CLASSIFICATION SHEET This document relates to the following request: r------ 1 16 December 2009 1 References: SES/CEQN/AEVF/Dl35a09001M-TSKR , Clients Fiscal number: Mermaid Lagoon S.a r.1. - 2009/24/17507 IFocus S.a r.l. - 2009/24/18341 I J 1. Key_topics: Profit Participating Loan, participation exemption regime, debt-to-equity ratio 2. Name of the advisor : PwC 3. Corporate group' s nan~, or fund sponsor: Alexander Eriksen I Mermaid Lagoon S.a.r.l. 4. Name of the project: Luxcmbour$ holdiE_S and oycrational company rcspcctivcl_L_ ~ 5. Amount intended to be invested: 6. Date of receipt: _ _J _J -·--·· BUREAU D'IMPOSITION SOC. 6 fNTREE 1 6 DEC.£DW - 1 For the attention of Mr Marius Kohl Administration des Contributions Directes Bureau d'Imposition Societe VI 18, Rue du Fort Wedell L-2982 Luxembourg 16 December 2009 PricewalerhouseCoopers Societc a rcsponsabilitc limitcc Rcviscur d'cucrcpriscs 400, route d'Esch B.P. 1443 L-1014 Luxembourg Telephone +352 494848-1 Facsimile + 352 494848-2900 www.pwc.com/lu info@lu.pwc.com BUREAU D'IMPOSITION SOC. 6 Ef\ITREE References: SES/CEQN!AEVF/Dl 35a09001 M-TSKR Mister Alexander E riksen Mermaid Lagoon S.a r.l. - 2009/24/17507 IFocus S.a r.1. - 2009/24/18341 Dear Mr Kohl, In our capacity of tax consultant and at the request and on behalf of our client, Mister Alexander Eriksen (in the following referred to as "AE"), we are pleased to submit for you review and approval/comments the Luxembourg tax treatment of the following structure. A. Background I. AE is one of the ultimate beneficial owners of a Danish holding company NoPayNet Holding ApS (hereafter referred to as "DKCo 1"). DKCo 1 holds a number of Danish subsidiaries (all the Danish companies hereafter referred to as the "Group"). The Group is specialized in developing IT system solutions with a, as per today, primary market focus being Denmark. 2. AE is a Danish national, resident, but not domiciled, in the United Kingdom. AE owns, directly, 100% of the shares in Mennaid Lagoon S.a.r.1. (hereafter referred to as "LuxCo l"). Further, AE owns, directly, 37.63 % of the shares in the Danish holding company NoPayNet Holding ApS (hereafter referred to as "DKCo 1"). DKCo 1 owns 100% of a nmnber of Danish subsidiaries. 3. Two Luxembourg companies, namely LuxCo 1 and !Focus S.a r.l. (hereafter referred to as LuxCo 2") were incorporated in July 2009. LuxCo 1 will only perform shareholding and financing activities. LuxCo 2 will own intellectual property assets. LuxCo 1 owns 75 % of the shares of Lux Co 2. K.C'.S. Luxembourg B 65 477 - TV A LU 17564447 4. A profit participating loan (hereafter referred to as "PPL l ") is extended by AE to LuxCo l for an amount corresponding to approx. EUR 1,241 ,000. 5. The share capital of LuxCo 1 is increased (using cash) with approx. EUR 210,000. 6. The proceeds from PPL 1 as well as the EUR 210,000 are used by LuxCo I to finance the cash acquisition of the 37 .63 % DKCo I shares from AE. Fmiher, LuxCo l will use the proceeds from PPL 1 and the EUR 210,000 to finance the cash acquisition of the additional 5 % DKCo I shares from the Danish company Banja Holding ApS (hereafter referred to as "BH"). The acquisition of the additional 5 % DKCo 1 shares from BH takes place through LuxCo 1 granting an interest bearing short term loan to BH. Shortly after granting the loan, LuxCo 1 will use its right according to the loan agreement to call the loan. The principal of the short tenn loan s approx. EUR 88,000 with an annual interest rate of7 %. The estimated market value of the additional 5 % DKCo 1 shares is approx. EUR 175,000. When calling the loan, the loan principal is set off against the market value of the additional 5 % DKCo l shares. The difference (i.e. the difference between the loan principal including accrued interest and the market value of the additional 5 % DKCo 1 shares) is paid cash by LuxCo 1 to BH. 7. At the same time as step 6 (see above), LuxCo 2 acquires, against cash, the international intellectual property rights (hereafter referred to as the "IP") from DKCo I. The IP consist of IT technology solutions facilitating internet access in busses, trains, other carriages, and fixed locations (i.e. stations and bus stops). The estimated current market value of the IP is approx. EUR 16,800. To finance LuxCo 2' s acquisition of the IP, AE extends another profit participating loan (hereafter referred to as "PPL 2") for an amount of approx. EUR 16,800 to LuxCo 2. LuxCo 2 uses the proceeds from PPL 2 to cash finance the acquisition of the IP from DKCo l. 8. For your information, you will