Latin American Operations 37

38 Brazil Payments for Cross-Border Services CIDE U.S. Tax Consequences of CIDE CIDE is a not a withholding income tax No foreign tax credit for the non-resident beneficiary CIDE is a tax on the payments (not the income) of the company contracting services No deemed foreign tax credit Techniques for Repatriation of Funds from Latin American Operations 38

39 Brazil Payments for Cross-Border Services Withholding Tax on Royalties and Service Payments 15% on royalties / payments for services that were subject to CIDE 25% on royalties / payments For services not subject to CIDE Or if the services provider is domiciled in a low-tax jurisdiction Techniques for Repatriation of Funds from Latin American Operations 39

40 Brazil Tax Burden on Payments for Technical Assistance, Technical Services and Consulting Services Payments for Technology Transfer Agreements, Technical Assistance and Technical Services Deduction limited to 5% of the associated revenues Transfer pricing rules not applicable for payments subject to limitation of deductibility Registration with INPI and Brazilian Central Bank Techniques for Repatriation of Funds from Latin American Operations 40

41 Brazil Tax Burden on Payments for Technical Assistance, Technical Services and Consulting Services Payments for Technology Transfer Agreements, Technical Assistance and Technical Services Summary of taxes: ISS (service tax) 2% to 5% Withholding income tax - 15% CIDE - 10% PIS/COFINS % Techniques for Repatriation of Funds from Latin American Operations 41

42 Brazil Tax Burden on Payments for Technical Assistance, Technical Services and Consulting Services Definitions Technology Transfer Agreements Imply transfer of technology Technical Assistance Permanent assistance furnished by the owner of a formula or process Technical Services Specialized knowledge is required Techniques for Repatriation of Funds from Latin American Operations 42

43 Brazil Tax Burden on Payments for Technical Assistance, Technical Services and Consulting Services Payments for Professional, Consulting, Administrative, Financial or Managerial services Not subject to registration with any Brazilian Governmental authority Deductible provided that comply with general deductibility rules (not subject to specific limitation) Summary of taxes: ISS (service tax 2% to 5%), withholding income tax (15%), CIDE (10%) and PIS/COFINS (9.25%) Techniques for Repatriation of Funds from Latin American Operations 43

44 Brazil - Importation of Services Import of Services Net price of services 100,00 Grossed up amount 125,00 WTH 15% (18,75) ISS 5% (6,25) Amount net of taxes 100,00 CIDE 10% 12,50 Tax basis PIS/COFINS 137,74 PIS/COFINS 9,25% 12,74 IOF 0,38% 0,57 Total Cost to Brazil Co. 150,81 Tax Cost to Brazil Co. Cost of services 150,81 PIS/COFINS credit (12,74) Deductibility CIT 34% (46,94) Total Cost of Services (after tax recov) 91,13 With PIS/COFINS credits Summary Net amount payable abroad 100,00 Disbursement by Brazil Co. 150,81 Total Taxes 50,81 Recoverable Taxes (59,69) Total Cost (8,87) Techniques for Repatriation of Funds from Latin American Operations 44

45 Brazil - Importation of Services Import of Services Net price of services 100,00 Grossed up amount 125,00 WTH 15% (18,75) ISS 5% (6,25) Amount net of taxes 100,00 CIDE 10% 12,50 Tax basis PIS/COFINS 137,74 PIS/COFINS 9,25% 12,74 IOF 0,38% 0,57 Total Cost to Brazil Co. 150,81 Without PIS/COFINS credits Tax Cost to Brazil Co. Cost of services 150,81 PIS/COFINS credit 0,00 Deductibility CIT 34% (51,28) Total Cost of Services (after tax recov) 99,54 Summary Net amount payable abroad 100,00 Disbursement by Brazil Co. 150,81 Total Taxes 50,81 Recoverable Taxes (51,28) Total Cost (0,46) Techniques for Repatriation of Funds from Latin American Operations 45

46 Brazil Impact of Tax Treaties Tax Treaty WHT on Dividends WHT on Interest WHT on Royalties Tax on Capital Gains With No Tax Treaty (e.g., Switzerland) 0% 15% Generally; 25% Tax Haven 15% Generally; 25% Tax Haven 15% Generally; 25% Tax Haven Netherlands Yes 0% 10% / 15% 15% / 25% Taxing right Both No reduced rates Spain Yes 0% 10% / 15% 10% / 15% Taxing right Both No reduced rates Luxembourg Yes 0% 0% / 15% 15% / 25% Taxing right Both No reduced rates Canada Yes 0% 10 / 15% 15% / 25% Taxing right Both No reduced rates Techniques for Repatriation of Funds from Latin American Operations 46

