Accord Tax Ruling entre Glaxosmithkline et le Luxembourg - 2009

8/10/2019 Accord Tax Ruling entre Glaxosmithkline et le Luxembourg - 2009

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JRJcEWIERJ tousE[mPERSI

CLASSIF ICATION S HEET

This document relates to the following request:

1 l November 2009

References : SELL/G8409003M -GP1

Zero Coupon Convertible Bonds

1. Key topics: functional cuJTency convertible bond back-to -back2. Name of the advisor : PwC

3. Corporate group s n ame o r fu nd spo n sor : GlaxoSmithKline Group

4. Name of the project: Zero Co upon Convertible Bonds

5. Amount intended to be inves ted: GBP 6.25bn

6. Date of receipt: NOV 2009

BUREAU D IMPOSITION SOC.

ENTREE

II


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Fo r the a ttentio n of Mr Mari us Ko hl

Administration des Contributions D irectesBureau d'imposition So c ictes VI18 rue du Fort Wede llL-2982 Luxembourg

11 November 2009

References: SELL/G8409003M-GPI

Ze ro Co upon Conv ertible Bo nds

Dear Mr Koh l

Priccwatc rh ouseCoopcrsSocictc a csponsabillti limi1ccIUviscur d'cntrcp ri scs400, route d 'Esc hB.P . 1443l.-1014 LuxembourgT e l e p h o n e ~352 494848-1Facsimile+ 352 494848-2900www.pwc.com/luinfo@lu. pwc .com

BUREAU D IMPOSITION SOC.N T R ~

In our capacity of tax co nsultant of the above-mentioned client, we discussed in our

meeting dated 19 October 2009 the tax treatme nt app licabl e to the transactions foreseen byour client. This letter aims at co nfi rming the conc lus ions reached during this meeti ng andwill serve as a bas is for the p rep ara ti on of the tax r et urns of the Luxembourg compan iesinvolved.

A B a ckgro und

A.I Co ntemp lated t ra n sactions

Further tothe

various tra nsac tions that o ccurred in 2008, GlaxoSm ithKlineInternational (Luxembo urg) SA ( GSK lL ) invested USD I Obn on a short termbasis with GlaxoSmithKline Finance Pie ( GSK Fin ) , a UK group treasurycompany, by an investment in the group's commercial paper program.

2 GlaxoSmithKline Group now contemp lates to undergo vario us transactionsinvolving the incorporation of a new Luxembourg company namedGlaxoSmithKline Holding (Luxembourg) Sari ( GSK NcwLuxCo ) with aminimum share capita l de nom inated in GB P.

R C S I c m b o u r ~ll h) 177 I V \ I lll 7564447


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3 Followin g this and planned for January 2010, OSKIL s USO IObn investment incommercial paper with OSK Fin will mature. On the same day, OSK fL wi ll changeits functional currency from USD to OBP (i.e. conversion of its acco unts to OBP)and the mone y received upon the maturity of the USD lObn commercial paper willbe lent at a fixed rate for two years to GSK Fin in an amo unt of approximatelyOBP 6.25bn.

4 Further to the above , OSK NewLuxCo will issue Zero Co upo n Convertible Bond s( ZCCBs ) to OSKIL in exchange for the OBP 6.25bn long tc1111 receivable thatOSKIL holds towa rds OSK Fin.

5 The actual amounts of the transactions , expressed in GBP , will only be knowncloser to implementation, as the OBP value is dependent on the exchange ratepr eva iling at the time of the transaction and the surplus cash available in GSKIL.

6 In addition and before the issue of the ZCCBs, Setfirst Ltd, the parent compan y ofboth OSKlL and OSK NcwLuxCo , will lend OBP 2bn to OSK UKNewCo. GSKUK.NewCo will ac quire group companies for a coITesp onding amount. Setfirst Ltdwill contribute the GBP 2bn loan receivable from CSK UKNewCo toGSK NewLuxCo which will in its tum contribute the GBP 2b n receivable toOSK UKNcwCo in ex ch ange for shares.

A.2 ontemplated structure

6.25bn loanGSK

Newlux o

Lux)..