find enclosed a detailed description of the Group (Appendix 1) and its current abbreviated structure (Appendix 2). Furthennore, the Luxembourg technical tax analysis, the envisaged transactions steps and the final abbreviated structure are depicted in Appendix 3, Appendix 4 and Appendix 5 respectively. B. Applicable Luxembourg Tax Regime B.1 Financing activity: Profit Participating Loans "PPLs" 9. Taking into consideration the above envisaged restructuring, PPL 1 will partly finance LuxCo l ' s acquisition of the DKCo 1 shares for an amount of approx. EUR 1,241,000. PPL 2 will finance (100%) of the purchase price to be paid by LuxCo 2 to DKCo l for the IP. Both PPL 1 and PPL 2 respectively will be denominated in EUR. (2) I0. Both PPL l and PPL 2 (hereafter referred to together as the "PPLs") qualify as debt for both income taxes purposes and net wealth tax purposes respectively. Interest paid under the PPLs will be fully tax deductible (including the variable interest clement) subject to article 166 (5) LITL and article 1 (2) of the Grand Ducal Decree dated 21 December 2001 (see also our technical tax analysis on the Luxembourg tax regime applicable to PPLs in Appendix 3). 11 . Interest payments under the PPLs will not be subject to the withholding tax on distributions (neither on the ground of article 146 (1) 2 LITL nor of article 146 (1) 3 LITL). 12. For LuxCo 1, from a net wealth tax position, its equity will in priority be assigned to the financing of the shares in LuxCo 2 (i.e. EUR 9,375 which represents the 75% shareholding held in LuxCo 2 by LuxCo 1, before the IP acquisition). Further, for LuxCo 1 's DKCo 1 shares, EUR 210,000 of its equity will in priority be assigned to the acquisition of the 42, 63 % DKCo l shares acq uired from AE and BH respectively. 13. For LuxCo 2, from a net wealth tax perspective, the proceeds from PPLs will in priority be assigned to the acquisition of the IP from DKCo 1. B.2 Debt-to-equity ratio 14. From a global perspective, post increasing its share capital with EUR 210,000, LuxCo 1 should have a debt-to-equity ratio of 85:15. 15. At least 15 % of the aggregate market value of the shares held in DKCo 1 and LuxCo 2 will be financed by equity. The estimated market value of LuxCo 1's investment in DKCo 1 and LuxCo 2 is approx. EUR 1,460,000. Out of the acquisition price of EUR 1.460,000, approx. 2 19 ,000 are financed with equity. The remaining 85% of the acquisition price, approx. EUR 1,241,000, is financed with debt through PPL 1. 16. Consequently, any income realized or received on/from DKCo 1 will be repaid as dividend from LuxCo 1 to AE up to the amount of equity financing (i.e. minimum 15%). All other income derived on/from DKCo 1 and fi nanced by debt up to 85% maximum (i.e. interest, other dividend, other capital gain and 85% of income from DKCo l) will be repaid as variable interest under PPL l. B.3 Participation exemption regime 17. LuxCo 1 should benefit from the participation exemption on dividends and capital gains on its participations in LuxCo 2 and DKCo 1 respectively. The aforementioned is based on the assumption that the conditions as set forth by article 166 of LJTL and the Grand Ducal Decree of 21 December 2001 are met. Additionally, the shares held in LuxCo 2 and in DKCo 1 respectively, should also be exempt from net wealth tax to the extent that the conditions of the Paragraph 60 of the Property and Securities Valuation Act are met. (3) 8.4 Dividend distribution from LuxCo 1 to AE 18. At the level of LuxCo 1, the shareholding in LuxCo 2 is fully financed by equity whereas the shareholding in DKCo 1 is financed partly by equity and partly by debt under PPLl. 19. This implied that LuxCo 1 will repatriate approx. 85% of its profits as interest under PPL 1 and approx. 15% as dividend to AE. Any dividend distribution will be subject to the Luxembourg withholding tax at the rate of 15%. 20. Any income, dividend or capital gains derived by LuxCo 1 from LuxCo 2 is exempt from corporate taxation and withholding tax in Luxembourg under the Luxembourg participation exemption regime (see above). Such income will be repatriated through LuxCo 1 up to AE as dividend and subject to 15% Luxembourg withholding tax. We would respectfully request that you confirm the tax treatment of the situation described above or that you provide us with your remarks, if any. We remain at your disposal should you need any further information and would like to thank you for the attention that you will give to our request. Yours sincerely, Appendix 1 Appendix 2 Appendix 3 Appendix 4 Appendix 5 Description of the Group Current abbreviated strncture chart Luxembourg technical tax analysis Envisaged transaction steps Final abbreviated strncture 171is tax agreement is based 011 the facts as presented to PricewaterhouseCoopers Sari as al the date the advice was given. 