47 Brazil Impact of Tax Treaties Specific cases: Tax treaties limit on royalties taxation Spain: 10% on royalties paid in consideration for the use or concession of use of author s right on literary, artistic and scientific works 15% others Israel and South Africa: 15% on royalties in consideration for the use or concession of use of industrial and commercial trademarks 10% others Techniques for Repatriation of Funds from Latin American Operations 47

48 Brazil Impact of Tax Treaties Specific cases: Tax treaties limit on royalties taxation Austria, Belgium, Finland and France: 25% on royalties in consideration for the use or concession of use of industrial and commercial trademarks 10% on royalties paid in consideration for the use or concession of use of author s right on literary, artistic and scientific works 15% others Japan: 10% on royalties in general Techniques for Repatriation of Funds from Latin American Operations 48

49 Chile Withholding Tax Issues High withholding tax rates on payments for services Generous traditional concept of Chilean source income including source of payment Example: Service rendered to Chilean company in Tokyo by Japanese resident engineer, subject to WHT in Chile. Effect Potential foreign tax credit issues abroad Use of Double Taxation Treaties To Reduce WHT on Royalties, Interest and Services Income Chile s Treaty Network completed 20+ treaties Chile / Argentina Treaty Techniques for Repatriation of Funds from Latin American Operations 49

50 Chile Cross Border Services 15% withholding tax on payments to unrelated foreign parties not located in tax havens for: Technical or engineering works or professional or technical services rendered in Chile or abroad 20% for payments to related parties or to parties in tax havens Use of patents, utility models, industrial drawings and designs, layout of integrated circuits, new vegetal varieties, and computer programs 30% for payments to related parties or to parties in tax havens Techniques for Repatriation of Funds from Latin American Operations 50

51 Chile Cross Border Services 30% withholding tax on other payments to nonresidents for use of trademarks, formulas, know how or similar concepts 20% withholding tax on payments : To foreign individuals for scientific, cultural or sport activities performed in Chile To foreign producers or distributors for material to be broadcast in television or cinema 1.75% - on payments to nonresidents for lease of capital assets Techniques for Repatriation of Funds from Latin American Operations 51

52 Chile Payments for Technical Assistance, Technical Services and Consulting Services Definition of Technical Assistance (Now in the Income Tax Law) for purpose of getting the 15% withholding tax rate Technical assistance deals with customized or tailor made advice, counseling or support based on experience and knowledge Royalties deal with the use or privileged to use intangibles Techniques for Repatriation of Funds from Latin American Operations 52

53 Chile Payments for Technical Assistance, Technical Services and Consulting Services Treaty Law Chile has not been able to retain right to tax payments for services rendered abroad by non-resident taxpayers Therefore payments for technical assistance provided by treaty residents are not subject to Chilean Tax Exception: Treaties with Brazil and Colombia, where outgoing payments for technical and consulting services are recharacterized as royalties. Techniques for Repatriation of Funds from Latin American Operations 53

54 Chile Impact of Tax Treaties With No Tax Treaty (e.g. US*, Netherlands, Luxembourg, Switzerland) Tax Treaty WHT on Dividends 35%: CIT may be credited (first level tax 17%) WHT on Interest 35% generally; 4% Financial Institutions. WHT on Royalties 15% / 30% Tax on Capital Gain 0 / 17 / 35% Spain Canada Yes Yes 35%: CIT (first level tax of 17%) may be credited 35%: CIT (first level tax of 17%) may be credited 5% / 15%; 4% Financial Institutions 15% generally; 4% Financial Institutions 5% / 10% 15% Taxing rights also Chile; 16% if owner has less than 20% of equity otherwise 35% Domestic Law * The US-Chile Treaty is signed but not effective yet Techniques for Repatriation of Funds from Latin American Operations 54

55 Peru Cross Border Services Importance of Characterizing Services Carefully when Drafting Payments to a Non-domiciled Taxpayer for Services Performed Entirely in Peru 30% withholding tax Payments for Services Performed Entirely Outside of Peru Generally no withholding tax, except... Techniques for Repatriation of Funds from Latin American Operations 55

56 Peru Payments for Technical Assistance, Technical Services and Consulting Services Certain Services Performed Inside or Outside of Peru but Economically Used in Peru 30% Tax - on payments for digital services rendered through the internet, or through systems similar to the internet Techniques for Repatriation of Funds from Latin American Operations 56

57 Peru Payments for Technical Assistance, Technical Services and Consulting Services Certain Services Performed Inside or Outside of Peru but Economically Used in Peru 15% Tax - on payments for technical assistance Regardless of where performed If certification and reporting requirements met 30% if the conditions are not met Clarification of definition of technical assistance where reduced withholding tax rate applies: engineering services, project investigation and finance consulting Techniques for Repatriation of Funds from Latin American Operations 57