ZCCB

GSK Finan ceUK)

GSK New UKCo

I IGSK TradeCo1 GSK TradeCo2

Setfirst LtdUK)

GSKILLux)

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B Applicable tax regime

B 1 Estab lishmen t of GS K NewLuxCo

7 GSK NcwLuxCo will have its registered office and its central adm in istration inLuxembourg. The sha reholder' s meetings as well as th e meetings of the board ofdirect ors will be phys ically held in Luxembourg on a regular basis. Furth erm ore,bookkeeping and archives will be kept in Luxembourg. s a result,GSK NewLuxCo will be considered as Luxembo ur g tax resident in accordancewith article 1 59 of the Luxembourg Income Tax Law (hereafter referred to asLITL ) . Co nsequently, a tax residency certificate can be requested for and granted

to GSK NewL uxCo in the future.

B.2 Functional currency

8 Given that the majority of the asset s and liabili tie s, as well as the underlyinginvestment s, of GSK NewLux Co and GSKIL are denominated in GBP,GSK NcwLuxCo and GSKIL will be allowed to use GBP as functional cur rency fortax purposes. This implies that the tax returns will be established on the basis of theGBP-dcnominated yearly net profit s con verted into EUR by using the year -endEUR/GBP market rate.

9 GSKIL currently uses a USD tax functional currency. The change from USO toGBP as the functio nal currency for tax purposes will not have any Luxembourg tax

consequences since GS KIL is already using a tax functional currency .

B 3 Qualification of the ZCCBs issued by GSK NewLuxCo as debt for L uxembourgtax purposes

I 0 s described in mo re details in Append ix 4, the main characteristics of the ZCCBswill be as fo llows:

a . no profit-re lated return,b no voting rights,c privileged ranking over the share capital,

d no rights in the profits or liquid at ion surp lu s of the issuer,e sho rt tc1m ([2 years] maturity)

11 Based on the above, the ZCCBs are to be tr eated as debt f .)f Luxembourg taxpurposes.

B.4 Lending activity financed y the ZCCBs

12 In course of January 2010, GSK NewLuxCo will issue ZCCBs to GSKIL with aGBP 6 .25bn subscr iptio n price in exchange for th e GBP 6 .25bn loan receivabletowards GSK Fin.

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3 GSK NewLuxCo wiJJ hold an interest bearing receivable against GSK Fin in theamount of approximately GBP 6.25bn. Interest charges will accrue yearly (throughamortization of the ZCCBs) at the level of GSK NewLuxCo but will only beincurred upon conversion of the ZCCBs.

14 GSK NewLuxCo will therefore be in a lending activity financed by borrowings foran amount of approximately GBP 6.25bn . As noted above, the exact amount willonly be known at the time the transaction takes place.

5 In view of facts described above, GSK NewLuxCo will bear a very limited risk onthis financing activity . Therefore, provided GSK NewLuxCo would be in a lendingactivity financed by borrowings in an amount of at least the GBP equivalent ofEUR 6.25bn , a minimum gross margin of 1/64 p.a. of the total principal amountin the financing activities of GSK NewLuxCo would be considered to be anappropriate and acceptable profit with respect of article 164 LITL.

16 However, i f GSK NewLuxCo was in a lending activity financed by bo1Towings foran amount below the GBP equivalent of EUR 6 .25bn, a minimum gross margin of1/32 p.a. of the total principal amount in the financing activities ofGSK NewLuxCo would be considered to be an appropriate and acceptable profitwith respect of article 164 LITL.

7 The GBP/EUR foreign exchange rate that will be relevan t in determining the EURequivalent of the GBP 6.25bn receivable held by GSK NewLuxCo will be the one

applicable at the time the contemplated transaction takes place (i.e., rate applicablewhen step 4 is implemented).

18 The margin will be subject to corporate income tax and municipal business tax inthe hands of GSK NewLuxCo. In case the taxable commercial profits ofGSK NewLuxCo would exceed this minimum margin, they would be subject to taxon said higher taxable basis . On the contrary , in case the commercial profits ofGSK NewLuxCo would be lower than the minimum margin described above , thismargin should still be subject to tax .

9 Finally, the margin as described above is to be understood as a gross margin.Therefore, reasonable expenses incurred by GSK NewLuxCo will be deductible forLuxembourg tax purposes from this taxable spread .

20 For net wealth tax purposes, since the receivable and debt of GSK NewLuxCo willmatch in value , there will be no impact on the unitary computation. The taxablebasis for the net wealth tax would therefore be constituted by the taxable profit (i.e.,the margin) realized for tax purposes over the years if not distributed or reinvestedin exempt assets).