171e agreement is depe11de11t 011 specific facts and circumstances and may not be appropriate 10 another party than the one for which ii was prepared. 77iis lax agreement was prepared with 011/y the interests of our Client. Mister Alexander f;riksen. in mind. and was not p lanned or carried out in contemplation ofany use by any other party. PricewaterhouseCoopers Sari. its porlflers. employees and or agents, neither owe nor accept any duty of care or any responsibility to any other party. whether in conlracl or in tort (including wit/1oul !imitation, negligence or breach of statutory duty) however arising. and shall not be liable in respecl of any loss, damage or expense ofwlwtever nature which is caused to any other party. (4) Appendix 1 DESCRIPTION OF THE GROUP AE is one of the ultimate beneficial owners of the Group. The Group is specialized in developing IT system solutions with a, as per today, primary market focus being Denmark. AE is a Danish citizen being a resident, but not domiciled, in United Kingdom. Within this framework, AE owns, personally and directly, 37.63 % of the shares in DKCo I. DKCo I is a Danish private limited liability company set in the legal fonn of an "ApS". Today, DKCo 1 owns IP. The IP provides for a technology facilitating internet access in busses, trains, other carriages and fixed locations (i.e. stations and bus stops). Within this framework, infonnation may be received in real-time in dedicated areas, on fixed monitors and user tools (e.g. laptop, mobile phone disposing of the WiFi and/or Bluetooth technology). The infonnation mainly concerns traffic, service, location, commercials, advertisements and entertainment data. Moreover, this technology allows intercommunication between systems in order to give direct information creating several other possibilities. The current market value of the IP is estimated to be approx. EUR 16,800. This IP is referred to as Gratis Danmark" ("GDK") and "NoPayNet" ("NPN") and mainly consist of patents, software, copy-rights and/or know-how. The IP related administrative steps such as "invention disclosure", "copyrighting", "patenting", etc., have all been done in Denmark. However, no fonnal patent has been obtained in relation to the IP. Further, not all IP can be patented and/or copyrighted. Such "unprotected" IP most likely result in an academic institute when the scientific and/or development work has not reached a stage of disclosure. Technology know-how also falls within this category, but steps to obtain legal protection will be taken. LuxCo 1 and LuxCo 2, two companies incorporated under the Luxembourg Law, were setup in July 2009 in view of performing holding and financing activities. AE owns I 00 % of the shares in LuxCo 1. LuxCo 2 owns 75 % of the shares in LuxCo 2. (5) Appendix 2 CURRENT ABBREVIATED STRUCTURE I I Banja Holding ApS "BH" "AE" Co-Investors I 100% Mermaid Lagoon S.a r.I. "LuxCo 1" 75% 37.63% 42.29% 20.08% NoPayNet Holding ApS "DKCo 1" IP 25% 100% ,..._ !Focus S.a r.I. "LuxCo 2" Danish subsidiaries I ,__ I (6) ,___ - Appendix 3 LUXEMBOURG TECHNICAL TAX ANALYSIS A Principal terms of the PPLs PPL 1 and PPL 2 will have, inter alia, the following terms and conditions: The amount of financing to be provided under PPL I should amount to approx. EUR 1,241,000 and the amount of financing to be provided under PPL 2 should amount to approx. EUR 16,800. Both PPLs will be EUR denominated. Both PPLs will carry two types of interest as described below: • • A mandatory fixed interest of 1% on the aggregate outstanding balance of the PPL; and A variable interest being an amount equal to one hundred per cent (I 00%) of the higher of (i) the Adjusted Profits, before tax, of the Borrower deriving from the Investment or (ii) cash available at the level of the Borrower (the "Variable Interest") and generated from the Borrower's assets (including distributions, interest or proceeds from the Investment). T he final repayment date of the PPLs (along with any accrued but unpaid interest) will not be more than 15 years after the date that the first drawing on the PPLs occurs. The PPLs will, however, be payable pro-rata immediately on full or partial disposal of the assets financed by the PPLs. The lenders are not entitled by virtue of the PP Ls to any voting rights in the borrowers. The lenders are not entitled to participate in any surplus profits upon liquidation. B Luxembourg tax analysis of the PPLs 8.1 Qualification of the PPLs According to commentaries to the income tax law included in Projet de loi N° 571 {1955) on the former article 114 LlTL (now article 97 LITL) on income from participation, where a profit participating loan bears a minimum fixed interest rate, payable even when the company is in a loss position, and provided that the principal amount of the loan is repayable before the reimbursement of the company's share capital, the profit participating loan should be treated as a debt for Luxembourg tax purposes. 