58 Peru Payments for Technical Assistance, Technical Services and Consulting Services Definition of Technical Assistance Service whereby provider undertakes to use its abilities by means of certain methods or techniques to provide special non-patented knowledge that the recipient of those services requires Definition has been narrowed through the regulations and Tax rulings Techniques for Repatriation of Funds from Latin American Operations 58

59 Peru Payments for Technical Assistance, Technical Services and Consulting Services Definition of when Services Are Economically Used in Peru (For technical assistance and digital services) When services are used to develop activities or fulfill the purpose of the domiciled taxpayer Presumption That services are economically used in Peru if Peruvian taxpayer deducts the payment as an expense Techniques for Repatriation of Funds from Latin American Operations 59

60 Peru Payments for Technical Assistance, Technical Services and Consulting Services Certification and reporting requirements to get reduced 15% rate for technical assistance Affidavit from the non-domiciled entity, stating that: It will render the services and It will register in its books the revenue from those services; and Report from an audit firm with international prestige, certifying that: The technical assistance was actually rendered. Techniques for Repatriation of Funds from Latin American Operations 60

61 Peru Impact of Tax Treaties Tax Treaty WHT on Dividends WHT on Interest WHT on Royalties WHT on Capital Gains With No Tax Treaty (US, Netherlands, Spain, 4.1% 4.99%, 30% 30% Generally 30% (unless tax exempt) Luxembourg, Switzerland) Canada Yes Generally 15% 10% (recipient: beneficiary controlling not less than 10% of voting shares) 15% 15% (Depends on type of property) Techniques for Repatriation of Funds from Latin American Operations 61

62 Peru Impact of Tax Treaties Tax Treaty WHT on Dividends WHT on Interest WHT on Royalties WHT on Capital Gains Chile Yes Generally 15% 10% (recipient: beneficiary controlling not less than 25% of voting shares) 15% 15% (Depends on type of property) Techniques for Repatriation of Funds from Latin American Operations 62

63 Colombia Withholding Tax Issues Variable Withholding Tax on Payments to Foreign Parties for Services Carefully Consider and Document Character of the Services 33% WHT On payments for services rendered in Colombia and On lease payments to foreign entities (0% Art. 25, CTC) 10% WHT On payments for technical services and technical assistance services (includes consultancy services) No matter if rendered abroad or in Colombia Techniques for Repatriation of Funds from Latin American Operations 63

64 Colombia Withholding Tax Issues No WHT on Payments for Other Services Rendered Abroad by a Foreign Party e.g. Management fees charges to a Colombian subsidiary Special Care Required in Defining Separately: Royalties (33% tax) and Payments for technical services or technical assistance (10% tax) Can be in the same agreement Techniques for Repatriation of Funds from Latin American Operations 64

65 Colombia Payments for Cross Border Services Payments for Technical Assistance, Technical Services, Consulting, regardless where the services are rendered 10% income tax withholding Technical assistance services are defined as the consultancy given by means of a services contract for the use of technical knowledge. Includes training of personnel to apply such knowledge. Technical services are defined as the performance of a contract by using technological knowledge. The difference with the technical assistance is that no knowledge is transferred. Consulting does not have a legal definition for tax purposes, but Tax Administration accept other legal definition. Techniques for Repatriation of Funds from Latin American Operations 65

66 Colombia Payments for Cross Border Services Royalty payments for the use or exploitation of any type of intellectual property 33% withholding tax regardless where the use or right of exploitation is granted or the intellectual property is registered. Payments for the use of software 26.4% withholding tax regardless where the use or right of exploitation is granted or the intellectual property is registered. Payments under film licenses 19.8% withholding tax regardless where the use or right of exploitation is granted or the intellectual property is registered. Techniques for Repatriation of Funds from Latin American Operations 66

67 Colombia Payments for Cross Border Services On any payment for other services rendered in Colombia by a foreign party 33% withholding tax On other services rendered abroad by a foreign party No withholding taxes apply (Limitation for deductions in Colombia may apply) Techniques for Repatriation of Funds from Latin American Operations 67

68 Colombia Impact of the Tax Treaties Tax Treaty WHT on Dividends WHT on Interest WHT on Royalties WHT on Capital Gains With No Tax Treaty (US, UK, Mexico, Brazil, 33% on nontaxed profits at corporate level 0% (Conpes). 33% 33% Venezuela) Spain 0% Generally; 5% excess of pre-taxed profits 0% / 10% 10% 10% Chile 0% Generally; 7% excess of pre-taxed profits 0% / 5% / 15% 10% 17% Techniques for Repatriation of Funds from Latin American Operations 68