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B.S Tax t r eatm ent in the hands of GSKIL

- Over the life of the ZCCBs

2 From an accounting point of view, the ZCCBs will continue to be recognized atcost over the term of the ZCCBs in the hands of GSKIL, on the basis that the loannote carries a zero coupon. Therefore, no interest will arise to the holder under thetenn of the ZCCBs.

22 Since tax treatment fo llows accounting treatment according to article 40 LITL, noincome will be recognized in the hands of GSKlL from a Luxembourg tax point ofview over the life of the ZCCBs.

- At the time of the ZCCBs conversion

23 At the level of OS KIL, the conversion of the ZCCBs into shares will be carried outeither at market or at book value from an accounting point of view. The accountingtreatment is yet to be confinned . This implies that a profit might be recognized byOSKlL upon conversion of the ZCCBs.

24 from a tax point of view, and irrespective of the accounting treatment applied, theconversion of the ZCCBs will be carried out at book va lue based on article 22bisLITL

no gain will be realized and thus no taxation will arise at the level ofOSKJL upon the ZCCBs conversion;

there will be a roll-over of the holding period on OSK NewLuxCo sparticipation at the level of GSKIL.

25 Therefore, the conversion of the ZCCBs will be tax neutral at the level of OSKIL.ln computing the holding period for participation exempt ion purposes, the shares ofOSK NewLuxCo, issued to GSKlL upon conversion, will be deemed to have beenacquired by OSKIL at the date of subscription of the ZCCBs. The anti-abuseprovision related to article 22bis LITL included in the Grand Ducal Decree dated2 December 200 I should not apply as GSKIL exchanged a bond with participationand not a non-qualifying participation for a qualifying participation.

26 According to the terms of the ZCCBs, in case the value of OSK New Lux Co shareswould have dropped in value prior to conversion , OSK.IL would have the option toredeem the ZCCBs for nominal value. In this situation, the repayment wouldconstitute a balance sheet entry at the level of OS KIL, without further tax impact.

27 On the other hand , it would imply that the interest expenses accrued byOSK NewLuxCo would be written-back, thus generating a taxable income.Nevertheless, this taxab le income should be decreased by any expenses booked in

OSK NcwLuxCo s accounts, generated by decrease in value of OSK NewLuxCo sassets.

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B 6 et Wealth Tax

28 Further to the above described transaction (sec point A.2), GSKIL s functionalcurrency will be denominated in GBP.

29 The contemplated change o f functional currency from USD to GBP will entail acorresponding change o f function currency from USO to GBP at the level o f theexisting llish non-trading branch o f GS KIL.

30 Additionally, the interest free receivable between GSKIL and its Irish non-tradingbranch will be rcdcnominatcd from lObn USD to approximately 6.25bn GBP.

We remain at your disposal should you need any further info ation and would like to

thank you for the attent ion that you will give to our letter.

Yours sincere y,

: 1 J ~Jeraldine PiatPartner

Appendices

Appendix :Appendix 2:Appendix 3:

Description o f GlaxoSmithKline GroupRestructuring stepsCharacteristics o f the Zero Coupon Convertible Bonds

This tax agreement is b sed on the facts as presented to Pri cew aterhouseCoop ers Si1rf s the date the advice wasgiven. The agreement is dependent on specific facts nd circ11111sta11ces and m y 11 1 be appr opriate to any p rty otherthan the one for which it was prepared. This tax agreemetll was prepared with only 1he imeres1 1 o GlaxoSmithKline Piein mind. nd was not planned or carried out in contemplation o f any use by ny other r ~y PricewaterliouseCoopers

Sari, its partners . employees nd or agents, neither owe nor accepl ny duty o care or an y responsibilily o any 01/ier

party, whether in contract or in fort (including withou l /imitation, negligence or breach o s1at11tory duty) ho weverarising. and shall no be liable in respect o any loss. damage or x p e n ~ eo whatev er nat11re 1vhich is caused 10 an y ot herparty.

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Append ix

Description o GlaxoS mithKline grou p

OSK is a world leading research-based pharmaceutical company .

2 Headquartered in the UK with operations based in many countries of th worldincluding the US, GSK group is one of the industry leaders, with an estimatedseven per cent of the world s phannaceutical market.

3 GSK was formed on 27 December 2000 by the merger between Glaxo Wellcomeand SmithKlinc Beecham Groups. The Group has been present in Luxembourgsince 1999 through the company, SK (International (Luxembourg) SA, formerlycalled SB International (Luxembourg) SA.