2 ln the case at hand, the fixed interest will accrue without taking into consideration whether the company is in a profit or loss position. 3 Consequently, the PPLs will be qualified as debt for both Luxembourg net wealth tax purposes and Luxembourg corporate income tax purposes, and interest thereon will be deductible under the same conditions as apply to fixed interest debt. (7) B.2 Qualification of PPL payments as interest 4 Authors have examined the question whether the definition of "dividend" given by the Luxembourg income tax law could include payments accounted for as interest. 1 The key criteria for characterizing a payment as dividend rather than interest are: • • entitlement to the ongoing profit (including the profit reserves); and entitlement to the liquidation proceeds. 5 Under this interpretation, the payment of an amount neither directly relating to the entire profit of the bonower, nor to the liq uidation proceeds, may not be considered as a dividend. 6 In the case at hand and since the participating loan interest will be dependent on the income realized before Luxembourg tax and variable interest, and not profit after tax, the interest under the PPLs would be qualified as interest rather than dividend. 7 In addition, 100% of all interest paid on the PPLs will be tax deductible in accordance with article 45(1) LITL, unless article 45(2) LITL or 166(5) is applicable (interest expense in relation to exempt income). in LuxCo 1, exempt income is only expected to arise if LuxCo 1 receives a dividend from DKCo I or LuxCo 2 or disposes of shares in DKCo 1 or LuxCo 2. B.3 Withholding tax treatment on PPL interest payments 8 Article 146 (!) 3 LTTL provides for the application of a withholding tax upon payment of interest a1ising from participating bonds or other similar securities. Interest payment may be subject to a 15 % withholding on this ground if the following conditions arc met: • • the loan is structured in the form of a bond or other similar security; and aside from the fixed interest, a supplementary interest varying according to the amount of distributed profit is paid, unless the supplementary interest is linked to a con-csponding decrease in the fixed interest. 9 By contrast, interest payments related to PPLs are not subject to a specific withholding tax. 10 In the case at hand, the debt instruments are both structured as a PPL (and not as a profit participating bond), and the participating interest does not depend on distributed profit. 11 In addition, article 97 (1) 2 and 146 (1) 2 LITL provide for a withholding tax when a profit participating return is paid to a silent partner ("bai!Ieur de fonds"). In the case in hand, there will be no intention to create such partnership as there is no common interest or goal between the PPL holder and the borrowing company. 1 A. Steichen, "Precis de droit fiscal de l'entreprise", Editions Saint Paul, 2004, Section 702 and following, p.462. (8) 12 C Based on the above, no withholdi ng tax will be due on interest paid under any of the PPLs (either on the ground of article 146 (I) 2 LlTL or of article 146 ( l) 3 LITL). Debt to equity ratio 13 Generally, according to Luxembourg tax practice, a debt to equity ratio of 85: 15 needs to be respected by a company investing in participations. Any interest paid in excess of the applicable ratio should be qualified as dividends and subject to a 15% withholding tax for the purpose of article 146 LITL. 14 The loan facil ity to be granted by LuxCo 1 to BH (cf. Envisaged restructuring steps - Appendix 4) aims at facilitating LuxCo 1's acquisition of 5% DKCo 1 shares from BH. 15 According to the loan agreement between LuxCo 1 and BH, LuxCo 1 has the unilateral and discretionary option of asking for redemption of the loan by acquiring 5 % of the DKCo l shares from BH and pays any difference between the loan principal (including accrued interest) and the market value of the 5 % DKCo 1 shares in cash. LuxCo 1 will exercise this option. For the purposes of the below analysis, considering the fact that LuxCo 1 will exercise the aforementioned option, the loan facility agreement in concern is to be regarded as a purchase agreement linked to the shares in DKCo 1. 