69 Colombia Limitations on Deductions For Management Fees Charged to a Subsidiary in Colombia When Not Subject to Income Tax Withholding Deduction limited to 15% of the Colombian company s net taxable income. Limitation does not apply if fees are assessed according to transfer pricing regulations Techniques for Repatriation of Funds from Latin American Operations 69

70 Colombia Limitations on Deductions Interest on loans from Foreign Parties Interest on loans granted by finance companies located abroad Fully deductible Foreign finance company must be recognized by the Colombian Central Bank Interest on other loans from foreign parties not deductible unless agreed based on a transfer pricing study. In any case will be considered as part of the equity for income tax purposes??? Techniques for Repatriation of Funds from Latin American Operations 70

71 Venezuela Reducing Tax on Interest Payments and Royalties Reducing Withholding Tax on Interest Payments Use of QFI to Get Lower WHT to 4.95%, instead of 30.32% Definition limited to foreign licensed bank or financial institutions. Consider use of back-to-back loans Use of Tax Treaties to Reduce WHT on Royalties From 30.6% to: 5% - France, Switzerland, Germany and Netherlands 5% and 10% - U.S. 10%, 12% - others Techniques for Repatriation of Funds from Latin American Operations 71

72 Venezuela Impact of Tax Treaties Tax Treaty WHT on Dividends WHT on Interest WHT on Royalties Tax on Capital Gains With No Tax Treaty (e.g. Luxembourg) 0% Generally; 34% on excess over pre-taxed profits 4.95% F Institution 34% on 95% of payment 34% on 90% of payment U.S. Yes 0% Generally; 10% excess of pre-taxed profits 5% 5%, 7%, 10% Taxing rights NL only Netherlands Yes 0% Generally; 10% excess of pre-taxed profits 5% 5%, 7%, 10% Taxing rights NL only Spain Yes 0% Generally; 10% excess of pre-taxed profits 4.95% /10% 5% Taxing rights Spain only Techniques for Repatriation of Funds from Latin American Operations 72

73 Venezuela Impact of Tax Treaties Tax Treaty WHT on Dividends WHT on Interest WHT on Royalties Tax on Capital Gains Switzerland Yes 0% Generally; 10% excess of pre-taxed profits 0% / 5% 5% Taxing rights Swiss only Canada Yes 0% Generally; 34% excess of pre-taxed profits 4.95% FI 34% on 95% of payment 34% on 90% of payment Domestic Law Techniques for Repatriation of Funds from Latin American Operations 73

74 Venezuela Payments for Services Payments for technical assistance from abroad 10.2% withholding tax Payments for technical services 17% withholding tax Payments for technical assistance and technical services partially rendered outside Venezuela: 60% rendered abroad and therefore subject to the tax treatment provided before 40% rendered in Venezuela and hence taxed on a net income basis (admitting deduction of costs and expenses) Techniques for Repatriation of Funds from Latin American Operations 74

75 Venezuela Payments for Services Use of Tax Treaties to Eliminate WHT on Payments for Technical Assistance and Technological Services Exempt if provider does not have PE in Venezuela US, Netherlands, U.K., Germany, France, Italy, etc). Statutory Rates are High: Technological services: 17% 50% of income is deemed net income subject to 34% rate Technical assistance fees: 10.20% 30% of income is deemed net income subject to 34% rate Techniques for Repatriation of Funds from Latin American Operations 75

76 Venezuela Branch Tax Transferring Seat of Management of Company With the Branch to a Treaty Jurisdiction May provide exemption from Branch Tax Most treaties do not authorize Venezuela s branch profits tax US treaty establishes a 5% limit on the tax Techniques for Repatriation of Funds from Latin American Operations 76

77 Mexico Repatriation Issues Integrated Income Tax System Differences between Accounting and Tax Lack of CUFIN Thin Cap Rules Tax Heaven Rules (CFC) Mexico as a Low-Tax Jurisdiction Business Flat Tax ( IETU ) Techniques for Repatriation of Funds from Latin American Operations 77

78 Mexico Planning Ideas Extensive Tax Treaty network Definition of Mexican Source of Income on Services Technical Assistance Usufruct on non Mexican shares EP Rules Maquiladora Regime Asset Tax Carry Forward Asset Tax Law is already repealed; however there are certain rules in the IETU Law that provide its carry forward Tax Credit on Dividend Supply Chain and IP Migration Techniques for Repatriation of Funds from Latin American Operations 78