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Appendix

Restructuring steps

Step : A new Luxembourg company is set-up as a sister company of GS KIL ( GSKNewLuxCo ) . This company will be incorporated under the form of a Sari with a GBPshare capital and will be named GlaxoSmithKline Holding (Luxembourg) Sari. It will holdits accounts in GBP.

Step 2: Setfirt Ltd will contribute a GBP 2bn loan receivable from GSK UKNcwCo toSK NewLuxCo in exchange for shares, which will in its tum contribute the GBP 2bn

receivable from SK UKNewCo to SK UKNewCo in exchange for shares.

Step 3: Effective January 2010 reffective date yet to be determinedl, the USD 10bncommercial paper held by GSKIL towards SK Finance will mature.

On the same day, GSKIL will convert its functional cun-ency and its share capital fromUSD to GBP ( i.e. conversion of all its assets and liabilities to GBP). Additionally , themoney received upon maturity of the Commercial Paper will be lent to GSK Finance i.e.approx . GBP 6.25bn.

Step 4: SK NewLuxCo will issue a Zero Coupon Convertible Bonds ( ZCCBs ) toGSKJL in exchange for the existing GBP 6.25bn loan receivable .

At maturity of the ZCCBs, GSKIL will receive shares in GSK NcwLuxCo unless OSKNewLuxCo shares have dropped in value: in such a case, GSKIL could ask for repaymentof the ZCCBs for nominal value.

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Appendix 3

C haracteri stics of the Zero Coupon Convertible Bonds

C urrenc y: GBP (Great Britain Pound).

Amount of Subscr iption : [G BP 6,000,000,000 (six billion Great Britain Pounds)].

Type of Securities : zero coupon convertible registered bonds.

Series of ZCCBs:

l [I] Series l Zero-Cou pon Convertible Bo nds with a nominal value of[GBP I 000,000,000] each;

2. l1] Series 2 Zero -Co upon Convert ibl e Bonds with a nom inal value of[GBP l ,000,000 ,000] each;

3. [1] Series 3 Zero-Coupon Convert ibl e Bonds with a nominal value of[GBP 1,000,000,000] each;

4. [1] Series 4 Zero-Coupon Convertib le Bonds with a nominal value of[GBP 1,000,000 ,000] each;

5. [l] Series 5 Zero-Co upon Convertib le Bonds with a nominal value of[GBP I 000,000 ,000] each;

6 rt] Series 6 Zero -Co upon Convertible Bonds with a nomi nal va lu e of[GB l ,000,000,000] each.

Tra ding and offering : at the date of issue, the ZCC Bs are not and are not intended to beat any mo men t in the futur e quoted, listed, traded or dealt in anys tock exchange, over the counter market or other sec uri tiesmarket.

Transfer restrictio ns: the ZCCBs shall not be transferred , except with the priorconsent of the shareh older(s) of the Issuer.

lssue Da te: [l January 20 101

Maturity Dat e: [2 years from the Issue Date].

lssuc price : the ZCC Bs shall be issued in aggregate for [GB 6,000,000,000],which shall be pa id in full on or prior to the Issue Date in kind,by transfer, from the Subscriber to the Issuer , of a loanreceivab le held aga inst GSK Finance Pie of a total amount oflG BP 6,000,000,000] (the Loa n ) .

C onversion At maturit y:at Maturity Date , each series of ZCCBs will be converted into[ . . . ] shares of the Issuer, each having a pa r val ue of GBP [ . . ].

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Redemption

Early conversion prior to Maturity Date:in the event that there is any change in applicable law,regulation, treaty, policy, tax or accountancy rules or applicationthereof, to the extent that there is a matetial adverse change foreither the Subscriber, the bondholder's group , the Issuer or theIssuer's group, either the Issuer or the Subscriber may givewritten notice to the other to terminate all (and not some only)outstanding ZCCBs with immediate effect (the Tcnnination ).ln case of termination, the number of shares to be issued (theTermination Shares ) shall be calculated by application of the

following Termination Conversion Ratio:

[Tennination Sha res = (number of outstanding ZCCBs of therelated Series) ([X]) x number of calendar days elapsed sincethe Issue Date Y)

In the above fomrnla:

X shall correspond to the difference between thenumber of ordinary shares to be issued at MaturityDate and initial number of ZCCBs of the relatedSeries; and

Y shall correspond to the calendar dayscorresponding to the lapse of time between Issue Dateand Maturity Date.l

Optional redemption at Maturity:

the Subscriber may by notice to be sent to the Issuer request theredemption of the then outstanding ZCCBs, the Issuer shouldtherefore in this hypothesis redeem all (but not some) of the thenoutstanding ZCCBs at nominal value. The Issuer may elect torepay the nominal value of the ZCCBs either in cash or by there-assignment of the Loan to the Subscriber.