16 Taking into consideration (i) the total equity of LuxCo I of approx. EUR 2 19,000 post the capital increase of approx. EUR 210,000 (cf. below under envisaged restructuring steps - Appendix 4), and (ii) LuxCo 1's total debt of approx. EUR 1,241,000 (i.e. PPLl); mirrored against the estimated market value of LuxCo 1's investments into LuxCo 2 and DKCo 1 respectively being approx. EUR l ,460,000, the 85:15 debt-to-equity ratio will, from a global perspective, be complied with. 17 Consequently, the overall investment made by LuxCo I, 42.63 % DKCo l shares and 75 % LuxCo 2 shares, will be regarded as being compliant with a 85: 15 debtto-equity ratio. 18 None of the interest paid by LuxCo I under the PPLs will be re-characterized as a deemed dividend. As a result, all the interest paid by Lux Co 1 on the PPLs will, in principle, be fu ll y deductible for income taxes purposes and will not be subject to any dividend withholding tax. (9) Appendix 4 ENVISAGED TRANSACTION STEPS In order to implement the Luxembourg holding and financing structure, the following steps has been and will be carried out: Pre-step: Two Luxembourg companies, namely LuxCo I and LuxCo 2 were incorporated in July 2009. Both LuxCo 1 and LuxCo 2 respectively were incorporated in the form of a Societc a Responsabilite Limit6e. The nominal paid-in share capital for both LuxCo I and LuxCo 2 respectively is EUR 12,500. LuxCo 1 will only perform shareholding and financing activities. LuxCo 2 will own intellectual property assets. AE owns I 00 % of the shares in LuxCo 1. LuxCo l owns 75 % of the shares of LuxCo 2. Step I: The share capital of LuxCo 210,000. Step 2: PPL l is extended by AE to LuxCo I for an amount corresponding to approx. EUR 1,241 ,000. Step 3: The proceeds from PPL 1 as well as the EUR 210,000 arc used by LuxCo l to finance the cash acquisition of the 37.63 % DKCo 1 shares from AE. Further, LuxCo l will use the proceeds from PPL l and the EUR 210,000 to finance the cash acquisition of the additional 5 % DKCo 1 shares from BH. The acquisition of the additional 5 % DKCo l shares from BH takes place through LuxCo 1 granting an interest bearing short term loan to BH. Shortly after granting the loan, LuxCo l uses its unilateral and discretionary option according to the loan agreement, to ask for the loan to be redeemed. The option implies that LuxCo 1 may ask for redemption of the loan by acquiring 5 % DKCo I shares from BH and pays the difference between the loan principal (including accrued interest) and the market value of the 5 % DKCo 1 shares in cash. LuxCo 1 will exercise the option. Step 4: PPL 2 is extended by AE to LuxCo 2 for an amount of EUR 16,800 corresponding to the estimated market value of the IP to be acquired by LuxCo 2 from DKCo 1. LuxCo2 acquires, against cash, the IP from DKCo I. The IP may not benefit from article SObis LITL. ts increased (using cash) with approx. EUR (10) Appendix S FINAL ABBREVIATED STRUCTURE Banja Holding ApS "BH" "AE'' Co-Investors 100% PPL 1 Mermaid Lagoon "LuxCo 1" S.a r.I. 42.63% 37.29% 20.08% 75% PPL2 NoPayNet Holding ApS "DKCo 1" (IP) 25% IFocus S.a r.I. "LuxCo 2" IP 100% Transfer of IP Danish subsidiaries ( 11) LE GOUVERNEMENT DU GRAND-DUCHE DE LUXEMBOURG Administration des contributions clirectes Bureau d'imposition Societes 6 For the attention of Serge Saussoy PricewaterhouseCoopers 400, route d'Esch B.P. 1443 L - 1014 Luxembourg Companies involved: Mermaid Lagoon S.a r.I. - Tax number 2009124117507 /Focus S.a r.I. - Tax number 2001924118341 December 16, 2009 Dear Sir, Further to your letter dated December 16, 2009 and referenced SES/CEQN/AEVF/0135a09001 M-TSKR relating to the transactions that the group Alexander Eriksen I Mermaid Lagoon S.a r.I. would like to conduct, I find the contents of said letter to be in compliance with current tax legislation and administrative practice. It is understood that my above confirmation may only be used within the framework of the transactions contem plated by the abovementioned letter and that the principles described in your letter shall not apply ipso facto to other situations. 18, rue du Fort Wedell Tel.: (352) 40.800-3118 Adresse postale S(\e Internet Luxembourg Fax: (352) 40.800-3100 L-2982 Luxembourg ~.impotsdlrects.public.lu