79 Mexico Impact of Income Tax Treaties Amendments to Mexico-Netherlands Tax Treaty New tax residence rules for corporations with double residence Reduction of Withholding Rate on interests (10%) Wide definition of interests Reduction of Withholding Rate on capital gains (10%) Capital gains: Exemption in cases of reorganizations is eliminated; original cost will be maintained Techniques for Repatriation of Funds from Latin American Operations 79

80 Mexico Impact of Income Tax Treaties Amendments to Mexico-Switzerland Tax Treaty New protocol and new rules regarding double residence Significant rules to prevent amusements that will impact financing schedules and royalty structures; very wide definition of anti conduit Interests Wider definition of the term interest The rate upon interest is reduced to 10% Capital Gains Exemption is eliminated; they will be taxed at a10% rate New rules on reorganization, which are limited and allow maintaining original cost Techniques for Repatriation of Funds from Latin American Operations 80

81 Mexico Impact of Income Tax Treaties Amendments to other Treaties Germany Barbados Colombia Techniques for Repatriation of Funds from Latin American Operations 81

82 Mexico Impact of Income Tax Treaties Tax Treaty WHT on Dividends WHT on Interest WHT on Royalties Tax on Capital Gains With no Tax Treaty 0% 4.9% FI, 40% Tax Heaven 25% general, 40% Tax Heaven Mex 25% (or tax on net gain) U.S. Yes 0% 0%, 10%, 15% 10% U.S.; and Mex tax on sale of shares with 25% of equity Netherlands Yes 0% 10% 10% NL; and Mex tax on sale of shares with 25% of equity Spain Yes 0% 15% 10% Spain; and Mex tax on sale of shares with 25% of equity Techniques for Repatriation of Funds from Latin American Operations 82

83 Mexico Impact of Income Tax Treaties Tax Treaty WHT on Dividends WHT on Interest WHT on Royalties Tax on Capital Gains Luxembourg Yes 0% 10% 10% Mex. Only on sale of if shares represent at least 25 of equity of if Capital Gain is exempt in LUX; otherwise LUX only Canada Yes 0% 0%, 10%, 15% 10% Canada only Switzerland Yes 0% 10% 10% Swiss.; and Mex 10% tax on sale of shares Techniques for Repatriation of Funds from Latin American Operations 83

84 Mexico Payments for Cross Border Services Description % Withholding Tax- Income Tax Law % Withholding Tax Us Tax Treaty Professional Services Technical Assistance Lease M&E 25% 25% 25% Business Profits Business Profits Business Profits/10% Techniques for Repatriation of Funds from Latin American Operations 84

85 Mexico Payments for Cross Border Services Timing of Withholding Tax Payable when the payment is due or made, whichever occurs first Payment = act of fulfilling or extinguishing, by whatever means Techniques for Repatriation of Funds from Latin American Operations 85

86 Mexico Payments for Cross Border Services Withholding Tax on Payments for: Independent personal services performed in Mexico Presumed taxable if partly performed in Mexico Technical assistance performed in or out Mexico Leasing of personal property Construction services Financial operations Techniques for Repatriation of Funds from Latin American Operations 86

87 Mexico Payments for Technical Assistance, Technical Services and Consulting Services Professional Services Service deemed provided in Mexico, if payment is made to a non-resident which is a related party Subject to proof to the contrary The place where the service is provided is not acknowledged Legal status of taxpayer s is not taken into consideration Techniques for Repatriation of Funds from Latin American Operations 87

88 Mexico Payments for Technical Assistance, Technical Services and Consulting Services Technical Assistance Defined as independent personal services, in which the provider of such services is compelled to provide, and directly participate in the application of knowledge that can't be protected by a patent and that doesn t imply the transmission of confidential information related to industrial, commercial or scientific experiences Payments made for technical assistance are not considered royalties Technical Services and Consulting Services Not expressively defined in Mexican Law Techniques for Repatriation of Funds from Latin American Operations 88

89 Mexico Business Flat Tax ( IETU ) Entered in force on 2008 as a control Tax Substituted Asset Tax Coexistence with Income Tax Very criticized High tax collection purposes from the Tax Authorities Increase of administrative expenses (2 tax basis computation) Certain expenses are not deductible Important amount of Law suits The Supreme Court has already confirmed the constitutional nature of the tax for matters of proportionality Techniques for Repatriation of Funds from Latin American Operations 89

90 Mexico Business Flat Tax ( IETU ) The IETU is paid when it exceeds Income Tax Rate: 17.5% on 2010 Subject to pay the IETU: Individuals Entities Foreign residents with permanent establishment in Mexico Activities for which the Tax must be paid: Alienation of goods Render of independent services Grant the use or temporary use of goods Techniques for Repatriation of Funds from Latin American Operations 90