Redemption in case of Distressed Situation:

the Subscriber should be entitlcd to be redeemed any and alloutstanding ZCCBs at nominal value if any of the followingevents occurs , in which case the Issuer may elect to repay thenominal value of the ZCCBs either in cash or by the reassignment of the Loan to the Subscriber:

a any voluntary or involuntary liquidation, dissolution orwinding up of he affairs of the Issuer; or

b the cessation by the Issuer of payment of its debts or ofcarrying on of its business of the threat by the Issuer to stoppayment of its debts, or to carry on its business; or

c) the appointment of a receiver, administrative receiver orsimilar official in respect of the whole or a substantial part ofthe undertaking and assets of the Issuer; or

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d any distress or execution (or similar process) is levied uponor enforced against all or a substantial part of the assets orproperty of the Issuer and is not fully paid out or discharged

within fifteen days; or

c any process or event with an effect analogous to any of hoserefeITed to in the below paragraphs (c) and (d) (inclusive)happens to the lssuer in a jurisdiction outside Luxembourg,provided that a written demand specifying the event 1sreceived by the Issuer while the event is continuing,

Redemption upon an Event of Default:

the Subscriber may ask for the redemption of any ZCCBs atnominal value if no remedy 15 days after notification of failureby the issuer to comply with any of its obligations related to theZCCBs and i f such failure is materially prejudicial to theSubsc1iber. The Issuer may elect to repay the nominal value ofthe ZCCBs either in cash or by the re-assignment of the Loan tothe Subscriber.

Redemption upon Termination:

in case of Termination, the Subscriber may send a notice to thelssuer asking for the redemption of all (and not some only)

outstanding ZCCBs at nominal value (less any applicable taxes).The Issuer may elect to repay the nominal value of the ZCCBseither in cash or by the re-assi ,'11ment of the Loan to theSubscriber.

Mortgage the ZCCBs are secured by way of mortgage of the Loanpursuant to a mortgage agreement entered into by and betweenthe Issuer as m011gagor and the Subscriber as mortgagee dated[.] and governed by English law .

Conditions Precedent The Parties having signed, delivered and executed the

Subscription Agreement.

The approval by the shareholders of GlaxoSmithKline Holding(Luxembourg) Sarl of the ZCCBs Issue.

The approval by the board of managers/directors of both thelssuer and the Subscriber of the entering into the presentSubscription Agreement and the transaction contemplatedtherein.

The approval by the board of directors of the Subscriber of theassignment to the Issuer of all its rights, title and interest in andunder the Loan Agreement amounting to the value of six billionGreat Britain Pound (GBP [6,000,000,000] m exchange forZCCBs for the same notional amount.

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L GOUVERNEMENT

U GRAND DUCHE E LUXEMBOURG

Administrat ion des contribu tions directes

Bureau d imposition

Soc ietes 6

or the attention of Mrs era ldin e Piat

Pr icewaterhous eCoo per s400, route d EschB.P. 1443L 1014 Luxembourg

Companies involved:

- GlaxoSmithKline International (Luxembourg) S .A 2 1 2203 870- GlaxoSmithKline Hold ing (Luxemb ourg) S.a r.I. in the process of incorporat ion

11 November 2009

Dear Sir,

Further to your letter dated 11 November 2009 and reference SELL/G8409003M-GPI relating to

the transact ions that the group GlaxoSmithKline would like to conduct, I find the contents of saidletter to be in compliance with cur rent tax legis lation and administrative practice.

It is understood that my above confirmation may only be used within the framework of thetransactions contemplated by the ab oveme ntioned lette r and that the principles described inyour letter shall not apply ipso facto to othe r situations.

18, rue du Fort Wedell

Luxe mbourg

Tel.: (352) 40.800-3118

Fa x: (352) 40 .800-3100

Adresse postale

L-2982 Luxembourg

\

Site Internet

www. impotsdirects.pub lic.iu


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Accord Tax Ruling entre Glaxosmithkline et le Luxembourg - 2009

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