91 Mexico Business Flat Tax ( IETU ) Deductible expenses shall be related to the obtaining of incomes taxed by IETU Not deductible Interest payments derived from financings Royalties for the grant or use of goods between related parties Wages and social security expenses In order to compensate the lack of the deductions certain credits can be applied for reducing the tax to pay IETU losses of previous years Wages and salaries Investments (made from 1998 until 2007) Income Tax of the fiscal year Techniques for Repatriation of Funds from Latin American Operations 91

92 Mexico Credit of IETU for Non-Residents Taking the credit of the IETU paid in Mexico upon taxes paid abroad is a key issue Indispensable in order to maintain good bilateral relationships between nations and not to inhibit investment in Mexico To avoid additional tax charges to foreign investors in Mexico To avoid double taxation conflicts Techniques for Repatriation of Funds from Latin American Operations 92

93 Mexico Credit of IETU for Non-Residents Diverse countries have accepted the IETU on a temporary basis as an income tax for purposes of crediting the tax paid abroad. This acceptance is subject to the accomplishment of certain rules Techniques for Repatriation of Funds from Latin American Operations 93

94 Mexico Credit of IETU for Non-Residents Tax credit in Spain There is not an official position of the Spanish Tax Authorities regarding the nature of the IETU for purposes of applying the deductions that result from double taxation in Spain to income obtained in Mexico From a technical point of view, there are some arguments to defend that the IETU is a Tax of similar nature to Spanish IS Techniques for Repatriation of Funds from Latin American Operations 94

95 Mexico Credit of IETU for Non-Residents Tax Credit in US The foreign tax credit procedure allows the credit in the US of the income tax paid abroad Regulated by: Section 901 of the IRS Review of the possibility of taking a tax credit must be evaluated upon a particular tax; this means, for purposes of the IETU it cannot be related to other tax Principal concepts of IETU are different to other taxes Treasury regulation Conceptual requirements in order for a tax to be creditable in the US Techniques for Repatriation of Funds from Latin American Operations 95

96 Ideas for Redeployment of Funds from Latin American Jurisdictions Techniques for Repatriation of Funds from Latin American Operations 96

97 Transfer of Shares US Parent Step 4 Dividend Step 3 Payment of Note LA Holdco AR with A Bank A Step 1 Transfer of shares Step 2 Loan AP with LA Holdco B Techniques for Repatriation of Funds from Latin American Operations 97

98 Sale of the Usufruct Step 2 Sale of Usufruct of Other Subs shares US Parent Step 3 Payment of Usufruct Bank Step 1 Loan LA Holdco Other Subs Other Subs Techniques for Repatriation of Funds from Latin American Operations 98

99 Factoring Dividend Distribution Step 2 US Parent LA Holdco A Step 3 Dividend Distribution Bank AR Factoring Step 1 Techniques for Repatriation of Funds from Latin American Operations 99

100 Why a Holding Company? Techniques for Repatriation of Funds from Latin American Operations 100

101 Pros of a Holding Structure Tax benefits Reduction withholding taxes Avoidance taxation capital gains Insulate foreign activities from CFC rules home country Tax efficient (centralized) cash management Commercial benefits Non-EU companies get European face Spread of commercial risk Preparation for IPO or spin-off Techniques for Repatriation of Funds from Latin American Operations 101

102 Pros of a Holding Structure Organizational benefits Legal structure may coincide with organizational structure Organization in business units (spin-off) Vertical integration Techniques for Repatriation of Funds from Latin American Operations 102

103 Cons of a Holding Structure Tax disadvantages Restricted VAT deductibility Heightened scrutiny by local tax authorities (Need for substance) Costs Increased legal and compliance costs Need for substance Requires staff and management time Complexity Techniques for Repatriation of Funds from Latin American Operations 103

104 Tax Features of Ideal Location for Holding Company (I) No tax on dividends received No tax on capital gains on disposal No CFC rules Extensive treaty network No or low WHT on inbound dividend / interest / royalty payments No source state taxation of capital gains Techniques for Repatriation of Funds from Latin American Operations 104

105 Tax Features of Ideal Location for Holding Company (II) No or low WHT on outbound dividends and liquidation distributions No or low WHT on outbound interest or royalty payments Low effective rate on taxable (interest / royalty / service) income Reasonable relations with local tax authorities: possibility to obtain advance tax rulings stable tax regime Techniques for Repatriation of Funds from Latin American Operations 105

106 Other Features of Ideal Location for Holding Company Legal and financial community used to accommodate holding companies Holding company allowed to perform operating activities Reasonable cost of establishment and maintenance Reasonable compliance requirements Flexible corporate law M&A, de-mergers and spin-offs Joint ventures Corporate governance Techniques for Repatriation of Funds from Latin American Operations 106

107 Dutch Tax Regime Applicable to Inter- Company Financing and Licensing Activities Techniques for Repatriation of Funds from Latin American Operations 107

108 Special regime for conduit companies Article 8c CITA: interest / royalties received and paid are excluded from taxable base if: (deemed) received and paid within the same group, e.g. also when guaranteed by group company; AND directly / indirectly related to closely connected loan transactions; AND conduit company does not incur genuine risk Techniques for Repatriation of Funds from Latin American Operations 108

109 Safe harbor rule conduit finance activities Genuine risk if: Equity is at least the lower of: * 1% nominal value outstanding loans; or * EUR 2,000,000 AND Equity will be affected if the risks materializes Guarantee and Genuine Risk Agreement between Lender and Dutch finance company Techniques for Repatriation of Funds from Latin American Operations 109

110 Documentation requirements Article 8b CITA: documentation requirements for transactions between group companies Transfer Pricing Documentation: Inter company pricing arrangements Method to determine at arm s length remuneration Terms and conditions are at arm s length Techniques for Repatriation of Funds from Latin American Operations 110

111 Minimum Substance Requirements At least 50% Dutch resident Board Members; Board Members have sufficient level of education and experience to fulfil tasks; Finance company employs its own personnel or hires or uses personnel of another company for the implementation of the transactions that it is engaged in; Most important Board decisions are made in the Netherlands; Techniques for Repatriation of Funds from Latin American Operations 111

112 Minimum Substance Requirements Most important bank accounts are held in the Netherlands; Books and records are kept and updated in the Netherlands; Finance company has a business address (office) in the Netherlands Techniques for Repatriation of Funds from Latin American Operations 112

113 Planning Idea Holding companies Argentina Deduction 35% Wht 12% (dom rate 35%) Taxation NL on 25.5% Full credit Arg wht Taxation Tax 0% Tax rate arbitrage +/- 20% US/EU BV loan Tax Haven loan Switzerland Avoidance personal asset tax? Avoidance Arg capital gains tax? Argentina Techniques for Repatriation of Funds from Latin American Operations 113

114 Planning Idea Holding companies Brazil Interest on equity Deduction 34% Wht 15% (dom rate 15%) Participation exemption NL Tax rate arbitrage +/- 13.5% US/EU equity BV loan Brazil Interest on loan Deduction 34% Wht 15% (dom rate 15%) Taxation 25.5% Tax sparing 20% Tax rate arbitrage +/- 13.5% Techniques for Repatriation of Funds from Latin American Operations 114

115 Planning Idea Holding companies Chile Deduction 17% Wht 0% (dom rate 15-30%) Taxation Spain on spread US/EU BV Technical assistance & Technical Service & Consulting Service Assistance Chile Spain Services Techniques for Repatriation of Funds from Latin American Operations 115

116 Planning Idea Holding companies Mexico US Fund NANV Loan Luxembourg COOP Loan EU Fund NANV < 25% Mexico Deduction 28% Wht 10% (dom rate 28%) Taxation Lux on spread Dutch COOP subject to CIT Participation exemption for dividends / gains from Mex & Lux No Mex capital gains tax Dividend distributions Dutch COOP not subject to wht under dom law (no treaty protection required) Participation exemption for dividends / gains from Dutch COOP Dividend distributions NANV subject to 0% wht Techniques for Repatriation of Funds from Latin American Operations 116

117 Planning Idea Holding companies Venezuela Deduction 34% Wht 5% (dom rate 32.3%) Taxation NL on 25.5% Full credit Ven wht Taxation 10% Tax rate arbitrage +/- 17% loan US/EU BV loan Deduction 34% Wht 0% or 5% (dom rate 10.2% to 30.6%) Taxation NL on 25.5% Full credit Ven wht Technical assistance & Technical Service & License Cyprus Venezuela Techniques for Repatriation of Funds from Latin American Operations 117

118 Argentina Brazil Chile Colombia Ecuador México Perú Venezuela 1. Bolivia 2. Chile 3. Germany 4. Austria 5. Italy 6. France 7. Brazil 8. Spain 9. Canada 10. Finland 11. Sweden 12. Denmark 13. Holland 14. UK 15. Belgium 16. Swiss 17. Norway 18. Russia 1. Argentine 2. Austria 3. Canada 4. Chile 5. China 6. Czech Republic/ Slovakia 7. Korea 8. Belgium 9. Denmark 10.Ecuador 11.Spain 12. Philippines 13. Finland 14. France 15. Netherlands 16. Hungary 17. India 18. Italy 19. Japan 20. Luxembourg 21. Norway 22. Portugal 23. Sweden 24. South Africa 25. Israel 26. Mexico 27.Ukraine 28. Paraguay (pending Decree) 1. Argentina 2. Canada 3. Colombia 4. Mexico 5. Brazil 6. Norway 7. South Korea 8. Ecuador 9. Spain 10. Poland 11. Peru 12. Croatia 13. Denmark 14. New Zealand 15. UK 16. France 17. Sweden 18. Paraguay 19. Portugal 20. Ireland 21. Malaysia 1. Spain 2. Andino 3. Chile 4.Switzerland* 5.Mexico* 6. Canada* 7.Germany** 8. Belgium** 9.Netherlands** 10.Luxembourg** 11.Korea** 12.U.S.A.** 13.India** 14.Czech Republic** *not yet ratified ** Under negotiation 1. Argentina 2. Brazil 3. Chile 4. United States 5. Mexico 6. Italy 7. France 8. Switzerland 9. Andino 1. Germany 1. Canada 2. Australia 2. Brazil 3. Argentina 4. Belgium 3. Chile 5. Canada 4. Andino 6. S. Korea 7. Chile 8. Denmark 9. Ecuador 10. Spain 11. U.S.A. 12. Finland 13. Italy 14. Israel 15. Ireland 16. Japan 17. Luxemburg 18. Norway 19. Netherlands 20. Poland 21. Portugal 22. UK 23. Czech Republic 24. Rumania 25. Singapore 26. Sweden 27. Switzerland 28. France 30. Brazil 29. Austria 31. China 32. Singapore 1. Germany 2. Belgium 3. Canada 4. US 5. France 6. Netherlands 7. Italy 8. Norway 9. Portugal 10. UK 11. Sweden 12. Spain 13.Switzerland 14. Trinidad and Tobago 15. Czech Rep 16. Indonesia 17. Barbados 18. Denmark 19. Brazil* 20. China 21. Cuba 22. Iran 23. Kuwait 24. Russia* 25. Austria 26. Qatar* *not in force Techniques for Repatriation of Funds from Latin American Operations 118

119 Peru Impact of Tax Treaties Tax Treaty WHT on Dividends WHT on Interest WHT on Royalties WHT on Capital Gains With No Tax Treaty (U.S., Netherlands, Spain Luxembourg, Switzerland) 4.1% 1%, 4.99%, 30% 30% 5%, 30% Brazil Yes Generally 15% 10% (recipient: beneficiary controlling not less than 20% of voting shares) 15% 15% (Depends on type of property) Canada Yes Generally 15% 10% (recipient: beneficiary controlling not less than 10% of voting shares) 15% 15% (Depends on type of property) Chile Yes Generally 15% 10% (recipient: beneficiary controlling not less than 25% of voting shares) 15% 15% (Depends on type of property) Techniques for Repatriation of Funds from Latin American Operations 119

120 Corporate & Withholding Tax Rates in Latin America Country Argentina Brazil Chile Colombia Ecuador Mexico Peru Venezuel a VAT Corporate IT (1) Capital Gains 35 / (2) /30 34 Branch Tax Dividends WT 4.95 / / 10.2 Techniques for Repatriation of Funds from Latin American Operations (3) (3) (3) Interest WT 15.05/ / 4 34 / /10/15/ 21/28 30 / 4.99 / 1 Royalties Technical WT Assistance WT 21/28/ / / / / 15 (1) Combined rate (Corporate Income Tax at 25% plus Social Contribution on Net income at 9%) (2) Rate applicable to Brazilian entities. In case of foreign entities the capital gain tax rate is 15% (or 25% if the seller is domiciled in a low tax jurisdiction) (3) Withholding applies on dividends in excess of the distributing company s previously taxed income - at 35% in Argentina, 34% in Colombia, and 34, 50 or 60% in Venezuela /30

121 Comparison WHT in LA Countries WHT on Dividends WHT on Interest WHT on Royalties Tax on Capital Gains Venezuela 0% generally; 34% WHT on excess over pretaxed profits 4.9%Financial Institution; otherwise 34% on 95% of payment 34% on 90% of payment 1% if over Stock Exchange; Otherwise 34% Colombia 0% 34% WHT on excess over pretaxed profits 0% Financial Institution (CONPES) (Art 25 CTC) 33% 33% Peru 4.1% 1% foreign credit lines of Financial Institutions 4.99% Financial Institution 30 % General 5% or 30% Techniques for Repatriation of Funds from Latin American Operations %

122 The End Techniques for Repatriation of Funds from Latin American Operations 122

123 Thank you! Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a partner means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an office means an office of any such law firm.